Sell or Rent- Fork in the Road! Help Wanted!
My husband and I are looking to start our investing journey. We both purchased houses (2018, 2020) and after we got married consolidated into one house. The plan had been to rent the other property and did significant cosmetic upgrades (~$3,500). We are struggling to rent at a price point w/ significant cash flow and are looking at ~$125/mo (not accounting for any damage/repairs) and understand that this would likely be a net-negative venture or best case scenario break even.
Our options are
- 1. Rent w/ ~$125/mo cash flow, plan to benefit from the eventual equity (understanding this would be a longer term hold), keep the 4.6% interest rate that is currently on the mortgage knowing this is not ideal but a solid house w/ good interest rate in a good/desirable area
- 2. Sell the house (have had as a primary address for 2 of the last 5 so would avoid taxes) and use the profit (~70k) for a better investment. My worry here is w/ the difficulty finding cashflow, high interest rates, and being new investors, a misstep would be expensive and significantly set back our investing journey and may be worse than the current option w/ have w/ the house. Are we better to stick w/ what we have as we get started or try to find a better option in this unpredictable market?
Quote from @Meghan Kolf:
My husband and I are looking to start our investing journey. We both purchased houses (2018, 2020) and after we got married consolidated into one house. The plan had been to rent the other property and did significant cosmetic upgrades (~$3,500). We are struggling to rent at a price point w/ significant cash flow and are looking at ~$125/mo (not accounting for any damage/repairs) and understand that this would likely be a net-negative venture or best case scenario break even.
Our options are
- 1. Rent w/ ~$125/mo cash flow, plan to benefit from the eventual equity (understanding this would be a longer term hold), keep the 4.6% interest rate that is currently on the mortgage knowing this is not ideal but a solid house w/ good interest rate in a good/desirable area
- 2. Sell the house (have had as a primary address for 2 of the last 5 so would avoid taxes) and use the profit (~70k) for a better investment. My worry here is w/ the difficulty finding cashflow, high interest rates, and being new investors, a misstep would be expensive and significantly set back our investing journey and may be worse than the current option w/ have w/ the house. Are we better to stick w/ what we have as we get started or try to find a better option in this unpredictable market?
I’m struggling to see your dilemma? Negative cash flow is almost always a non-starter. Obviously you purchased this home to live in, not to rent (up front), so in that sense it can be more understood why it might not cash-flow.
If we were 2 years ago where the market was on fire, only -$125 would probably be worth holding onto. But now it would seem we are very much towards the top of the near term market prices, with the FED actively trying to push home prices lower. Point being - it may be some time before you see great appreciation like we did the past couple of years.
I would sell the house, take the tax free profit, and then look for my next investment - that will cash flow. This will likely take interest rates coming back down a couple of points in my estimate, unless you find a great deal. My ‘line in the sand’ is that I want a smaller 800-1000sf house to cash flow at least $300/month for it to be worth it for me to buy. Until I see that I have my cash sitting in a high yield savings account waiting for the market to reset, or a great deal that will cash flow to come along.
Hope it helps!
Randy
Is there a good duplex or triplex in your area for sale that would use that 70k profit as a down payment and cashflow better? Would you rather have appreciation and equity in single family or cash flow from multi family? A 4.6% interest rate is hard to let go of but if you can't raise the rent and a major repair wipes out your cash flow for a year or two then it's hard to justify not selling it and moving on.
