11 min read
The outbreak of the coronavirus pandemic has sent the Cambodia housing market into hyperdrive with low-interest rates, big promotions, discounted prices. Most of us are asking: Shall I sell or rent my house during this economical bottleneck?
Many Cambodians and expats wonder whether they are better suited to a different home in a different place, as people spend more time at home during curfews and periods of social detachment.
When you think about moving out of your current property, you may be wondering whether you should sell or rent a house. Each option has some serious pros and cons, and the answer depends on your current home, your financial situation, and your personal circumstances. Your local housing market can influence your decision to rent or sell your house. Let’s take a look at a few indicators that you should consider before making your choice.
Table of Contents
The 4 Major Indicators
1. Home Sales Indicators
Home sales indicators tell you how much competition there is in the home market.
High home sales mean more buyers are moving to the area as they compete for properties. Home sales are low, which means sales are falling. Fewer buyers moving to an area means that the individual buyer has no choice about which house to buy. Less demand to buy houses or condos is the case, after borders restrictions in most of the world. For Cambodia, it was at the bottom after November 2020 when the Cambodian government decided to enforce an obligatory 14 days quarantine for all visitors who enter Cambodia. Luckily, the government decided to make it 7 days from November 2021 after a successful vaccination campaign. Cambodia plans to completely open borders in the last quarter of 2022. This will bring a gradual rise up in the demand. After 7 days of quarantine measures, we’ll see more foreigners visiting Cambodia to live and/or make investments. If you sell your home when home sales are higher, you are more likely to receive a higher final sale price.
2. Home Price Index
If you sell your home when the sale price is high, you may be able to secure a higher final sale price for your property. According to Wikipedia, the Home Price Index is the average selling price of all homes. A higher home sale price is good for leasing rather than selling the home. If home sales are low, you might want to consider renting out your property rather than selling it, as sales could rise. If home prices rise because more people move to your area and fewer apartments are available to buy, you may be able to charge more rent. That is the case for modern accommodation in Cambodia. Modern housing is undersupplied in Cambodia.
During the year to Q2 2020, the average price of high-end apartments in Phnom Penh fell by 6.55% to US$ 3,041 per square meter according to a research.
3. Housing Supply index
The Housing Supply Index measures the number of vacant homes for sale in your area. This improves the market value of rental properties. The rate of supply in the housing market is strongly correlated with prices.
Albert Saiz from MIT Department of Urban Studies and Planning; IZA Institute of Labor Economics, discusses housing prices and factors in his article “On Local Housing Supply Elasticity”:
Housing supply is a key element for understanding the evolution of housing prices and urban development. Housing supply mediates the impact of demand shocks in different cities, jointly determining the pricing of housing assets across markets (Glaeser, Gyourko, and Saks, 2006). While one can buy cars, computers, and other durable goods at very similar prices across markets, housing supply conditions differ substantially across locales.
If the housing supply in your area increases, it means more competition for properties. This competition will push up house prices. It is unlikely for Phnom Penh and Sihanoukville that the housing supply catches the increase in population after the borders open as it was the case before the borders were closed.
By the end of 2020, the number of landed properties in Phnom Penh had increased to over 186,000 units while the number of condominiums had skyrocketed to over 109,000 units, according to research data from Z1 Data Co., LTD (Cambodia). Here is a useful source for the Phnom Penh housing supply.
When the housing supply is high, it means there are fewer homeowners in your area who are looking to buy new homes. This means you are more likely to secure a higher sale price for your home. If you live in an area with low housing stock, you might want to put your house on the market for a faster sale. You may also want to consider leasing your home when your local home supply drops to maximize the profit from your sale.
4. Rental Affordability Index
The Rental Affordability Index measures the percentage of average family income that goes into rent. If the affordability of the rent is low, you are likely to attract more tenants if you decide to rent out your apartment.
This can be a double-edged sword for landlords. If you are looking for cash to finance your next house purchase, it can be advantageous to sell your home when affordability is high. This means that you will be more limited in what you can charge for renting your home. However, if you rent your apartment, you may have more money to rent each month. The affordability of the rent is low, which means that rental properties in your area are more expensive.
You can find studio condos from continuing developments starting from $30k and 1-bedroom units from $40-60k at low-end condominium projects in Sihanoukville and Phnom Penh. Medium quality condo prices start from $40-50k for studios and $60-80k for 1-bedroom units. There are more affordable housings in other cities of Cambodia. For example, in Takhmao, there are $25k priced affordable houses in a satellite city project (source).
Considering Renting Out Your Home
If you are considering renting out your home, you should consider the realistic rental value of your home. Renting your apartment offers several advantages. Let’s take a look at some of the reasons you might be forced to rent instead of selling your house. You may struggle to find tenants who can afford your space if your property is overpriced. Renting out your home presents several appealing benefits.
Positive Cash Flow and Income
If you are seriously considering renting out your house, you should analyze the realistic rental value of your home. There are several tools online for a specific purpose.
Some people consider being a landlord as their full-time job. The location and the nature of the property are important factors that influence the rental value of your home. You will need to determine what annual cash return is needed to make the effort and potential risk worthwhile.
More properties take on a lot more responsibility, a lot more tenants to check, and a lot more time and energy.
Waiting Out a Bad Market
If you think your home is going to increase in value over time, it may not be the best time to sell, but renting makes you wait for the market to reverse.
Rent is one way of building up equity without the mortgage being backed by tenants. Each month that the property is rented out, the loan balance decreases or rental income increases. The amount of rental income you get is higher than the cost of financing and spending the property, which means that the mortgage is paid by the tenants’ rent payments or it will bring a favorable return. One of the reasons people like the idea of renting their home is that they can build up equity by paying the mortgage costs and interest themselves. The longer you hold on to your home, the more equity you have when you sell it.
Enabling More Options
Some people choose to rent out their homes at short notice. This option is particularly attractive to homeowners, as it gives them much more flexibility in using their homes. Another qualitative consideration regarding the decision to sell or rent your house is that the letting route gives you more options. For example, if you are unsure whether you want to move out of the property or keep it as a rental property, this leaves the option open.
However, not all apartments are suitable for short-term rentals or the Airbnb model. If you want to spend the summer in your house or spend the school year in your stead, renting out your home for a short-term rental can make this possible. On top of this, letting out to short-term tenants using services such as Airbnb can be a headache of its own. Although having a short-term tenant has advantages over a long-term tenant, this does not mean that it is less risky to rent your apartment this way.
You should always keep in mind who the tenant or client is, how they live, what they prefer.
The location of your property will help you determine its value if you are considering letting it out for short-term rentals. They will want to take a serious look at the local market and determine whether it is a holiday region, a college town, or a large city frequented by short-term visitors.
Renting a home isn’t all sunshine and roses. There are real downsides to renting out your home rather than selling it, so let’s take a look at some of them. If you keep your house for rent, both parties will have to pay lower costs and leverage, and you will have capital and amortization to cooperate with you over time. However, keeping it could limit your ability to get a mortgage if you decide to rent your home.
You need a property manager if being a landlord is annoying
There are no particular disadvantages of renting out your apartment, but there are some important things to consider. Renting your apartment may be an attractive option because of its perception as a passive income but you will want to think about how much work and headache it means to the landlord.
As a landlord, you have to hold demonstrations, pick up tenants, set up rental collections, answer the phone at any time of day, learn craftsmanship, and much more. You can hire a property manager to do some of the work to save time and money, but you don’t run the risk of having no tenants at all.
It will restrict your cash flow to only 1-month rent as a commission for a 1-2 years contract, and the property management fees are %0.50-1 per sqm per month in Phnom Penh and Sihanoukville. but should not be a breach of contract. Checking tenants is an essential part of being a landlord. It can make all the difference whether you have a positive or nightmarish experience as a landlord.
If you are planning to build up your collection of rental properties, it is important to understand that building from the start requires a considerable amount of work. Hiring a property manager costs a percentage of rental income rather than a monthly lump sum. Even if you find that a rental apartment doesn’t do a lot of work, every little work you put into it is worth it.
Renting Out Your Home May have Risks if you do it by yourself
You don’t have to look far on the internet to find nightmare stories of bad tenants leading to their financial ruin. Dealing with an eviction is not that costly and stressful in Cambodia unless the tenant has left and your property requires serious cleaning and repair work. Late rent or eviction can reduce the money the property brings you. Not all landlords are okay with this stress and extra labor.
You don’t have to look far on the internet to find headache stories of bad tenants leading to their financial ruin. Not surprisingly, being a landlord involves a demanding, stressful job with risks if you don’t work with a real estate agent and/or property manager.
You also risk legal trouble if you do not comply with the landlord-tenant law in your state or if your tenant is violated on your property. The wrong tenant in an unhappy rental situation can ruin a landlord. That is why the location of the home is important as more demand leads to early rent out and less loss.
Maintenance and Repairs
Getting your house ready for rent requires as much effort as preparing it for sale. Before you market your house for rent, you need to make the necessary repairs and cosmetic updates. Consider the strain on your time and energy that it takes to put your home in a rentable condition, market it to potential tenants, and maintain it to mitigate potential problems.
Some properties are subject to normal wear and tear and damage caused by tenants. When you sell your house, you don’t have to worry about mowing the lawn or if the faucet drips a bit. However, if you rent out your apartment, there may be problems that you will have to deal with when you no longer live there.
They will want to coordinate with tenants, repairers, plumbers, and contractors to fix the problem as soon as it is there. There may be several unexpected expenses that may surprise you. To cope with this kind of unexpected expense, you might want to set aside some of the income you earn each month from renting.
After long years your house will need renovation which will add up to the value of sales and rent as well.
Bare construction of a modern apartment from scratch costs $130 per sqm on average for a good quality, international standards building or house in Phnom Penh and Sihanoukville, Cambodia. Internal decoration including the walls (basic decoration of tiles, walls, paints, bathroom and kitchen cupboards and utensils cost around $250 per sqm.
Property prices, as they are nationally, are a reasonable argument for selling your property. You are responsible for the cost of maintaining the property and paying the mortgage, and if no one else lives there, this can be reflected in your ROI over the years. Vacancies can also lead to a financial burden.
Considering Selling a Home
By selling your home, you turn capital into liquid capital that can be invested in other ways. If you sell your home now, you will release a significant amount of capital. With the repayment of your mortgage and appreciation of the price, there is a good chance that you will see gains from your equity. For this reason, selling your home now may be the better option.
Selling a house can be stressful, time-consuming, and expensive. But just because selling is the best financial option doesn’t mean it’s not a problem.
Update or Renovate Your Home
Some homes need upgrades before they can be put up for sale. In addition, buyers can make an offer for your home and request improvements or updates. If you are not ready to upgrade, you can lower your expected selling price. It is easy to assume that your house will sell quickly.
Don’t Let the Sales Process Turn into a Disaster
There are several things that can go wrong during the sales process – including an unwillingness to update a property, unrealistic expectations about the selling price, or an incompetent broker/agent. It is possible that the sale of your house will give you minimal profits or losses. If you bought your house when the market was high and live in a place where the value of houses is increasing, it is possible that you will not get much of the money you invested in your house back. Sell or rent a house.
Whether you sell or rent your house ultimately depends entirely on your own circumstances. The financial aspects of these two things are crucial, but one does not want to forget to ask oneself how one feels about both options. You do not necessarily want to have to deal with a tenant that one day you will move into your property, but there are factors that need to be considered sensibly.
Profit – Loss Metrics: How to decide
One of the first things to look out for when thinking about renting a house is maths. You need to determine whether the house is making a monthly profit or loss, and you need to consider rental income and expenses associated with the house. You want to see if the apartment can generate positive cash flow before you start putting up the rental sign. Ideally, you run the numbers and determine whether this result is suitable for your needs or not. Even in the case of losses, you should compare the losses and find out which option will lead to less loss or more profit.
If it leads to a loss, selling is the better option. The next question you will ask yourself is how much you will gain if you sell the house. If the answer is that you will earn very little, it may be beneficial to stick with the house. Suppose you lose 3-10% on closing, agency, and other costs associated with the sale.
One can wait until the market improves over time.
Should I Sell or Rent My House?
There are other types of investment that offer you a higher return, which means that selling and reinvesting is a better financial option. There are several things you should consider when deciding whether or not to rent your home. First, it is best to have a rental property. Not all properties areas suitable for rent as others.
Single-family homes are often the best first-time rental property for a new landlord. They tend to attract families, couples, and long-term tenants. There is more demand for condos with facilities such as shopping malls, swimming pools, gyms, sky gardens, and sky bars and to modern apartments in Cambodia.
Will the Property Produce Positive Cash Flow?
No one knows exactly what’s going to happen to the rental property market in the coming years: yet, we follow trends, news, potential and statistical data to make accurate assumptions within a plausible error bound. On a localized basis, you can look at the growth in your town to get a general feeling of change. Population growth, development investment capital should be taken into consideration.
There is never any certainty about what will happen next, but the coronavirus pandemic reminds us that unexpected events can change the shape of the market. In any case, it is worth trying to make your educated guess as to whether your property will increase or decrease in value over time.
What’s Your ROI?
Return on investment (ROI) is a performance measure used to evaluate the efficiency or profitability of an investment or compare the efficiency of a number of different investments according to Investopedia’s definition. ROI tries to directly measure the amount of return on a particular investment, relative to the investment’s cost. It is an important measure for comparing the potential rental return over years and what you can get when you sell it and invest in a new property.
Sihanoukville condos have a higher Rental ROI on average than condos in Phnom Penh due to modern housing being undersupplied. However, there are some special promotions that can lead to 20-25% ROI, such as Prince Huan Yu SOHO in Tonle Bassac, Phnom Penh.
If it looks like your neighborhood is heading for a price drop, that might be a good idea. But if your area is improving, it makes more sense to rent the property out or hold on to it until prices rise.
Are you ready to be a landlord?
You will want to be honest with yourself: do you really want to be a landlord? While some people have uneventful and profitable businesses as landlords, many others find it to be a demanding life that isn’t worth the hassle or risk. Some tenants will be an absolute dream, but others will inevitably require a significant amount of patience and time.
Some tenants are absolute dreams, others require a lot of patience and time. For some people, this can be an uneventful and profitable business as a landlord, but many others find it a demanding life that is not worth the hassles or risk.
It’s time to rent out or sell your house. Whether you are using an estate agent or listing your home on the open market, the process can be stressful, time-consuming. Before you start, the answer to the question of whether you should sell or let your house is yes. You can use the money as a down payment on a new home. Search for that better home.
If you sell at a time when the price is low, you could end up losing money on your investment. If you properly manage your rental property, you will be able to generate a stream of passive income for years to come. This means less risk and more reward.
If you don’t want to lose time by going through all these calculation steps and decision processes, please contact us for a free consultation on buying, selling, or renting your real estate property.