Should I Rent or Sell my property?

22 Replies

My wife and I will be stationed in Washington next year. We currently own a house in Charleston, SC and we were thinking about selling it. However I've been hearing a lot about real estate investing and renting our property is a great idea. I would love other input because it seems pretty daunting. Our house was bought for $270,000 and is estimated at $308,000 right now. The neighborhood is brand new and upcoming in a nice area.

I've reached out to a few property management companies to see what they would charge. Any other advice would be greatly appreciated and what sort of stuff we should weigh when making this decision, thanks!

@Zach Carner    I would sell and take the profits to invest into a multifamily near you.

Your profit is minimal so utilize a strategy to get the most gain: 

1. The market is predicted to be going up for the next three months.

2. You can list your property on the MLS by using a realtor who offers a Flat Fee for $100 and avoid the 2-6% commission. With a typical flat-fee package, you can expect to have your listing posted on your local MLS for 3-12 months with anywhere from 6-25 photos, along with a brief description of your property. But as a trade-off, you won't get the full-service selling experience that traditional realtors offer. You will be your own realtor.

3. Sell utilizing a 1031 Exchange to avoid capital gains taxes. You must be careful of the time restrictions inherent in a 1031 deal, i.e. 45 days to identify the new property and 180 days to close on it. Coordination is key. Once sold, delay closing on your home until you have identified the property you will be purchasing. 

4. I research the tax delinquent data bases for my acquisitions. You will find multi-family properties that have not paid their property taxes and can create a very good transaction with these very motivated sellers.

5. Try to purchase using the Subject To method so that you can take over the existing debt instead of applying for a new mortgage. In this manner you should be able to purchase a much larger property.

6. The 1031 cash profit from the sale of your house can be used pay off the seller so they can move on; or to pay the outstanding taxes should the property be close to a tax auction - but only if you have the deed in your possession.

7. Alternatively, banks have clients with mortgages that are in arrears. Find a bank with a small complex and offer to take the problem off their hands.

Good luck. Contact me with any questions.

CoachMitch.com

@Zach Carner It really depends on what you and your wife's long term goals are , but know that you did the right thing by purchasing in and around Charleston, SC.  

My advice, to all first time buyers / investors, is to hold... buy and hold, especially if the location has some more growth potential.   At that price points I'm sure you are going to be positive cash flowing and/ or break even from a monthly payment perspective (obviously this is why you need to find a property manager to give you more specific numbers.) 

But if you can, hold the property and allow yourself to make this decision 2-5 years down the road as you are gaining experience in your first RE Investment and "managing the manager."

Best of luck! 

@Zach Carner

Hold!!! I am a local realtor and work with investors. I would be doing you a disservice by telling you to sell- especially knowing you probably qualify for a VA loan and could acquire your next property with little cash out of pocket.

Please reach out if you’d like to chat a bit more and “pick my brain”!

-Charlsi

@Zach Carner also suggest if you can to hold. Are the rents in your neighborhood strong ?

But first talk to a lender in the city you are moving to. See what you need/ can do to acquire another personal residence loan there.

Grow your portfolio- this is one of the best house hacks each time you move. I believe if you sell there is not enough equity after taxes and expenses to make any difference. just my opinion. Also as a realtor I do not advocate the $100 flat fee realtors - you get what you pay for and it is NOT service nor your best interests protected. Again just my opinion. Best wishes.

Thank you everyone! This helps a lot! I have a few more details about our situation and follow up questions.

I put everything into the BP rental calculator and it came out to cash flow about $506/month. This sounds like a good idea to hold this property and determine if we want to sell later on?

Also for a VA loan if I don't put a 20% down payment will I have to pay PMI?

I am still researching the VA vs FHA loan when moving to Washington to determine what's better. I would like to buy our next house in WA, live there for 3 years, then rent it out when we move. Which loan would be best for that situation?

Thanks again!!

@Zach Carner I would rent it out, even if you just break even. If you sell for ~300k you likely wont make a profit after commissions and closing costs. This is assuming your mortgage principal left is close to 270k.

What was your plan when you bought the house? Did you intend to sell it or rent it out when you move?

@zach @Zach Carner Did you run the numbers on the rental? If you sell the property what will you do with the proceeds? 

Compare the ROI on a future investment property vs. the current one.

Originally posted by @Zach Carner :

Thank you everyone! This helps a lot! I have a few more details about our situation and follow up questions.

I put everything into the BP rental calculator and it came out to cash flow about $506/month. This sounds like a good idea to hold this property and determine if we want to sell later on?

Also for a VA loan if I don't put a 20% down payment will I have to pay PMI?

I am still researching the VA vs FHA loan when moving to Washington to determine what's better. I would like to buy our next house in WA, live there for 3 years, then rent it out when we move. Which loan would be best for that situation?

Thanks again!!

Assuming you have your full VA entitlement, I would purchase a 2-4 unit property with your VA loan up in Washington, and rent out the units you don't live in. This is called 'house hacking' and its an extremely powerful wealth building tool when combined with the VA loan. I'm using this strategy right now in San Diego. I'm happy to discuss more if you want. There are lots of active duty military on these forums who also invest in real estate (myself included), so you're in good company!

Best of luck and keep us updated on your progress. 

@Zach Carner

The decision is based on where you see yourself in the next five years? Do you want to get into REI with low risk? I was in your shoes in 2019 when we moved from our location in LA. I decided to rent because it aligned with my long-term goals of being financially free. 

What you need to do, you're already doing it. Reach out to several property management companies to see what incentives they charge and fees. A good property management company should have an investor portal for you so that information is streamlined. Also, do you plan to purchase more properties in that area? If so, will they lower their PM fee if you have several properties? Industry-standard rates are 10% and 8% with five or more investments.

Bottom line, if it were me and the property would cash flow, I would hold the investment and let someone else pay down my mortgage and use the cash flow for more REI deals. 

Sincerely, 

Josh

Originally posted by @Zach Carner :

Thank you everyone! This helps a lot! I have a few more details about our situation and follow up questions.

I put everything into the BP rental calculator and it came out to cash flow about $506/month. This sounds like a good idea to hold this property and determine if we want to sell later on?

Also for a VA loan if I don't put a 20% down payment will I have to pay PMI?

I am still researching the VA vs FHA loan when moving to Washington to determine what's better. I would like to buy our next house in WA, live there for 3 years, then rent it out when we move. Which loan would be best for that situation?

Thanks again!!

Speak to a lender who specializes in VA loans to fully understand what you need to do with this property and what you can do for your next property. Now that you've run the numbers, the CF looks pretty strong and perhaps worth keeping as a rental. So glad you are working through this! Keep us posted.

@Brian Nally @Scott Matthew C. @Zach Carner

This is an interesting discussion because it pits a decent projected single family yearly rental cash flow, e.g. $506/month x 12 = $6072 yearly profit before taxes versus a proposed sale profit of $38000 and what could be made from that. 

EX1: If finding a property in the Tax Delinquent Data Base, like I do, and using the $38000 as a regular down payment in a VA loan, a 4 plex can almost certainly be gotten and the cash flow profits from 3 rentals could easily be more than the $506 with the added benefit of Zach living rent free in the 4th unit. $300/month x 3 units = $900/month x 12 months = $10800 yearly profit.

EX2: If finding a property in the Tax Delinquent Data Base, like I do, and using the $38000 as a down payment in a 1031 tax deferred exchange, then there is the significant potential that a 10 unit could be gotten with substantially more rental income and bringing Zach that much closer to his financial end goal. $300/month x 10 units = $3000/month = $36000/year profit

In addition, Zach would not need a property manager in Washington State as this would be his opportunity to learn the property management business so that when he moves in 3 years Zach is knowledgeable about how to operate a complex and understand how to oversee a manager from a distance. In this case add the 8% property management feed of gross rents back into the $36000 profit. If rents were $1200 x 8% = $96/unit/month = $960/month = $10560/year. The property management fee is 29% of total pretax revenue. Therefore, if Zach were to manage, his profit would be $46560.

$6072 versus $46530. What do you think?

CoachMitch.com

Also consider the states you are in vs moving to. SC is a more landlord friendly state by far (do some searches on here about landlord nightmares in WA)

Based on that, I would keep SC and buy more in the south while you wait out your time before the next post.

Just my .02

@Cody Cupp I'm a service-connected veteran myself, and as for the funding fee, to have it waived you just have to be service-connected, the percentage is actually irrelevant which is awesome. Also, the waiving of the fee is a VA policy so regardless of lender if you're service-connected it gets waived!

@Zach Carner good luck to you, brother whichever way you go. Personally, I've regretted each home sold, and I agree with the others who said to hold it. As your equity builds, more and more options will come available for you to use (cash-out, HELOC, 1031, etc). Based on your numbers and depending on how much you still owe and factoring in agent fees, closing costs, etc it doesn't seem you'd walk away with much. If you need to access the equity now, you could look at doing a HELOC; you can find lenders who'll do 90% loan-to-value with no closing costs, and you'll have a pot of money to draw from and replenish as needed typically for the next 10 years with interest-only payments. I'd contact some lenders in your area and see what's available. If you got questions about the VA loan, let me know. I'm not a lender so I'm not an expert, but i can discuss my experiences and maybe answer some questions as I have used mine several times along with a couple refi's.

@Zach Carner

If you sell the property for $308,000, you will likely end up with no profit when you factor in costs to sell(realtor commissions, title insurance, title costs, stamps, etc).

Items to consider when selling a house

You may pay around 7% to 9% of the value of the home in fees(Realtor Commissions, Title costs, Title Insurance, Stamps etc).
The sale may also result in taxes(Federal taxes + State Taxes).
You might be able to avoid taxes by doing a 1031 exchange or QOF Fund.
You no longer have an asset that can potentially provide you cash-flow / appreciation.
Do you think you can make up the 7% - 9% in fees + Taxes over time by buying another property?

Items to consider when you rent the home

You will collect gross rental income and pay for expenses(Insurance, RE Taxes, Interest, Repairs, etc). Hopefully you are cash-flow positive on the property.
The property will gain or lose value over time.
Are you happy with the cash-flow and appreciation? Keep it
Do you think you can find another property that will Cash-flow / appreciate better and also cover the 7% - 9% fees described above? Sell it