The Dilemma of Real Estate: Buy, Sell, or Rent?

Sometimes we have control in our lives.  Sometimes, it’s only “perceived” control. I’ll give you an example.

I moved to Tampa, Florida in 2005, at the height of the real estate bubble. At Dent Research we’d been talking about a top in the real estate market around 2004 to 2005, based on demographic cycles.

We were so convinced that Harry Dent sold his home in Miami in 2003 and rented. You would think that on moving to Tampa I would’ve rented as well, given what I do for a living and what our research suggested… but that wasn’t the case.

When I moved I had to deal with three kids in school, so the school district was paramount. In the school district we chose, there was nothing but townhouses and apartments for rent, and few homes for sale.

We ended up buying a home, but one more modest than we might have chosen because of our forecasts. This turnrned out to be a good idea.

While I did lose money when we sold our first home in Tampa, I didn’t lose as much as I would have if we’d purchased a bigger, more expensive home.

It turnrns out that many public schools in Florida are lacking, so we ended up sending our kids to private high schools.  We moved to a second home in Tampa to be closer to their new schools.

Which means I got the pleasure of buying a home instead of renting as our research suggested, and then losing money on the house as well as paying private school tuition.  This definitely falls in the category of “perceived” control.

And it gets better.

When we moved closer to downtown, we were happy renters… for about a month.  Then I was informed by my lovely wife that we would be buying a home so that we could paint, renovate, etc. to make it our own.  I now own a different home in Tampa.

Real estate can be very personal. 

On paper, I can make a great case for renting and not owning.  But every day we have to live with the decision, including relying on others to fix things, not having the exact appliances and trim we want, and knowing that the rent can change at the end of the lease or the owner can simply choose not to renew at all.

So while our research suggests that people should not hold real estate right now because it’s due for another downturnrn, we try to remind people that not all financial decisions are unemotional.  There can be many other factors to consider, like harmony in the home.

And then there’s investment property.

After many a speech I’ve had people come up and ask: “What about my property in (enter cool location here)?”

They heard our words that property should be sold, but they didn’t pay attention to the nuance.  If investors — like homeowners — have reason to sell in the next couple of years, then we suggest they sell sooner rather than waiting.

The market has rebounded, but housing hasn’t run-up dramatically during this tepid recovery.  When the economy rolls back over, potential real estate buyers will disappear in an instant.

It seems that many people learnrned their lesson during the last housing bust — real estate can be very illiquid, so no one wants to get stuck with it.

But if there is no impending reason to sell the property in the next few years, as long as you’re earnrning decent cash flow, there’s no reason to let go of it.  In fact, there’s probably a great reason to hang onto it — what will you purchase with the proceeds that provides the same sort of income?

This dilemma has to be considered.  Bond yields are exceptionally low, dividend stocks are expensive, and bank products pay nothing.  Rent-producing properties are a good way to ride out the economic winter, since the tough economic times create even more renters as previous homeowners either don’t want to purchase another home or can’t.

In the meantime, young, would-be homeowners aren’t yet able to buy.

Given the appreciation in home prices over the past several years, now is not a great time to buy a rental property… but that doesn’t mean existing holdings must be sold.

At least in this area of real estate investing, the decisions are typically less emotional, so you can have real control over the outcome.

Image RJ sig