I Sold a Property With a 3% Mortgage Rate Instead of Renting It—Here’s Why I’m Not Crazy

In This Article

A few months ago, I had to decide whether to sell my primary residence or turn it into a rental. At this point, I didn’t have any investment properties (I do now; more on that in a bit), and my goal was to get out of this house and purchase a new primary home for my family.

This decision did not come easily, and I debated the two options and their immediate and long-term outcomes. As you can probably tell from the title of this article, I decided to sell and take the equity for a down payment rather than turn it into an investment property.

Before you tell me why I made a poor decision or write a rebuttal article, like BiggerPockets community manager Noah Bacon did, here’s something to keep in mind: Every investor has unique circumstances to consider when analyzing a potential deal, as financial and personal factors weigh heavily on any decision.

Let me explain my situation so you can better understand why I did what I did.

Background on the Property

I bought my property in the summer of 2020 as a primary residence in a transitional neighborhood in a not-so-nice part of Atlanta. At the time, I was about three years removed from a divorce, which had really put a dent in my finances—both in terms of slashing my savings and retirement but also navigating day-to-day expenses that suddenly included a hefty child support payment. I found an incredible rental home in a great part of town for a steal so I could slowly build up money for a down payment that wouldn’t completely drain my remaining savings.

When I was ready to buy, the COVID-19 pandemic was in full swing, and rates were rapidly decreasing. After missing out on a few homes to investors and people willing to waive contingencies (there was no way I would buy without an inspection), I found my house.

It was a roughly 1,350-square-foot former fix-and-flip with two bedrooms, two bathrooms, and a bonus room—the perfect size for me and my two elementary school-aged girls, who were still young enough that they didn’t mind sharing a room. The bonus room wasn’t functional as a bedroom—it was an old patio that the flipper enclosed—but was perfect as an office nook. 

I paid $225,000 and only put down 3.5%, so I could use some money to fix a few things I knew needed to be updated. The best part: I locked in a 2.75% mortgage rate.

As the months passed, I began to notice things that needed attention. There were a few typical home repairs, like a heat pump and furnace replacement, and other things that were a little more annoying, like the rats that decided to move into my basement and attic and the primary bathroom insulation being all but nonexistent. I immediately repaired anything major that posed a safety issue and got to the other things as I could afford to, but the list of minor fixes kept growing. 

Analyzing Whether to Rent or Sell

Fast-forward to 2023. My property had appreciated over three years as housing prices skyrocketed across the country, and my family was growing. Not only were my kids getting older, but I got engaged and pretty soon would have another person (and dog) in my life. Her primary residence was a one-bedroom condo, which we had already decided to rent out. 

We took stock of our situation and realized my house also wouldn’t work. It wasn’t a practical living space for four people (two of whom worked from home full-time), and I had some safety concerns about the neighborhood. My kids would probably soon realize those popping noises weren’t really fireworks like I’ve been telling them. We needed to determine whether to sell my place or take on a second rental property.

We estimated the house was valued at about $300,000, and I had about $207,000 left on my mortgage. (It actually closed at $290,000.) I crunched the numbers and determined I’d walk away with roughly $55,000 in net profit after closing costs—quick and easy money, but no potential for wealth growth.

On the flip side, I used the BiggerPockets rent estimator and found I could rent my property for roughly $1,950 a month. Considering my PITI payment of around $1,350 and money for capital expenditures reserves and maintenance, I’d cash flow about $300 monthly to start. Assuming an annual 3.4% rent increase, I’d surpass the proceeds from the sale in about eight years (or 10 with a property manager).

This projection assumes a few things:

1. I’m putting aside a total of $200 a month for landlord repairs or improvements.
2. Rent prices increase by 3.4% a year. According to the latest Rent.com report, Atlanta rent prices are currently up 2.8% year over year, so this estimate might be a little aggressive in the short term, but I believe it will be fairly accurate long term.
3. I don’t reinvest the proceeds from the home sale. In this case, that money will be used for a down payment on a new property, so that projection remains flat, as it will not grow over time.

Selling Was the Best Decision for My Situation

If my goal was long-term wealth growth, holding and renting the property would have been a no-brainer. While it would take eight years to surpass my proceeds from a sale, that cumulative cash flow would have doubled just a few years after that and quadrupled by year 15. By year 20, I’d be cash flowing roughly $25,000 a year, and my net worth on this property would be well over $1 million when considering appreciation and amortization. 

However, my goal was to help fund the purchase of a new primary residence, not to accumulate as much wealth as possible. These personal considerations also swayed my decision:

1. The house could easily be a money pit

When running my rent versus sell projections, I estimated $2,400 a year for maintenance and improvements. That would be accurate once a tenant was in place, but the house needed work before I could even list it. This would probably cost me $10,000 in repairs, and honestly, I wasn’t willing to do it, as that would have dwindled my down payment money even more.

There was a lot more that could go wrong. The property had an old detached garage that looked like it would fall over with the next strong gust of wind. I used it as storage for lawn equipment and tools, but I would not trust putting my truck or anything really valuable in there. 

The property was also surrounded by tall trees that occasionally dropped some pretty big branches. As a result, I had to repair my fence a few times, and it was just a matter of time before one came down on the roof.

If one of those things happened, or we discovered something unexpected during the initial repairs, I would have to throw my projections out the window. I just wasn’t prepared to take that risk at this moment.

2. My inexperience is an issue

Although I’ve done a lot of research over the past several years, as real estate investing has always interested me, I didn’t have any firsthand experience when I made this decision. I had never owned a rental property or had any property management experience. 

I mentioned that we are renting my wife’s condo. We felt this was a good first step for us and decided we didn’t want to go from zero properties to two. We’d rather scale at a slower pace that aligns with our comfort level.

And between the two properties, the condo has better potential as an investment property. It’s worth $350,000 and only has about $80,000 left on the mortgage. Using the same set of perimeters as the analysis on my primary—plus considering an HOA payment—we estimate we’ll earn $500 a month in rental income to start. Once the property is paid off in 10 years, we’ll have cash flow of more than $25,000 annually, and our net worth will double.

It’ll be easy for anyone here to point out how adding this cash flow to the potential I could have made in my other property means more wealth. I can’t argue that. But again, my goal here did not center around wealth generation. 

Of course, I want to make money. But I want to do it responsibly. That means not overexerting myself and jumping into the deep end without a float. 

3. I’m prioritizing today over tomorrow

Did we absolutely need the equity in my home for a down payment? No. We could have found a cheaper home in a less desirable area further away from the city, but we didn’t want to do that. 

I don’t have any ambitions of living frugally or a FIRE lifestyle. We wanted to enjoy our home and neighborhood, which meant finding a walkable area that was accessible to activities and safe/fun for my kids. We found that, but I had to use my equity to get there.

While I gave up an opportunity for additional future wealth, I’m confident in saving for retirement using traditional means, like my 401(k), as I have my entire career. I also believe we are in a good place as new real estate investors with our condo. If we enjoy it and are successful—which I do not doubt will happen—we can leverage some of that equity to get into another property if we want to scale down the road. 

Final Thoughts

I made a terrible financial decision if we’re just looking at the dollars and cents (as many investors do). On the Market podcast co-host Henry Washington blatantly told me that when I discussed my scenario with him in February. Over a healthy time horizon, I let hundreds of thousands of potential dollars slip away in favor of a paltry one-time profit.

But I’ll again point to my circumstances and personal goals for this deal. I achieved what I hoped to. I got rid of a property that I was tired of dealing with and bought a better primary home while turning another residence into a (hopefully) cash-flowing rental property. My wife is happy, my kids are happy, and I’m happy. In the end, that’s all that matters.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.