Around two-thirds of our clients own a single rental property with us. Due to the makeup of our client base, new prospective clients often ask, “should I sell the house or rent it out?” It’s a great question that should be answered with complete data, not opinions. The problem is that most general real estate agents will suggest selling over renting for two reasons: (1) they don’t understand how to financially compare the two options, and (2) they will get a nice commission if you sell with them now. If an agent suggests that you sell versus rent, ask them to explain their opinion.
There’s another problem, this is not a cut and dry question because some houses just don’t perform well as rentals. Those of us who specialize in property management can attest to that. Let’s take a look at some examples.
How is the 4,000 square foot custom home, on an acreage lot, 35 minutes from the nearest grocery store going to perform as a rental? It’s a huge house; that quickly narrows the potential tenant pool. It’s a custom home, which likely increases the rent rate per square foot. It’s on an acreage lot—does a renter have a riding lawn mower? It’s out in the country, do most renters want to commute that far? This property has such a narrow tenant pool that it’s hard to rent. A property that is hard to rent stays vacant longer, reducing cash flow.
What about the 2,000 square foot builder’s special, on less than a tenth of an acre, in a busy area? It’s a home near all the places people need to be. It’s a home that fulfills a lot of individual and family needs. These are the properties that typically rent well. These typically provide shorter vacancy periods, therefore more opportunities to be income-producing.
Back to the question and how it should be answered… REALTORS® are fiduciaries, meaning we have to put your interest before our own. If your agent is thinking about the commission they’ll make when selling your house before considering what your financial position would be, it may be a violation of the REALTOR® Code of Ethics. Now, we’re not financial advisors—we can’t tell you what to do—but we can show you some numbers so that you, as the property owner can make your own, informed decision.
So, you decide to rent your house out, where do you go for property management? In Texas, the only requirement to perform property management functions is a broker authorizing it (and a trust account, but that’s another topic). There’s no requirement for experience, education, or designations. Seriously, you could get your real estate license tomorrow, join a broker who will allow you to do property management (with a trust account), and start managing someone’s home. That’s scary—and it happens.
Where do you turn? Your agent may work for a brokerage who also happens to do property management. But, what does that brokerage specialize in, sales or management? Typically, the big name brokerages conveniently have a property management office bolted on the side for two reasons: (1) management fees are consistent monthly revenue, and (2) they really want the eventual sales commission. What you really want is a brokerage who specializes in property management.
There are many of these specialty brokerages to choose from. Some are one or two people, others are an entire fleet of people. Some have only been around for a few years, while others have been around for 35+ years. Some manage a few hundred properties, others manage a couple thousand. Some built their business from the ground up, others bought a franchise and a procedure manual. The bottom line is that you need to hire the best brokerage for you and your property.