Fixer-uppers can be lucrative investments, as you can either flip them for a profit or rent them out as ongoing investment properties. If you are new to the game, however, you may wonder which route is better — to sell or rent. While there is no right or wrong answer, there is an answer that is best for your particular situation. Below, Jordan-Link & Co. shares a few considerations to make to determine whether you should rent out your newly remodeled home or sell it.
The Key Consideration Before You Begin Work on the Home
Ideally, you will have a clear idea of what you plan to do with your fixer-upper before working on it. While not necessary, planning can help guide your decisions and prevent costly mistakes. For instance, if you decide to rent out your home, you don’t necessarily have to invest in top-of-the-line fixtures or finishes. Instead, you can invest in midgrade or budget items, as chances are you will end up having to replace them down the line anyway. However, if you plan to sell, you will need to remodel for your target market. Moreover, you will need to plan your remodel based on the home’s style and age.
For instance, say you own a historic home. If you plan to remodel it for resale, you need to bear in mind that original finishes and fixtures are likely to be the home’s primary selling points. If you remove these age-defining features, you may accidentally detract from the home’s resale value. To avoid making this costly mistake, determine what you want to do with the house before you begin any work.
The Rental Economy vs. the Housing Market
A top consideration when deciding whether to flip your fixer-upper or rent it out is how much profit you stand to make going either route. In the Visalia-Porterville region, the median rent price on a two-bedroom apartment is $1,005 per month. For a three-bedroom, you can reasonably charge $1,401, and for a four-bedroom, $1,638 per month.
Homes in Visalia sell for $375,000 on average. How much you can get for your newly remodeled fixer-upper depends on several factors. However, know that most first-time flippers make between 10% to 15% profit on their flips, which equates to approximately $25,000.
The upfront math tells you that renting out your flip makes the most financial sense. However, being a landlord comes with several ongoing responsibilities and costs that many people don’t consider until it’s too late.
The Ongoing Responsibilities of Being a Landlord
As a California landlord, you have several legal responsibilities to maintain your property so that it is safe and habitable for current and future tenants. Meeting those legal requirements alone can cost you significant cash on an ongoing basis. However, you will still have to invest in routine maintenance and upkeep. Examples of common landlord responsibilities include mold remediation, pest removal, security management, and landscaping. You could hire a property manager and other professionals to help shoulder the burden of many of these tasks, but bear in mind that doing so will increase your costs and add one more to-do to your list, which is managing all personnel.
If you plan to invest in a fixer-upper, think ahead about how you will turn a profit. To make the most informed decision, consider the rental economy, housing market, and ongoing costs associated with being a landlord.