Rehabbing primary residence for sell or rent.

[Robert Farris]

Hi all,

I'm new and would like to rehab my primary residence and afterwards, either sell it or rent it out.

How do I figure out if it's more profitable to sell or rent?

Who should I contact or where should I start?

I've searched and read many discussions here but I'm still not clear how to move on this.

Any help would be appreciated.

-Bob

[Nick Baldo]

@Robert Farris,

To determine which approach is more "profitable", you will want to look at your Internal Rate of Return. Overtime, it is probable that renting the property would provide more "profit". That is, you will make more than you put in. However, you must take into consideration the time value of money. 

For example, let's say that rehabbing your house and selling it will give you a net profit of $20,000 over the course of one year (You sell the house for $20,000 more than your Purchase + Rehab + Closing Costs + Holding Costs). Now compare that profit with the potential to rent the house out and make ~$4,000 per year. On the surface, it seems that renting the house out will become "more profitable" than selling after year 5. However, take into consideration how you might be able to use that $20,000 profit. You could use it as a down payment on another house...hence taking advantage of leverage. 

To complete this analysis, you need to understand your opportunity cost of capital . That is, what rate of return can you expect to gain on your money. Renting the house out will force you to "wait" for your profits. 

Do you have any real numbers as to how profitable you expect each approach to be? We can then use an assumed "discount" rate to try to figure out which approach makes more sense.