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Why You Should Turn Your Home Into a Rental Property

Shannon Ives - Wednesday, April 1, 2020
Property Management Blog

Amidst all the current uncertainty and increased fear among buyers and sellers, rest assured that there are still options available that can help you retain cashflow and keep your investment property. As I discussed on a previous post, there should always be exist strategies in place before purchasing a property in preparation for any doubt in the market. Some investors choose a business model that does not adequately prepare for a slowdown. Some of the thoughts out there is that this COVID-19 crisis is just a temporary issue that should clear up soon- but what if it doesn’t? Will your flip become a burden if there’s a loss in demand? Will this dip interfere with your numbers? What if you are in the Short-Term Rental business? What strategy do you have in place when you have 0 bookings in a month or two?

House Flippers and Sellers

If you were in the middle of flipping a home or have a home on the market that has been sitting vacant, you should start looking at your options. Typically, flipped homes demand a premium in rental rates. There are still risks involved with choosing to rent your home but what are your other options?

  1. Keep the property vacant and list it for sale and wait to get a buyer.
  2. If your home has been sitting, you probably already priced it at the very top which means you will need to drop the price. How long will it take to find someone with enough of a down payment or that will qualify with a lender? What are your holding costs? Can you really afford to wait that long?
  3. Refinance and keep as a rental

Does keeping your vacant home on the market, making zero dollars, make sense? Unless you are financing with your own money, you most likely have a high interest rate loan on the property. Find a lender while you still can and refinance into a long-term, lower interest rate loan and hire a property management company that will protect your investment.   

Short Term Rentals

If you are in the Short-Term Rental business, you may have it the worst right now with zero bookings for the next month or two. Some people in this business have mortgages on these investment properties and despite doing very well in the past- what is going to happen to your investment(s) now? Depending on the home and the neighborhood, you may still be able to save yourself from defaulting on any mortgages. Hopefully, you’ve had good bookkeeping in place and have some reserves in the bank that can help keep you afloat for a while. If you are not in that position, then you have a few options as well:

  1. Sell your home and the furniture. If you read the top paragraph you know this may take a while unless you list the property at an attractive price.
  2. You could also consider selling your rental, owner-financed, if your mortgage allows for it. Please do your own research here.
  3. Keep the home as a rental if the numbers make sense

Keeping the home as a rental is the simpler solution. Some things that regular rental portfolio owners look for is a long-term tenant that will stay in the home as long as possible. If you start looking at more long-term options, you can target prospects that only need a 6-month lease or more. This allows you to be more flexible while you wait for the market to turn to your favor. The only concern here is that you have a furnished home – which will add more risk. A vacant home is preferable since you will not be liable if the fridge were to stop functioning etc.

The moral of the story is that it is better to be safe than sorry. You are an investor or homeowner and lowering your costs while increasing cash flow is ideal. This may not be a long-term solution for you but it will at least stop some of the bleeding until there is more certainty.

HomeRiver Group San Antonio is fully staffed and will continue to provide it’s full scope of services to owners, investors, or anyone that is looking to buy. If you are too close to the issue, it helps to have another pair of eyes take a look at the situation and help you come up with a solution. Please reach out with any questions about any of ours services – we are here to help.