Home has been sitting on our lot waiting for its turn to get rehabbed. I don’t yet know how much we put into it. $20k plus.
Prior to rehab, there was probably some “basis value” in the home but also some carrying cost. Probably the carrying cost over time has eroded any residual value.
Newly remodeled asking $30k home rents for $950 per month. I would call this a “good market.” We will make a little profit ON AVERAGE.
Lot rent costs $330 [on this lot] but rises with inflation. Therefore “Home-portion” rent is $620. [Although how much the “portion” is arbitrary.]
We can sell for $5k down plus $350 per month for 10 years plus taxes, insurance, maintenance. But the owner might default, don’t forget that. They also may not take care of the home, and those two things are definitely correlated.
If the rental market compares accurately to the purchase, there’s an implicit amount that is less than $270 in T&I and maintenance per month. ($950 less $330 lot rent less $350 amortization).
If T&I are 5% of FMV together ($1500) that leaves $1,740 annually to cover maintenance, vacancy loss, and, if, on average, there is anything left over, profit. Let me point out that’s less than 2 months gross income [did I mention there is vacancy loss?]
So here is the question – is it better (more profitable) for the Dealer/Operator to sell or rent? It is definitely less aggravation to sell and there’s some profit (or recoupment of loss) right at the front. But selling is hard work and takes skills.