To Sell or To Rent Out

6 Replies

My wife and I are weighing our options on how to start our real estate investment venture. We are currently living in a HUD home and have some nice built in equity. We have done some renovations to this home including windows, doors, flooring, and all new kitchen. Is it smarter to sell this property in another year when we will have our 2 years in so we don't pay taxes, or should we rent it out and begin our path that way? My main concern is that all of our potential cash is in this property and that we may not be able to get financing for our next property if we rent this one out. Another concern is we have put so much work into this property, would renting it out create more wear and tear to fix down the road and cost more money? Any suggestions are greatly appreciated.

@Keith Zabak Me and my husband are trying to figure out the same thing for our home. We didn't buy a HUD but we bought a foreclosure back in 2010. The house was fairly updated but we made some small improvements as well. We are looking to upgrade next summer to a bigger home. I would say if you're in a higher end area and you could get great cash flow then think about renting for a few years to build more equity. If you rent you would definitely want to tenant screen as best as you can because of the work you've put into the home.

couple rules of thumb

1% rule

If your house is worth say 100000 and you can rent it out for 1000 or more then do that.

.5% rule

If your house is worth 1000 and would rent for 500 or less then sell it.  

Every thing in betwean is a sliding scale.  What do you expect prices to do in the local area?  Are you trading up or down?  What does your personal balance sheet look like?  Can you make sacrifices to scrape together a down payment for the next house?

We were in your same situation 3 years ago and raided retirement funds to get a down payment on the next house.  3 years later the old house has apprciated 65000 while never quite reaching the 1% rule but also never falling to the .5% rule.  But the new house has appreciated 50000 and having equity capture of 75000.  While raiding the retirement funds is against conventional wisdom it worked out for us. 

Hope that helps.

It depend son your strategy, desire and reinvestment options. A important part of my husband and I strategy is buy distress properties as cheap as possible with as little down as possible as personal property. We buy these houses live in them, fix them up and rehab move on to another personal property when we are transferred (as military).

The key is to figure out a strategy. We put very little down as possible . On the other hand we don't pull the money out. We also don't worry about the 1%, 2% or 50% rules. We have done very well and have slowly working on buiing our empire. The key is to build a business strategy and go from there. Our goal is to buy appreciating houses. Therefore in your. Case we would just rent it out. On my website I write in detIl all about our model and how we make it work! 

I hope this make sense. I had an amazing response written and than te site crashed :( if I can help let me know!

Thanks for the input! My major conflict is that we really have $0.00 in savings or retirement funds to tap into. We have all our equity in this property. So I guess I'm answering my own question in that if we rent this property out, we have no money to put into another property.  One plan we are pretty sure about is when we buy our next property it will be well below our means so that we are not in this similar predicament and we have the room to acquire another property. Does this make sense, or are there options I'm not aware of? 

Another question that I just thought of...We have talked about one of us getting a Realtor license. Are there any downsides to this. It sounds like it may cost a couple thousand $$ but save huge amounts in the long run. As a Realtor do you get to see all the MLS listings, and also become aware of properties before they hit the market?

My wife and I also bought a HUD thru the good neighbor program in 2011. I have gone back and forth on the sell or rent decision several times. We have it fixed up quite nicely (not luxury but a little more than I do for my SFHs) and it would sell for at least 3x what we have in it. My thoughts are currently to rent it whenever we decide to move. Several investors with similar ideals to me say that they have regretted almost any time they have sold a piece of (income producing) real estate. Part of me wants to sell and buy 2 income producing properties with the cash(we own outright) and part of me wants to keep it with amazing Cash on Cash return. Considering a HELOC or cash out refi to maybe get the best of both worlds.

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