Rookie Podcast 70: Rookie Reply: Should I Sell or Rent Out My Primary Residence?

Rookie Podcast 70: Rookie Reply: Should I Sell or Rent Out My Primary Residence?

8 min read
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This week’s question comes from Dane through Ashley’s DMs on Instagram (you can find her @wealthfromrentals). Dane is asking: should I sell or rent out my primary residence?  

Whenever you’re moving from your current home to a new home, you have the option to sell or rent. While there isn’t one solid answer for everyone, you can find out whether selling or renting is the best option by looking at your market and your specific financial situation.

Here are some suggestions:

  • Get comps (comparables) on market rents from homes like yours
  • Search through recently sold homes that are comparable to yours and find the median sales prices
  • Pull out a home equity line of credit on your primary home to help buy your next primary home or more rentals
  • Run the numbers as a sale and a rental, does it cash flow?
  • Refinance for a lower mortgage payment and rent it out
  • Run the numbers for EVERY scenario and make long-term decisions
  • And more!

If you want Ashley and Tony to answer a real estate question, you can post in the Real Estate Rookie Facebook Group! Or, call us at the Rookie Request Line (1-888-5-ROOKIE).

Click here to listen on Apple Podcasts.

Listen to the Podcast Here

Read the Transcript Here

Ashley:
This is Real Estate Rookie show number 70. My name is Ashley Kehr and I am here with my co-host, Tony Robinson. Hey Tony.

Tony:
What’s up Ash? How are things going on the East Coast today?

Ashley:
Good. Right before we started, I got my groceries delivered. So I have a little snack here.

Tony:
What’s new with me, let me think. I just had, I think, two offers rejected in the last week. So parts of being a real estate investor, not getting every deal done, but we’re moving forward. See what else we can find.

Ashley:
Yeah. I put an offer in Monday on a foreclosure, and they said, “Offers due by Tuesday 3:00 PM.” So I get my offer in, and then they say, “Well, we received multiple offers. So send your best and final offer by the next day at 9:00.” And it’s like, “Okay, well that was my best offer. Or you’re just going to make us resubmit.” And they still haven’t accepted anyone. I guess there was someone else that was higher than me and they countered that person, but the person hasn’t accepted yet. So I told my realtor, I’m like, “There’s still a chance.” That’s like in Dumb and Dumber. It’s like, “So you’re telling me there’s still a chance.” Until that they accept another offer. I will still have hope.

Tony:
There’s still a chance. Yeah. Well, things are getting kind of crazy right now. We even put in an all cash offer, but then they get someone else who is financed, but just more money. So it is what it is. You win some you lose some.

Ashley:
Yeah. I think a great strategy too, for rookies or any investors to give out two different offers. So if you’re unsure of your cash offer is going to be stronger. Or if the buyer actually wants more money, they don’t care, if it’s finance, lay it out both ways and give them both offers, say, “Hey, I can pay you this much with a cash offer, or I can pay you this much doing seller financing, or I can pay you this much. If I go and get a conventional mortgage.” So that’s just a little tip for today.

Tony:
Man I love it. That wasn’t even supposed to be today’s thing, but there you go dropping some good knowledge for people. I love it.

Ashley:
So, well, let’s read today’s question. This actually was in my DMs on @wealthfromrentals. And this one is from Dane. So Dane said, “Hi, I listened to your podcast. Great work. I have a question. I have my primary residence that I purchased back in 2017. I purchased it for $89,000. Now it’s worth $210,000 to $240,000. Had it listed back in December, January, didn’t get the price I wanted. Now the wife and I are thinking of purchasing another home and renting the current home out. Just wanted some newbie advice on how to go about it. Thank you. Yes. I owe $79,000 on it now.” So this is located in Charlotte, North Carolina, this market, and Tony and I, we don’t know anything specific about the North Carolina market or especially Charlotte. But what we’re going to talk to you guys about today is breaking it down as to how you would actually go about. Finding out if you should rent it out, or if you should try to sell it.

Tony:
Yeah. So I guess the first place I’d start is doing a little bit of market research. I don’t think Dane gave us the specifics on the property, like bedrooms and baths and whatnot. But Dane, if I were you, just for example purposes, let’s say this is a two bedroom, one bath. I would go out and find all comparable, two bedroom, one bath, within a 5, 10-mile or whatever radius it is and see what those properties are renting for. I want to make sure that they’re comparable. If yours is like a C-level property, you don’t want to compare it to an A-level property and vice versa. And so definitely find some stuff that’s comparable. BiggerPockets, BPInsights, you can go there to get market rent data. There are other resources while BPInsights is a great place to start, but I think that will be my first step. Ash, where would you go from there?

Ashley:
Yeah I would agree with that. I would look and pull the comps for your area for sales price and for rental listing. So Dane mentioned that he didn’t get the sale price that he wanted on his property. So maybe pull some more comps and see, what price could you actually get or what were the offers that you got. And then also look at the market rent in the area. What could you rent it out for? So he was asking $210,000 to $240,000, it seems like on the property he wanted to get and he owes 79,000 on it. So I’m assuming that your mortgage payment is pretty low, or you might even have the option to refinance. Maybe pull some more money back out of that house and you can even refinance that. So your payment is actually lower, whether that’s going for a longer term or for getting a lower interest rate than maybe you had previously gotten on the property.
So you want to pull that market rent and see what you can get for it and make sure that it’s going to cover all your expenses. Will it cover your mortgage payment? Will it cover your property taxes? Will it cover your insurance? Any other expenses that you’ll need to maintain the property that a renter wouldn’t cover, go about that and figure that out. What would that number be? And will you be able to cashflow off that property? I don’t want you to rent this property out and to be taking a loss. Maybe that’s the only option if you can’t sell it for what you want. What are your thoughts on that Tony?

Tony:
Yeah. That’s how it was a tricky part too, right? We’re looking to sell a property right now in Louisiana, that we’re losing money on. It’s in a flood zone, our insurance premium went up way high this year, for whatever reason. We shopped around, and that’s just the going rate to we’re actively losing money every month on this property. So we’re trying to sell it as fast as we can.

Ashley:
Hey. Did you guys hear that? Tony has a property for sale.

Tony:
I don’t know if any other investors will want it. We’re trying to sell it to some people that are living as a primary residence. Only because the numbers ended up not making sense. So, yeah, I would definitely agree with you, Ashley. Make sure that everything is covered and then you just have to… If you’re going to lose money either way… Oh, I guess he didn’t really say though, he didn’t say he was going to lose money on the sale. He just said he wasn’t going to get what he wanted for it. So I guess Dane, you would just need to compare those two things. If you do end up losing money monthly from a cashflow perspective, is that better than just taking a little bit less profit on the sale. Because you could sell it and then take those funds and go into some other market maybe, where the numbers do make a little bit more sense and then you can get a cashflow in rental.

Ashley:
Yeah. One way to look at too. So as Tony just said, you sell it, you take that cash, you buy your next property. But if you hold onto it and you refinance the property, or maybe you go and get a line of credit on the property, since it is your primary residence, you’d be able to get a great low interest rate on a line of credit right now. Then you go ahead and you move out and you use that money to buy your next property. So instead of increasing the mortgage on your next property, you have more cash to go in, make a better offer on your next property. Because you’re pulling equity out of that first property. And then you’re going to rent it out. You just have to make sure that, that rental income can cover the new mortgage payment.
But I think that’s a way that a lot of people build their portfolio and be able to grow and scale, is that they move out of these properties and they rent out the previous one they were in. So they live in them, fix them up and kind of sounds like Dane did some work to it. If he bought in 2017 for $89,000, now it’s worth $200,000. That’s awesome Dane. Congratulations.
So you could just keep that momentum going. So either you’re doing the live and flip strategy, where you’re going to sell it and then take the proceeds, move to the next property, or you can rent it out. But really what you have to do is run the numbers for each scenario. Look at what that looks like and look at long-term too. What does that money do for you? Is it more beneficial for you to take out a higher loan on that property that will now be your rental? And have your tenant paying that mortgage? And you living in your primary residence have a lower mortgage payment, because you were able to come in with more cash and not have to get as high of a mortgage payment. And look down the road, how does that end up to. And plus if this property has appreciated this much in the short of time, is there even more room and more growth for appreciation, that you want to hold on to it longer too.

Tony:
Yeah. This is in decisions, right? And I guess the thing is, there’s no right answer Dane. You have to think about your specific situation and what’s important to you. Because what Dane’s goals are, might be different than Tony’s or Ashley’s, and that’s going to kind of dictate what the best move is. I guess the only last thing I’d add is just, as you’re going through all of those potential expenses, just make sure that you capture everything, I’ve seen rookie investors make the mistake of forgetting certain expenses. Maybe they’re not accounting for repairs maintenance, or maybe they’re not thinking about CapEx or property management. Are you going to manage this property yourself or are you going to outsource it? So just to make sure you’re capturing everything. Again, BiggerPockets, use one of their calculators, they really kind of walk you through everything you need to be including. So if you’re trying to find the best way to do it, head over to BiggerPockets and check out the calculators.

Ashley:
Yeah. And just to wrap it up, Dane, go and get yourself a huge whiteboard and write out the different scenarios that could happen. If you’re going to sell the house, you’re going to rent the house out and just lay it out. What’s going to come from that, run on the numbers and see, and kind of compare them side by side. But yeah, I think that’s it for that one Tony.

Tony:
Yeah. I’m all good on my side too.

Ashley:
Yeah. Okay. Well, thanks Dane. Thanks for submitting your question. And if you guys want to hear your question or a specific topic on Rookie Reply, please put a message on Facebook in the Real Estate Rookie group, or send us a DM on Instagram. I’m Ashley @wealthhomerentals. And he’s Tony @tonyjrobinson. Thank you guys so much for joining us for Rookie Reply. And we’ll see you guys on Wednesday with our next guest.

 

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This week’s question comes from Dane through Ashley’s DMs on Instagram (you can find her @wealthfromrentals). Dane is asking: should I sell or rent out my primary residence?   Whenever you’re […]