When to sell vs rent?

Question

Stephanie Boggs · Answer

The $100 cash flow accounts for PITI with a $300/month for repairs (Rent would be $1600).  The house was built in 2010 so I was estimating low on repair costs since it's a newer house.  Do you think this is a mistake and I should still be using the 50% rule even on a newer house?

There have been 4 or 5 houses that have sold in our neighborhood in the last few months so I have a good basis for comp value.  Thank you for your response and pointing me in the right direction!

Stephanie Boggs · Answer

We have had our current house for more than 24 months so we would qualify for a tax-free gain on the sale and we are staying in the area and plan to self-manage.  I've been reading everything I can get my hands on about the art of landlording!  The $25k would be net so it would give us a nice chunk of change to put into a future deal.  Thank you for taking the time to respond and help us think of all possible angles!

Alexander Felice · Answer

usually new investors mis-estimate actual costs.

for isntance, you say you'll make $100 CF. is that rent - PITI or does that include all expenses. have you used the 50% rule? (rent x .50 - debt service = CF)

also, have you found comps for you house, or are you guessing its value? You should also calculate what it would cost you to sell (7-9%)

If you run these numbers properly then it'll be easier to decide what to do. $100CF when all expenses are calculated might make it ok to keep. If you rerun the figures and you're negative cash flow, AND you can make money by selling then the decision is made for you.

Steve Vaughan · Answer

If you sell and you've occupied your home for at least 24 months, you can qualify for a tax-free gain on the sale.  If $25k is net (of closing costs and commissions), it may be worth looking at.  Save you your tax rate on that in taxes.  If $25k is gross, it's not really that much in savings, of course.  After negotiations and costs, it wouldn't be that big of a factor for me.

If you are staying in the area and can self-manage, renting it out is certainly an option.  Are you super attached to the home?  Emotions will come into play as renters potentially allow the grass to die and damage happens to the house.  Just another consideration. Many of us started by renting out our current home.  Please keep us posted @Stephanie Boggs!