I bought my first house for 375k with a 3.5 Interest rate in 2014 and is now worth around 450k(I owe 260K on it). I am moving out of the state and am wondering if I should rent it out or sell it. I don't need the money for another down payment on my new house and am Pre approved for a 600k loan. I have redone all the plumbing and the the house is in great shape. My current mortgage with taxes is 2k. I could rent for around 2600-3200 range. I had a problem coming up with a good capex #(I put 10%) as all I really need is a new roof in 10 years so what number would I put there as a percent in the spreadsheet? I know you should get 1% for every 100K your house is worth but since I have a low rate and dont have to pay any other fees maybe its worth it to hang onto it? I know all the little details matter but just kind of looking for some broad opinions. THanks!
It's a guaranteed loser as a rental. Way too high priced for a measly rent in the range of 3K. Sell and reinvest the money in 1% minimum deals. Besides do you really want tenants destroying that property and having to renovate to sell. It is far wiser to invest in purpose built rental income properties and not risk the damage or the decline in value when markets adjust. I would definatly sell now while markets are at their peek.
You have almost 200K in dead equity that should be invested and earning a 10% return. That's $1666/month that is not being earned while all it is doing is saving you the prevailing mortgage interest rates.
Never try to justify holding onto a poor investment property. (I have a low rate and don't have to pay any other fees maybe its worth it to hang onto it?)
A few things to consider:
- What are your long-term goals and how does this particular transaction applies? Are you looking for passive income/appreciation/combination?
- Looking at the numbers, if you rent on the lower end of your range ($2,600) you may be just breaking even. You will need to account for the vacancy (1/12 month 8.33%), repairs (these are short-term items and it sounds like you have already done some of the work yourself - assume 5% of rental rate $130), property management (assume 10% $260), cap x (assume 5% - $130). In this case, about 29% of the rental income will be used for expenses on top of your mortgage and taxes (2,600*0.29) = $764 total expenses = 2,000+764=$2,764. You would need to nail down the rental rate. Also, HOAs in Florida are famous and expensive so don't forget to include if it applies.
- You are not going to get that type of interest rate these days.