Dennis Isong
The decision of either buying out or renting a property is one that every real estate investor has to square up with on a regular basis. It is a choice that has to be made before initiating a bargain for a property put up for sale. You would also need to decide on either giving up your property in an outright sale or putting it up for rent when the property is due for occupation.
As the seller or buyer, the decision to rent or purchase a property is of consequence to an investment. Getting it right in this key business decision would lead to improved turnovers, and several other significant benefits. Should we buy/sell properties or should we rent/lease them? Let discuss this from both perspectives.
Outlook of the Buyer
A real estate investor who chooses to rent an available property rather than go for an outright purchase would glory him/herself in just the little to no responsibility he/she would be made to bear. He/she would be subjected to no burden of having to perform periodic maintenance on the property, and that saves him/her a substantial sum of money in the long run. Additionally, some other expenses like the cost of insurance and taxes would easily be avoided if a property is rented.
Properties appreciate over time, however, they could easily lose their value depending on the changes around the environment in which they are sited. Factors like an inflow or outflow of businesses and/or development to an environment influences the value of real estate around it. Demand and supply also influence the value of a property, and the depreciation or appreciation of such properties is of no concern to a tenant, being that he/she has no ownership right over the assets.
Real estate investors looking to acquire outright ownership right over a property by purchasing them would enjoy the equity gained by such property over time. If such property isn’t mortgaged, the purchase of it would bring about turnovers when its value appreciates with time. Additionally, outright ownership of properties brings a sense of stability and security to the owner. He/she faces no risk of impromptu increases in rent and other fees by the owner.
If real estate investors are guaranteed stability when they make an outright purchase of a property, there’s no certainty that the value of the building would remain the same or, in some cases, fail to depreciate with time. When such happens, the investment suffers.
Furthermore, there’s no flexibility accompanying ownership of a property. Preference of property purchase rather than renting would make one become lodged at a particular location or get someone under his/her employ to look out for such property. This is clearly avoidable with a rented property because the investor towing this part could easily discontinue his/her tenancy of such property, and obtain another in a favourable environment.
A property is worthy of outright purchase if it could appreciate with time. Although outright purchase requires quite a substantial sum of money, it is worth the risk if there’s a possibility of appreciation. The 1% rule defines that a bought property is worthy if it could be rented at more than 1% of the acquisition cost monthly. The acquisition cost consists of all the expenses made on a purchased property including the cost of purchase.
From a buyer’s outlook, considering the above deductions, a property is worth a tenancy if the worth of it could be cultivated by the investor within the period of rent. It is needless to rent a property that wouldn’t fetch you profits upon the insecurity and inflexibilities involved.
Outlook of the Seller
A seller also faces the decision of whether to get a property rented or sold out. And the factors supporting either of the decisions should be what motivates his/her final decision, rather than intuition.
A real estate investor should always monitor the trends in the economy and be of fore knowledge of the value of his/her property overtime before either selling or renting it. Therefore, the decision to put it for outright sale should be due to a possible dip in turnover in the future.
Another justification in putting a real estate to sale is if the proceeds from such sale are used for an advantageous investment elsewhere. This should be done after considering all other available funding sources.
Outright purchase of a property, from a buyer’s perspective, is always advantageous than obtaining it under rent. Purchase and the subsequent lease wouldn’t only get you a consistent income, but with efficient management, the property’s worth would appreciate. Renting a property, from a buyer’s perspective, should be made only if the property shows the potential of returning more value than what it’s being periodically paid for.
From a seller’s perspective, the sale of real estate should be made only when such property depreciates or shows signs of depreciating with time. Again, real estate should only be sold to invest in another business that is more lucrative. As the seller of real estate, the proceeds from its rent would only be assured if it is let on rent rather than an outright sale. For a buyer, it is worthwhile to purchase a property than to obtain it under tenancy, but as a seller, the lease of such property is of more advantage than an outright sale.
