Rent or sell my current home?

Question

I purchased a house in a good market in middle TN about 2 years ago with an FHA loan at a good rate. I bought it for 179,900 and did some rent friendly renovations (just in case) and it now will likely sell between $220-$230k based of comps from the same floor plan of other houses in the neighborhood. My biggest concern is it being a split level makes it a larger liability for injury and expensive water damage. With all that being said my mortgage is $1200 and I believe it will rent for $1400-$1500. Should I sell and start a new project and capitalize on not paying capital gains tax, or rent this property in a neighborhood that is appreciating at roughly 10-12% a year? This would be my first venture into real estate investing, any and all direction is greatly appreciated!!!

Wes Ripley · Answer

So let’s say you keep it.  In 5 years it might be worth 300-350k.  This is where location, location, location comes in.  You have a house in a good area that is appreciating.

I am still learning but it seems the 1% rule holds truest for houses 100k and less.  Those will cash flow better but typically are in Your c and d class neighborhoods, which don’t usually appreciate much.

I feel like it comes down to what are your goals, cash flow or wealth.  Cash flow would probably say sell it, wealth would say keep it.

Theresa Harris · Answer

The 1% rule is a guideline and not everyone follows it.  It wouldn't work in most of the places where I am though houses here do appreciate in value.

James H Webb III · Answer

@Theresa Harris that’s along the same lines as I was thinking. Where I’m at the 1% rule is kinda way out of the window. I think I am going to finish renovations and sell it while the market is high. Thank you for your input!

Theresa Harris · Answer

@James H Webb III  If your mortgage is $1200 and it will rent for $1400-1500, after you include property taxes, repairs and maintenance; it will cost you to keep it.  If it is appreciating 10-12%/year, then you can hold on to it, but this is a risk and as you said, are the tax implications worth it?  What about selling it and using the money to buy another house where the numbers are better?