There are so many great reasons to own rental properties but today I want to tell you four reasons that you shouldn't rent out your home.
Okay, there are probably a lot more reasons than four. You've heard a lot of them. I'm not going to cover all of them, but we're going to talk about four that I think are kind of important.
So, there are a lot of times when it really does make sense to rent out your house. Real estate is, quite frankly, one of the better ways to build wealth in this country. But sometimes it may not be exactly right for you.
So, number one would be if you're undergoing some sort of financial hardship or there's a big financial opportunity where you need to have access to the equity in the house that you're looking to sell. Maybe there's no other way to get that much cash other than liquidating that house. Perhaps you don't have enough savings or you can't take out a loan. Or, there's some other thing that needs to happen where you've got to get that equity out of that house. Or, you've kind of exhausted all other options around that.
The second reason would be emotional hardship. Now, I say emotional hardship, but really it's like you have a strong attachment to the property. Maybe it's the house your mom raised you in, and there's just no way that you could really ever get over if something happened to that property. If a tenant had a stain on the carpet, you would take personal offense to it. Or, you would always be concerned about what the property is looking like. Or, maybe you're thinking you might want to live there again one day, and you just can't stand the thought of someone else living in your space. If you can't get over those things, it's going to be really, really difficult for you to be a landlord, even if financially it's not a problem. And that would be a time that I would recommend you not rent out your house, or go buy another investment property. Sell that house, go buy another investment property that you don't have an emotional attachment to.
You Can't Afford It
Moving on to reason number three, you may not be able to afford the cash flow. There are going to be a lot of times, depending on the property, that you may actually have some negative cash flow. If you can't save up at least three to six months of rent in a buffer account, or you can't afford the cash flow that goes with the property, even if financially the whole transaction or investment makes sense, but each month you have to pay in a little bit, which can happen, then that would be a time to not rent out your home. Curious if the financials make sense to rent vs. sell your home? Checkout our free rent vs. sell calculator!
Can You Get a Better Return Elsewhere?
And the last reason would be if you have a mint and you can print your own money. Of course, in that case, you don't need real estate. What I mean by that is because real estate has such a high return on investment typically, or a lot of houses will, if there is some other investment that you can do that's a lot lower risk, that's a lot easier, that's a much higher return, then it might be a case where you wouldn't want to rent your home.
So just to recap real quick, you're undergoing some sort of financial hardship, can't tap into the money in the home other than by selling it, or you emotionally just can't let go or can't get your head around someone else living in that house, or you can't afford the monthly cash flow repairs when they come up, or you've got some other awesome, amazing investment opportunity that's going to deliver strong double-digit returns. Those would be instances to think about not renting out your house.