Hello, I hear a lot about the 1% rule when buying a place. However, do you use the same formula when debating whether to sell your primary residence (if moving) vs renting it out? Also, do you factor appreciation into the formula (or just stick with acquisition price)?
Specifics: I bought my primary residence (condo) for $200K that has now appreciated to $400K. I'm planning on buying a house in the near future and am debating whether to keep the condo (and rent it out) or sell it. I could only rent it out for $1,750 month though, so that doesn't meet the 1% rule for my acquisition price (and is less than 0.5% of the current market value). Because of this, it may make more sense to sell and use the surplus cash elsewhere (either by trying to find a rental property that does meet the 1% rule or just invest in the stock market). Last thing I'll say is that I've been interested in adding real estate into my portfolio to diversify from the stock market, and this may be an easy way to do it (vs having to find & acquire a brand new rental property) although I understand the returns would be lower.
Thoughts/advice on how to think through this? Thank you!
@Matthew Miller when deciding whether to keep a former home as a rental you should look at return on equity not just the original price. Can you sell your home and reinvest that money into something that would give you a better return?
An important consideration is your home may be subject to some substantial benefits regarding capital gains. This needs to be figured into the equation. Those rules changes with the new tax law so talk to a competent accountant