While I am a Certified Public Accountant, there is a strong desire for me to want to offer financial advice. However, I always make it clear that my services are offered in the capacity of a Real Estate transaction, and the client should seek out the council of a trusted financial advisor. And furthermore, since every person or family’s financial and tax situation is different from the next person, blanket advice does not always apply equally.
First though, the glamour and excitement of becoming a “Real Estate investor” seems appealing to many. However, to be successful, it has to be operated as a business, and not so much with the casual approach of a hobby. Becoming a landlord imposes additional burdens and responsibilities that sometimes go beyond the part-time intended involvement. Second, many home owners today seem to be of majority opinion that waiting for the market to rebound will enable them to recovery their equity losses, and yet, most also agree that the market will not regain for several more years.
So … back to the question, to sell or convert your home as a rental property. Oh, but wait – what about a few general considerations. According to one source that I found to be reliable, the home values in San Diego county have declined an average aggregate of 31% over the last five years since 2005. Everyone you speak to these days has their own speculations about when and by how much the Real Estate market will recover. Let’s face it, and at the same time consider your views on the following statement. The recovery of Real Estate is also directly linked to the availability of, and interest rates of money, jobs recovery, supply and demand of housing, and consumer confidence. But, nonetheless, is the Real Estate market likely to rise by 45% from this point? – that is about what will be required to return to the valuation point prior to the stated 31% loss. Most buyers who I speak to, tell me that they are still waiting to see the bottom in the market before they make their purchasing decision. So, now what do we have? We have a serious gap between the minds and thoughts of the seller and the buyer (otherwise known as the marketplace). Mr. and Ms. Seller - panic buying of yesteryear may not return for many more years to come. The Real Estate market is more likely to “normalize” and become more consistent and predictable before it will “go vertical”.
The next point is one that requires great personal integrity – and that is, we have to be honest with ourselves. Sit down with a pen, paper, and calculator. List down all of the expenses associated with the liability of your home, such as monthly mortgage payment on the loan(s), property taxes and insurances, and any HOA or other maintenance fees. Then, after some due diligent research of rental rates in your community, compare the rental income expected (cash in) against the expenses to carry the investment of the home (cash out), and determine any shortfall or excess. If your situation is like the majority of people, you will notice that the monthly dollars cash out exceeds the monthly dollars cash in, or in other words, you are losing more, and more, and more money. If the Real Estate market remains flat for example, and you are losing say $1,000 per month because of your net cash outlay – what does that tell you about your decision to convert your home into rental property (let’s avoid any discussion of depreciation and future cost basis adjustment for tax purposes). Oh yeah, and by-the-way, you may want to consider that in reality, your home may remain vacant for several weeks or even months while you search for a tenant, and then thereafter while you perform repairs during the turn-over period in between lease agreements.
So often what we encounter is the battle between logic, and emotion. The logic and facts generally bear witness in support of selling the house and walking away, and yet the emotional side causes us to clutch on to the shadow of a hope that some miracle or wonder will appear from nowhere and provide us with relief.
Take the time to think it over. When you decide to sell your house, and your motivation to do so is high, contact me, and I will discuss my action plan to list your home and help you to move onward.
Our goal is to help and guide people to buy and sell San Diego Homes: Contact us soon - and let us apply for the job of being your Real Estate agent.
Charles M. Schevker (CPA)
DRE # 01875556
Broker Associate
Prudential California Realty
Charles M. Schevker (CPA)
DRE # 01875556
Broker Associate
Prudential California Realty
Sattelite Office:(858) 437-8400 ext. 248
Home Office: (858) 750-2578
Home Office: (858) 750-2578
Mobile: (858) 449-8250
1299 Prospect St.
La Jolla, CA. 92037
1299 Prospect St.
La Jolla, CA. 92037
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