The rent vs. flip dilemma

DEAR BERNICE: We recently bought a property in the area of Yakima, Wash., with a lot of equity in it. After the renovation, we still have an equity position of approximately $35,000. Initially, the plan was to renovate and flip the property, but we're now having second thoughts about selling and are thinking about renting the property out instead. We are retired and any additional monthly income would be very good, but it would also tie up the cash that we paid to buy the property. With certificate of deposit rates down and the fear of the dollar falling due to inflation, is it wise to just rent out the property? Property values seem to be appreciating. --Joyce T.

DEAR JOYCE: While no one has a crystal ball, there are several indicators to watch that can help you predict what will happen in your market and whether you should keep this house.

1. Median prices
Median prices are no longer a good indicator of what is happening in the market. As more jumbo loans become available, more higher-priced properties will sell. The result will be that the median prices will appear to increase when in fact actual values could still be declining. In your area, however, median prices have held steady since 2007 despite the U.S. recession.

The National Association of Realtors' latest metro-area price report found that the median price of single-family resale homes in the Yakima metro area rose 2.7 percent in the third quarter compared to the same quarter last year, to $158,400. That compares to a median price of $136,500 in 2006, $156,500 in 2007 and $153,300 in 2008.

2. Total homes sold
An increased number of transactions usually indicate an improving market. In your area there tends to be a pattern of increased summer sales and fewer sales around the holidays.

3. Percentage of homes sold for loss or gain
Check your area for statistics on the share of homes that sold for a loss vs. a gain, which can help you gauge whether it's advantageous to hold onto your property and rent it, or to sell it.

4. Percentage of homes where values are increasing vs. where values are declining
If a large majority of homes are still decreasing in value -- do you feel comfortable holding a property that could face continuing declines in value?

5. Price per square foot
From my perspective, this is the most important statistic to watch in gauging home values in a given area. ...CONTINUED

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