Monday, March 03, 2014

Earlier this month, I picked up some homespun wisdom for home sellers from long-time REALTOR© Phil Hoover in Idaho. So in this report we'll flip to the opposite corner if the country and touch base with Joe Manausa (manausa.com) in Tallahassee, Florida.

One of his many informational blogs addresses whether it might be better for a homeowner to lease versus selling a property. And he recommends property owners reach that decision by employing a good old cost/benefit analysis.

Manausa says the value of any cost benefit analysis model is in understanding the assumptions used to create the model. He enters information on a simple Microsoft Excel spreadsheet to tweak all of the variables that go into creating a model.

For example, Manausa says current equity (whether positive or negative) is a major factor in the final decision, as is the expected lease amount for the home.

It has been his experience that homeowners over estimate each of these, opting to use “best case scenario” instead of the likely scenarios they will face once a decision is made. Manausa's advice - take your lumps in planning so that you can be assured of making the best decision possible.

Some of the assumptions/variables required for the model include:

• Expected Sales Price
• Current debt and loan terms
• Expected Lease Amount
• Market Vacancy Rate for similar homes
• Operating expenses (usually under-estimated by novice landlords … 50 percent of rents or greater, not including mortgage P&I)
• Housing Market Forecast based upon supply and demand for similar homes
• Final turnover expenses required to sell at top value

When combining all of these factors together, Manausa says a property owner can create a solid real estate cost benefit analysis model that will go far toward eliminating the guess work from the decision making.

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