Is it better to rent, sell, or both?

Question

I inherited a property with a ridiculous amount of equity in a nice area.  Would it make sense to just rent it out and refinance or sell it and try to buy a 3-4plex which more cash out and leverage?  House has no mortgage - worth $300k.  Rents in that area are around $1500 a month.

Kevin Sobilo · Answer

@Kenneth Peagler, you inherited it at the stepped up basis (current value). So, if you sell it you aren't in for a big capital gains tax bill. A big plus.

If you refinance a $300k house and rent for $1500 you will likely be losing money each month.

If you rent without refinancing you have a liability out there in case someone sues you because you have so much equity. Also, your equity isn't working hard to bring home cashflow.

If you are serious about having rentals, I would probably sell and look to buy good cash-flowing rentals with the proceeds. You can sell and buy over $1 million in good rentals with that property and some mortgages.

Kenneth Peagler · Answer

Thanks for your perspective.  Thanks what I was thinking.

Kenneth Peagler · Answer

Thanks for this.  Ill probably sell it and focus on leveraging into a larger, cash flowing asset.

Austin Johnson · Answer

well, let's say it's $300k. a refi at 70% of value would give you $210k in a loan and an estimated mortgage $1,140.10. (according to the BP mortgage calculator based on a $210k loan over 30 years).you factor in 5% for repairs, 5% for Capex, 5% for vacancies. (shooting from the hip here) 15% total. so $1500 income. take out 15% is $1,275. take out the mortgage of $1,140.10. you're looking at a POTENTIAL $134.9 / month income.

I don't know your goals or your vision for your future. 1031 exchange is possible. sell the asset, roll it into a larger asset and defer taxes. but as Kevin stated, that large of equity renting it out would be massive liability.