Should You Keep That Rental Property?

By John Benedict

Owning real estate is one of the most attractive investments as it provides owners with a steady stream of income and it’s considered “passive.” As a rental property owner, you have likely figured out that being a landlord is anything but passive. The buildings need constant maintenance, grounds must be monitored, and there are always going to be repairs done on fixtures and plumbing. After insurance and taxes are paid, you may realize that the amount of time, effort, and money poured into your rental property does not always outweigh the financial benefits.

If you’re on the fence about whether to sell or hold on to a property, consider the following factors before making any decisions.

Renter Reliability

How your rental property is treated and maintained over time will determine how much work and maintenance expenses must go into it. This is largely determined by the people who occupy your home day in and day out. If your renters are inclined to clean up after themselves, notify you immediately of needed repairs, and keep up the overall premises, then the amount of property maintenance will remain minimal. However, if you have renters who do not clean up after themselves or are at risk of causing major damage, then that could cost you a lot of time and money. 

Look back at your last several renters and see if you can detect any patterns. Do you tend to attract reliable renters, and has the amount of work and maintenance required from you been easy and light? Or have you been prone to finding renters who turn out to be destructive, and disappointing in the end, and is your wallet proof of this? 

What Is Your Real Return on Investment (ROI)?

Just because your renters cut you a check every month does not mean that every dollar you get goes straight into your bank account. Many expenses come with property ownership, and it’s important to take them all into account so you can figure out what your true ROI is. 

Take your monthly rental income and subtract mortgage payments, property insurance, HOA fees, any maintenance or repair expenses, management company fees, and anything else that was spent on your property that month. Next, incorporate the impact of the equity in your property increasing (through paying down principal as well as the property’s appreciation) to the calculation. This will help clarify whether this investment is generating a satisfactory return on investment. 

Repeat this for the last 12 months to get an estimated monthly average over a full-year cycle. Once you have these numbers, you can determine whether or not you’re making money, and if that amount is satisfactory for the amount of responsibility and time you put into it. 

Do the Tax Benefits Still Make Sense?  

As a rental property owner, you have access to a set of unique tax benefits provided by the Internal Revenue Service (IRS). For instance, you have the opportunity to deduct your mortgage interest payments, your property tax insurance, any HOA fees, repair and maintenance expenses, and advertising expenses to recruit tenants. 

There is even a special category called “depreciation” where rental property owners can deduct the estimated annual “wear and tear” of their property. In order to determine whether or not you should keep your rental property, it helps to consider how much you’re saving on taxes in addition to your monthly rental income after expenses. However, if you cannot utilize many of the tax benefits, or the numbers don’t add up, then keeping your rental property may not make sense for you financially. 

At J2 Capital Management, we have a team of in-house CPAs that can help you review the particulars of your situation.

Booming Housing Market

Because of the unique circumstances surrounding the COVID-19 pandemic, now may be a great time to sell a home. Supply-chain issues have made it difficult for homes to get built in the last few years, which has curbed the construction of new homes. A limited supply of homes means there is quite a bit of competition among buyers. This imbalance between supply and demand has caused home values in the U.S. to skyrocket in the last two years. Although home appreciation is starting to slow down, we are still in a seller’s market, which means selling your property to cash in on the appreciation of the last few years could be something worth considering.

Is it Worth It? 

Your time, energy, and money are precious and finite resources that should always be put to good use. If you find that your rental property is giving you the desired boost in income without impeding on your well-being, definitely consider keeping the property. But is your property not yielding the results you would like? Is it causing you stress or headaches? If so, it may be time to consider other investment options. 

This is a big financial move, and as such, it’s wise to enlist the help of an impartial professional to help you put all the pieces together to come to a decision. Our J2 Capital Management team is passionate about helping clients navigate complex decisions and plan for a sound future. We would be more than happy to walk you through the different financial options regarding your rental property and how it fits into your overall plan. Schedule a meeting online or reach out to us at info@j2cmonline.com or 248-641-4444.

About John Benedict

John Benedict is CEO, investment advisor representative, and portfolio manager at J2 Capital Management, a boutique financial advisory firm specializing in in-house custom financial planning, tax, estate, and investment management. With over 20 years of experience, John is passionate about helping clients navigate uncertain markets, reduce risk, and plan for a sound future. John combined his talents and passion in statistics and technical analysis to create J2’s tactical strategies, managing them since the beginning of the organization. He is known for being a visionary and continually looking for ways to improve J2’s services and strategies to better serve his clients. John graduated from Central Michigan University with a degree in business administration and finance, and his thoughts on markets and technical analysis have appeared in The Wall Street Journal, Investment News, and on Moneyshow.com. He was also a contributor to the book The StockTwits Edge: 40 Actionable Trade Set-Ups from Real Market Pros. 

When he’s not working, you can find John boating or participating in water sports and spending time with his wife, Janine, and his three children, Jack, Alexis, and Saraphina. To learn more about John, connect with him on LinkedIn. You can also register for his latest webinar on What Makes J2 Capital Management Different From Other Financial Advisors.