With home values rising in many markets, it is not hard to see why a lot of people would want to sell their property. However, there is a lot more that goes into selling a home than rising prices. It is safe to say that selling a home is not an exact science, but rather a culmination of several factors. Just when you think you know everything, something will change. Before you know it, the market is completely different. All you can really do is make a decision predicated on the numbers in front of you at the time. Deciding on whether or not to sell your home usually has more to do with your business than the actual market. If you are on the fence, here are a few pros and cons that should make your decision easier:
Points for holding a property:
- Cash flow: Even though home values are on the rise, it may not be enough to make a significant impact on your bottom line. After all the closing costs and other expenses, your bottom line may not be as great as you initially thought. If this is the case, why not hang on to the property and continue to earn cash flow every month. Rising home prices can lead to higher rental demand. This will only serve to make your rental property more attractive and increase your monthly cash flow. Owning a rental property does have its share of expenses, but the rewards are often greater. By ignoring the short term rewards of selling and looking at the future, there may be a bigger pot of gold down the road.
- Risking markets. There is no question that the real estate market has grown over the last five to seven years. Much of your decision to sell will be based on when you bought and how much equity you have. You should also have an eye on where you think your market may be headed. Predicting the market is often a fruitless exercise, but that doesn’t mean you should ignore the trends in front of you. Many markets are trending upwards, and it would be foolish to sell in a rising market. Take a look at your area, and determine for yourself where you think things are headed. If you can hold on for a few months, or even years, you may be better served waiting to get the peak sales price.
- Expenses: Think about all of the expenses you incurred when you purchased the property. Expenses will be just as high, if not higher, when it comes time to sell. Between real estate commission, taxes and other closing costs, you will easily be looking at thousands of extra dollars. This will eat away at your bottom line. These numbers need to be accounted for if you are considering selling. In waiting a few extra months, you may be able to sell for a higher price. In doing so, you could offset the expenses. When all is said and done, the expenses can make you think twice about selling.
Points for selling a property:
- Cash out now and move on: If you are going to use the profits to grow your business, now may be a great time to sell. Playing the market game can be a tricky proposition. You may be able to get a higher price in the spring, but what if you don’t? There is something to be said for taking what you have, and moving on. The profits you make on your sale can be turned into other properties, or into something that helps you generate future business. In waiting for the right time to sell, you run the risk of never getting back what is currently on the table.
- Rental property costs: Every month you hold the property, you run the risk of something happening to it. This has to be a consideration if your property is getting old, or if there are repairs needed in the future. A busted furnace can completely change the value of your property. Additionally, there are several other costs associated with a rental property that may be why you are considering selling in the first place. If the property becomes too much of a burden at some point, you should take what you can get and move on.
- Market changes: Changes in interest rates or loan programs could change the level of buyer demand. This could have a trickle-down effect and lower home values across the board. Will this happen? Probably not any time soon, but there is always the chance that it can. If you are comfortable with the list price and the projected bottom line, you should not wait for the market. It is always important to watch the bottom line, but it is not worth holding out for the maximum sales price most of the time.
Where the market stands should be a factor in selling, but never the ultimate consideration. Walking away from a property with a solid profit now may come back to haunt you if things change. Before you put your home on the market, you should have a reason for doing so. Where your market is should be just one of a series of items that helps determine your decision. With every sale you make, you want to feel comfortable that you will have no regrets five years down the road. It is tempting to cash out while your market is hot, but that may not always be the best thing to do.
