I'm getting a lot of feedback from family members, friends, clients and potential clients about how their property they listed for sale isn't really selling. It’s been on the market for a long time, they're not really getting a lot of offers or serious offers. They keep lowering the price down and they're still not getting what they want or the offers that they want.
Today I'm here to talk to you about three reasons why you might want to consider renting your property that's not really doing well in the sales market. And there's a couple of reasons for that and I'm gonna get to it shortly. My name's Michael McVety. I'm president of Red Fortress Property Management. I've been a landlord and property manager for 25 years here in the Fort Myers and Southwest Florida.
The sales market is slow because there is a lot of uncertainty that's going on right now for a lot of people in the United States.
First of all, it's an election year, so there's always some questions as to what's gonna happen in the future after the election. We have interest rates that everybody's concerned about, whether they're gonna be raised or stay the same or lowered. That obviously has a massive effect. You have inflation and inflation is not going to be stopping unless we make some tough decisions (cut spending as an example) to lower it. Finally, today's economy had some numbers that weren't all that great. So people worry about the economy stalling or not going forward. So there's a lot of confusion and doubt as to what's going on in the future financially. Many people are delaying financial investments when it comes to real estate, especially when it's coming to moving into the area and spending a lot of money.
To back this information up, today the local board of realtors released some information, which I thought was very, very interesting. So, from the vantage point of days on market and how fast things are selling in June of 2022, the average day on the market was 35 days. This means from the time that somebody listed the property to the time that it was either sold or it came off the market was 35 days. Today, in June of 2024, that number more than doubled to over 75 days on market.
So clearly when you hear people saying, “Hey, my property is not selling, I'm not getting as many offers, I have to keep lowering it, and I'm still not doing well with the sales market,“ there are very, very good reasons for it. In addition to all that, when you look at the inventory that's available right now in June of 2024, we have close to 10,000 properties up on the market by realtors in the area. And that's more than the last six years in June, meaning in any time all the way dating back to 2019, 2020, we've never had this many properties up on the market for sale. So there's a good reason why properties are not selling: the financial uncertainty and a lot of the inventory that's creating a soft real estate market.
People with a property for sale on the market right now are either going to sell it for less and it is burning a financial hole in their pocket.
So, given this financial problem that is losing them money daily and probably causing a fair amount of stress in trying to sell their home, have they considered the benefits of turning their property into an annual rental property?
Why would I consider doing it? I'll give you three main reasons right now.
The first is the financial gain, or, you can look at it as minimizing your financial loss too. So let me give you an example. Let's just say that you had a property, it was up for sale, and the total cost you monthly is about $2,500. You have the principle, your taxes, your insurance, the mortgage, it's $2,500.
Let's just say you've been putting it on the market for three months and for three months, you haven't really gone in the offer you want. So over the course of three months, you've lost $7,500. If you turn the property into a rental, even if that rent didn't match that entire 2,500 a month, you would still be minimizing the economic damage. If you rented the property, say for $2,000 a month, you would still be gaining $2,000 and helping lower that limit that you're losing $2,500 a month to save about $500 a month. That would be a huge impact even over those three months- $6000!
So the first reason is that to minimize that negative cash flow that you have right now.
The second reason why you might want to consider renting your property instead of selling today is that in the future, say in two or three years, your property is going to be worth a lot more than it is today! Period! Some people will say, Michael, how do you know? It just is a fact.
I was also here in 2005, 2006, 2007 at the very desk I'm sitting and typing at right now when we had the real estate collapse. And here's an important aspect that you need to know. Nowhere in recorded history in Southwest Florida has the real estate gone down over a 10 year period. Notice I said a 10 year period! I didn't say every six months. It automatically goes up over a 10 year period, 1980 to 1990, 1990 to 2000, 2000 to 2010 …. You get the idea. The value of real estate always increased in our area! I'm not talking about very every single home (roofs can fall in, homes flooded, etc…). But honestly, over that period of time, real estate always increases. So if you hold your property, turn it into rental, and then hold it for four or five years, when you do that, it's going to be worth more than it is today, especially when you're not getting the offers that you want.
The third and final reason why you might want to consider renting your property while it's not selling is to save money! I was mentioning previously about minimizing the economic damage, but focused only on cash flow (what you take in and what you spend).
Most people look only at cash flow but there's a lot more economic incentives to have a rental property. To mention a few ways you can save money, you could take advantage of the tax write-offs of the property’s expenses such as management fees, maintenance to your property, lawn care and more. Then you can also talk to your accountant about depreciation for the property. That's 3% a year for residential units so if your property was bought for $300,000, you could lower your declared income by $9000! So not only are you no longer losing $2500 per month having your property sit on the sales market, but you could rent it to offset your mortgage and expenses AND gain these tax advantages.
By having a rental property, you are going to come out ahead financially in the short-term as well as the long-term. You will have an asset that will continue to produce revenue and will be worth more in the next few years as the market corrects itself in our area.
I'm Michael McVetyi, president of Red Fortress Property Management. I have a lot more to say on the subject, but I wanted to do something very quick. I know people are looking for solutions and I just wanted to educate you and others with some ideas.
If I can help you further, feel free to call or email me at mike@redfortresspm.com. Have a great day!
