Calculating ROI for Converting Primary Residence to Rental Property

Fort Worth, Texas
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Calculating ROI for Converting Primary Residence to Rental Property

Whitney Hanson Bollinger
Member since 2023 · 2 posts · 1 vote

Hi everyone! My husband and are are planning to move out of state next spring and are considering renting our primary home while purchasing a new one. Our primary home was a rental property before I bought it and the neighborhood we are in does well with rentals.

I'm looking to calculate ROI and rental income and appreciation projections, but all of the forumlas and spreadsheets I'm finding are for homes being purchased specifically for rental, not converting an owned house. Our house has significant equity, and I want to ensure that we are taking all of that into account.

Does anyone have any recommendations on calculators or what numbers to plug into the standard calculators to get an accurate reflection?

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  • Trevor Richardson
    Real Estate Broker · Reno, NV · Member since 2023 · 267 posts · 297 votes
    3y

    We are looking to solve this. What is your current mortgage? DM me if you would like and we can help run an analysis.

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  • Bryce JamisonPro Member
    Rental Property Investor · Mebane, NC · Member since 2015 · 494 posts · 439 votes
    3y

    You may want to consider cash on equity as the metric to use. How much are you bringing in vs how much equity you have in the property. David Greene is a big proponent of this metric. He describes money as energy. Would you be happy with how much the energy in your house could bring in for rent, or could you bring in more by selling your home and deploying that energy into other projects?

    Your situation is slightly different than a straight investment deal because if you want to sell you won't have to pay taxes on the proceeds, up to 500K for a couple. You'll also want to consider the headache factor of managing a long distance rental. Is this something you want to do, or are you just considering it because you're moving?

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  • Scott E.
    Contractor · Scottsdale, AZ · Member since 2010 · 2k+ posts · 3k+ votes
    3y

    In a situation like this I'd look at the return on equity.

    So first figure out how much equity you have. Lets say $100,000 for this example.

    Next figure out how much the property would cash flow (gross rent minus mortgage, taxes, insurance, repairs, maintenance, other expenses) . Let's assume you cash flow $300 per month, or $3,600 per year.

    To get the return on equity: $3,600 / $100,000 = 3.6%

    Most would consider 3.6% an awful return, meaning you'd be better off selling and putting that money into another investment.

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  • Michael Olmstead
    Real Estate Broker · Fort Worth · Member since 2023 · 18 posts · 8 votes
    2y

    I am assuming you are looking long-term on renting your primary residence and not interested in selling any time soon. It's a great idea to let the tenant finish paying off your mortgage over time and continuing to build equity. I am a life-long Tarrant County resident and have invested exclusively in the Fort Worth area over the years. I know the area very well and we currently manage rental properties exclusively in Tarrant County for smaller investors (1-5 doors). Message me some basic info and I would be happy to put together some numbers and calculate cap-rates for you.

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  • Preston DeanBusiness Member
    Realtor · Fort Worth, TX · Member since 2021 · 779 posts · 368 votes
    2y
    Quote from @Whitney Hanson Bollinger:

    Hi everyone! My husband and are are planning to move out of state next spring and are considering renting our primary home while purchasing a new one. Our primary home was a rental property before I bought it and the neighborhood we are in does well with rentals.

    I'm looking to calculate ROI and rental income and appreciation projections, but all of the forumlas and spreadsheets I'm finding are for homes being purchased specifically for rental, not converting an owned house. Our house has significant equity, and I want to ensure that we are taking all of that into account.

    Does anyone have any recommendations on calculators or what numbers to plug into the standard calculators to get an accurate reflection?


    Hey Whitney, I could try and help you calculate ROI with your Fort Worth home. I'm here in the Fort Worth area and wouldn't mind trying to help you with that.

    [email protected]817-480-9452
    United Real Estate DFW Properties 564 Reviews
    WebsiteView Page
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