3 Variables That Decide If You Should Sell or Rent
Most people look at cash flow and stop there. The full picture takes three variables, and the math catches people off guard.
If you’re sitting on a property and trying to figure out whether to keep it as a rental or sell it, the answer probably isn’t what you think. Most people focus on cash flow and make their decision from there. But when you look at the full picture, the math tells a different story.
After 25 years of helping people work through this exact decision, I’ve found it comes down to three variables.
Weigh all three together, and the right move gets a lot clearer.
1. Cash flow is the starting point. Does the property bring in more money than it costs? Income minus expenses. But what people overlook is what goes into the expense side. Factor in about 8% for vacancy, because the home won’t be rented every single month. Another 8% for repairs, the stuff that just happens. Then, property management fees, HOA if you’ve got one, and anything else that carries a cost. Add all that up, and you’re either making money or you’re not. If you’re losing money every month, that’s got to work for you somehow, or the math starts going the wrong direction fast.
2. Neighborhood trajectory matters just as much. Is the property becoming more valuable or less valuable? This really varies across the valley. If you’re near a lot of new construction, builders can keep putting up homes cheaply, and you’re competing against a brand-new product.
Queen Creek, Goodyear, Casa Grande, and Buckeye are where people tend to lose equity right now. Closer in, Phoenix, Mesa, Tempe, Scottsdale, Paradise Valley, you’re probably in better shape. The luxury market tends to follow the stock market, and that’s been running well. But if you’re losing value and losing cash flow at the same time, that’s a combination you don’t want to sit on.
“Sometimes, taking the medicine now is better than dragging it out for years.“
3. Opportunity cost is the one most people skip. If you sold and had equity in hand, what would you do with that money? Put it in an S&P 500 index fund? Use it toward your next home? Do something for your life? It’s not always about the numbers. But when it is, people with low interest rates and moderate equity tend to do better holding. Selling wouldn’t free up enough to beat what the property’s already doing. People with high rates, thin cash flow, or a large pile of equity in a property that’s barely appreciating are usually better off selling. The opportunity cost is just too high.
If you’re underwater, you still have choices. I’m seeing this more often with people who bought in the last couple of years, especially on the outskirts. If you’ve got zero equity or you’d have to write a check to sell, you can take the loss and move on. You can short-sell if you can’t keep making payments. Or you can hold, but only if you can absorb the monthly loss and believe the area will turn around. None of those are pleasant, but sometimes taking the medicine now is better than dragging it out for years.
You’ll land in one of three spots: it makes sense to hold, it makes sense to sell, or you’re underwater and need to weigh some harder choices.
My team and I run a free rent-vs-sell equity calculator that compares holding the property against the S&P 500 over three, five, and ten-year windows.
If you want to see what the numbers look like for your situation, call or text me at 480-378-6700, email me at contact@gluchgroup.com, or visit gluchgroup.com. I’d be happy to run those numbers and help you figure out your best move.
