Sell personal house or turn into buy & hold

[Jason Hill]

I'll try to make this as brief as possible. In about 10 months my wife and I plan on moving. We arn't sure what to do with our current primary residence.

It's in a very desirable middle-upper middle class neighborhood. Our boots on the ground estimation is that we could get 2x P&I for rent. We will be building a house debt free so selling will help tremendously with that, however; it also means we could easily cover vacancies.

My worries are these:
1. The house is in our name (no liability protection). Would a warranty deed to an LLC work?
2. The house is in an HOA neighborhood that doesn't outright forbid rentals but, I'm sure it doesn't like them. I would pay the HOA fees of course.
3. My "Sominex" fund (nod to bawld guy) isn't huge but enough to cover one or two major repairs. I have another rental, which again I can cover both mortgage payments, however; I'm not keen on that.

So do the benefits of turning this into a rental outweigh the negatives?

[Bryan Hancock]

From strictly a "cash flow" (using the 50% rule of thumb) standpoint the numbers would break down like this:

NOI ~ $1500*12 / 2 -- $9000 (annualized)
Capitalization Rate = $9000 / $180,000 = 5%

So in other words if your fully-amortizing, 30-year debt is anywhere above 4.5%ish on the project you will have negative cash flow at normal LTVs like what you have. I see that your PI is $750/month...which is EXACTLY what the 50% rule of thumb estimates as NOI. So from STRICTLY a cash flow standpoint you should be roughly break even long term.

You are left with dual use tax writeoffs, depreciation tax shields, amortization of the loan, appreciation, and inflation hedges. If those items exceed the transaction costs of selling I say you keep it.

A lot really depends on what your intentions are and how your portfolio is structured. There is a ton of information on the forums about cost centers you are missing. I suggest you read through those to get a sense for how the rental will perform in the real world. Capex is a big thing you missed...as is management of the unit. You can see major cost centers on this study:

Study

You should also read Ray Alcorn's article here:

Alcorn's article

and Reed's article here:

Positive Cash Flow

I hope that helps some...