Q & A With America’s Real Estate Professor

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Zillow

Posted on November 19, 2012 at 1:00 PM

By Leonard Baron

Long Distance Rental

Q. I just bought a house a couple of years ago in Virginia and my work is reassigning me to the West Coast. I’m deciding whether to keep and rent out the property, or just sell it and be done with it. What should I consider in making this decision? Carl L., Arlington, VA

A. Hi Carl, sorry to hear you have to move, but I can assure you it’s not that bad on the West Coast! You might get a great property manager and have a good experience, but more than likely over time, keeping your home is going to be more of a hassle than it is worth keeping. Here are a few questions to ask yourself: Do you think you will end up back in Virginia in the next few years? If so, would you want to move back into that house and/or keep it as a rental? Also, as a rental, does the rental income, less all the expenses and mortgage leave some positive cash flow, or will you be covering the negative each month? Lastly, is the property newer and in pretty good shape, or is it going to need continuous maintenance and will you need to make those decisions from afar?

To summarize, if you don’t think you’ll be moving back East, if it doesn’t produce enough income to cover itself, and if it is not in great shape, you’d be best off selling. If the opposite factors are true, that would be more of a case for holding onto it for the long term.

Flipping Properties

Q. A friend wants me to partner with her on a property rehabilitation flip. I will be buying the property in my name, she will handle all the work to repair and get it sold, and we’ll split the profit. I’m a little concerned. What do you suggest? Jenna G., Tampa Bay, FL

A. Property flipping is a long and littered road with lost monies, damaged credit scores, and stress beyond belief and that’s not even mentioning the stress of being in a partnership. I really see two issues here: flipping and doing it with a partner.

Let’s talk about flipping first. Although I love all the TV drama on the house flipping shows, those “actors” are getting paid for acting, and it’s highly unlikely they are making any money flipping properties. The cost of rehabbing a property is usually astronomical and every project runs way over budget. Very skilled and experienced contractor/flippers can make money, but they’re doing it full time and they’ve already learned many hard and expensive lessons over time. So if your friend is very skilled and experienced, you might take a closer look at the deal, but still beware.

Onto partnering. Why are you buying it only in your name? If the answer is that your friend cannot be financed, what is going to happen if the deal goes bad? Are you going to fund the extra costs, carry the property mortgage payments, and/or be the sole equity losing partner? Partnerships are tough. They’re one of the few types of ships that almost always eventually sink, and en route, they ruin friendships, cause severe stress, and monetary loss. If you are going to have any partner at all, one of equal financial footing is a much better bet so both parties take the risk and earn the rewards, if any, of the partnership.

Leonard Baron is America’s Real Estate Professor® - his unbiased, neutral and inexpensive “Real Estate Ownership, Investment and Due Diligence 101” textbook teaches real estate owners how to make smart and safe purchase decisions. He is a San Diego State University Lecturer, blogs at Zillow.com, and loves kicking the tires of a good piece of dirt!

Email Your Questions to: Leonard@ProfessorBaron.com


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