To rent or to sell? Which is better?

Member since 2019 · 18 posts · 6 votes

Hello!

My boyfriend and I currently reside in a home we purchased with the intent to maintain it as a rental property when we move. However, since we bought the house, the value has increased quite a bit. Now, the time is coming close for us to make arrangements for the home, and we are torn between selling to use the extra money to pay off a few bills/loans or sticking with the original plan of renting it out as an investment property. We want to make an informed decision that's going to be best for us in the long run. If anyone has any advice on how to make this decision or related stories of successes/losses when it comes to this sort of situation please let me know!

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Bruce WoodruffPro Member

Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes

This gets asked every day. We'd need more info to give you good advice. It all depends on how much profit you'd gain, or how much debt you have, or what your ultimate goals are, or where you're located, or........well you get the picture.......

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Cassi Justiz
Rental Property Investor · Edmond, OK · Member since 2017 · 1k+ posts · 1k+ votes
4y
What is your cashflow goals and will this home get close to it?
If you end up selling the home you be advancing your financial position with the additional cash by investing it into another asset or will it all go into paying off debts?

I was in a similar position a few years ago. I was in the position to sell my primary and net about $40k or keep it and cashflow about $500/month after paying PITI. I decided to keep the property because once I decided that I would not be able to take the net gains from the sale and invest into anything with comparable returns.
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Brad Jacobson
Realtor · Ogden, UT · Member since 2019 · 338 posts · 415 votes
4y
Hi Arianna,
I faced a similar dilemma a few years ago and went with the option to sell. Looking back, it was the right decision for me. I was able to use the proceeds from my first home to put myself in a position to buy a few more. I ended up putting those proceeds into a flip, almost doubled them, and now have a five door portfolio that I'm still growing.
Just this first big tax free paycheck to springboard you into more!
- Put another 3-5% down on a new residence for you
- House-hack that new home
- Pay off all high-interest debts
- Use what's left and the new cashflow from the house-hack to buy more and more properties to either rehab or hold
Good luck!
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Wale LawalBusiness Member
Real Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
4y
Hi @Arianna Crawford,you might want to read the pros & cons for renting or selling property in this website; https://www.theadvisory.co.uk/...
Hope it will help you and your boyfriend make a decision.
Goodluck!
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Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
4y
This gets asked every day. We'd need more info to give you good advice. It all depends on how much profit you'd gain, or how much debt you have, or what your ultimate goals are, or where you're located, or........well you get the picture.......
2 Reply
Joe FunariBusiness Member
Real Estate Agent · Keller, TX · Member since 2017 · 850 posts · 825 votes
4y
@Arianna Crawford I will always advocate keeping assets while reducing your debt burden. Both help anyone's long term financial goals. Have you considered a cash out refinance on the property? That way you still get cash (non taxable by the way) to pay of bills/loans and/or purchase additional rental properties. Plus you keep the property as a rental that will continue to generate income and increase in value over time. I am a fellow investor and a realtor. But always advocate holding on your assess for +10 years before considering selling.

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Arianna Crawford
OP
Member since 2019 · 18 posts · 6 votes
4y
@Cassi Justiz
Thank you for the reply! To be honest with you, we haven't discussed specific cash flow goals. This is our first house, and we bought it simply to get a taste of whether we wanted to invest in additional real estate over the course of our military careers or find another investing option. If we sold, the money would go mainly towards paying off loans. If it sells for what it is currently estimated at, we would both be debt free (or close to it). Any excess would go into buying another home, and with the VA loan we don't have to worry about a down payment. However, it is difficult for us to analyze any future investment's value since we don't know where we will be stationed next. As for possible cash flow, I have looked around our area and the rentals cover a wide range of prices, so I'm unsure how much we might be able to pocket. Would you recommend contacting a local property management company to get some answers for that? Or is there a better resource for making these calculations?
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Arianna Crawford
OP
Member since 2019 · 18 posts · 6 votes
4y
@Brad Jacobson
Thank you so much for the reply! It's nice to hear success stories to know what could possibly come from this big of a decision.
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Arianna Crawford
OP
Member since 2019 · 18 posts · 6 votes
4y
@Wale Lawal
I will definitely check it out. Thank you!
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Arianna Crawford
OP
Member since 2019 · 18 posts · 6 votes
4y
@Bruce Woodruff
It's good to know others in my situation are just as confused and unsure as I am about what to do. I'm going to try to get some more pertinent information and then ask around. Thanks!
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Arianna Crawford
OP
Member since 2019 · 18 posts · 6 votes
4y
@Joe Funari
I hasn't even considered a cash out refinance. We will look in depth at this option. Thank you!
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Bud Gaffney
Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes
4y
rent it and forget it! ca$hflow is king.
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Doug Spence
Investor · San Diego, CA · Member since 2016 · 1k+ posts · 975 votes
4y
@Arianna Crawford I would definitely reach out to a local property management company and figure out what you could get each month if you rented it. Honestly, this is information you should have figured out before you bought the house since the plan was to buy it as an investment. But that's ok! We all make mistakes early on and we just have to learn from them and press forward.
The answer to your question is: it depends. What are your long-term goals? How much could you profit (after closing costs, commissions, etc) if you sold? What could it rent for? What would your monthly expenses be if you rented it? Is the home in a really good neighborhood with great schools or is it in a rougher area? Is the local economy growing or shrinking? Do people want to live there?
If you plan to buy at your next duty station, I HIGHLY recommend doing a house hack with your VA loan. I just did this on a primary residence we purchased in San Diego and it's the way to go to build wealth long term.
Good luck on your journey and keep us updated!
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Fred Cannon
Rental Property Investor · St Augustine, FL · Member since 2019 · 265 posts · 279 votes
4y
@Arianna Crawford when you say boyfriend that makes me nervous. If you are committed enough to own property together and share bills then you are putting yourselves ( and he is to) at risk for a messy ending. A divorce is bad enough legally but a girlfriend/boyfriend split with joint property and joint bills, etc, is something that would scare me. Just make sure you are legally protecting yourself. As far as your question, if you can comfortable keep the rental and it cash flows 10% of what you have invested then you should keep it. Just the appreciation, mortgage pay down, and the tax benefits should offset any downturn in the market if that should occur. If keeping the rental will cause you a financial strain and being that you are in a boyfriend/girlfriend relationship I would sell. If you sell make sure you split to proceeds. I wish you the best, if you were my daughter I would be extremely nervous Dad, same goes if you boyfriend was my son. My commit is not about your relationship but about the legal protection you don't have in this type of situation.
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Drew SygitBusiness Member
Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
4y
As @Fred Cannon mentioned you are in a high-risk situation with your significant other!
Marriage has a legal means of dissolving and splitting assets & liabilities, called divorce.
Since you are not married, you have no legal means of dissolving your relationship other than an ugly court battle.
Suggest you two have a Partnership Agreement drawn up and executed, to cover how any joint assets and liabilities will be split.
BTW: sooooo many people don't think they have to worry about this. My own sister didn't heed our advice and when her split happened, it was brutally ugly and her credit was significantly damaged:(
Took a lot of effort not to rub her face in an, "I told you so", when she came to us for advice AFTER not taking it to begin with.
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Justin Sullivan
Real Estate Agent · Phoenix, AZ · Member since 2019 · 158 posts · 140 votes
4y
@Arianna Crawford
I just sold a personal residence for a large 6 figure tax free profit. Originally when we purchased it we planned to hold it forever but our plans changes with the increase in market and our lack of funds. You’ll have to do whatever is best for you. If paying off your debts is going to help you to better save for more properties then go for it. It’ll definitely save you some money in the long run with interest. But like a few people have said you have to figure out your long term goals. We decided to sell
Because we moved across the country and having the extra cash helped to start more projects get our new personal home and have some reserves. Now we have a couple projects rolling and just went under contract on a single family which will be developed into 8 units due to great zoning area. So our plan has always been new construction so that’s where our head has been. Make your plan and decide what is best for you. Someone else may have wanted to do a heloc or refi snd keep our house.
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Suzanne Ludlum
Investor · Fredericksburg, VA · Member since 2019 · 37 posts · 17 votes
4y
@Arianna Crawford Renting as an investment property almost always is better. Do you have to work the numbers in terms of what your mortgage payments are and how much rent you can bring in to help cover the cost of your bills.
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Aaron Rouser
Real Estate Agent · Saint Paul, MN · Member since 2020 · 24 posts · 28 votes
4y
My wife and I were in a similar spot a few months ago when we purchased what turned out to be a headache property earlier this year. We had the option of cutting our losses by selling the property OR to go ahead with our original plan of adding some sweat equity by fixing it up to hold/rent out.

First off, I 1000% echo what the other posters on this thread have shared. It depends on your unique situation, finances, real estate goals, the breakdown of this particular deal, etc...
What was the deciding factor for my wife and I was that the pain we were going through was temporary. The SFR we bought was in overall decent shape, and we forced ourselves to reframe our thinking so that we could make some lemonade from the lemons we believe we were given. We'd have an appreciating asset, in a desirable neighborhood, that we could eventually fill with tenants and turn it into a cash-flowing asset. We are still very new to the real estate game, but we remembered why we got into it in the first place, and that was to build a portfolio of appreciating assets that cash-flowed. Remembering our initial why gave us all the clarity we needed.
I hope you find some value from this, feel free to PM me if you have any other questions. All the best!
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Tracey G.
Accountant · Baltimore, MD · Member since 2016 · 74 posts · 29 votes
4y
@Arianna Crawford I was going to rent my place out but when property values went crazy, I decided to sell. It appreciated about 25% in a year and I only owned it for two. The same thing happened in the house I owned before that one. I owned it for 8 years and in year 7, it went off the chart. I had bidding wars on both. They would have each been less than .75% on the 1% rule, in a high tax state. There is no one right answer but in my case it was an easy decision to take the money and run.
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Michael Temple
Rental Property Investor · Toledo, OH · Member since 2017 · 262 posts · 215 votes
4y
@Arianna Crawford there really isn't a right or wrong answer here. It depends on what your short and long-term goals are. Here are a couple of things to think about...
1. Since you lived in the house if you lived there for at least 2 years and a day you qualify for the 121 tax exemption where you can sell and keep your proceeds tax-free. Now you mentioned boyfriend and not spouse, there are differences for single people and married couples for how much the exemption is under 121, you will want to talk to a CPA to see how you have it set up and how it will apply to your specific situation, but this might be a good approach again depending on what your goals are.
2. Having a rental property is gold in my book. It is likely the property will continue to appreciate and if you rent it you will get the benefit of both income (rent) AND appreciation, plus tax savings (depreciation), plus equity build up from the loan being reduced further. I find this combination of benefits so good I keep trying to find more and more rentals and probably won't sell anything ever :)
Good luck with whatever you decide. Maybe take the time to get really straight on your financial goals and then meet with a CPA to get a better grip on how your choices will affect you personally.
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Jim Spatzenfeld
Investor · NorCal · Member since 2015 · 282 posts · 240 votes
4y
Over the last 20 years I sold somewhere between 10-20 houses. Big regret! I should have done cash-out refinances instead. All those houses are now $100k-$300k more expensive than what I sold for. I must have lost about 2 million by selling. I will never sell any house again.
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Joe SplitrockPro Member
Moderator
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
4y
Originally posted by @Joe Funari:
@Arianna Crawford I will always advocate keeping assets while reducing your debt burden. Both help anyone's long term financial goals. Have you considered a cash out refinance on the property? That way you still get cash (non taxable by the way) to pay of bills/loans and/or purchase additional rental properties. Plus you keep the property as a rental that will continue to generate income and increase in value over time. I am a fellow investor and a realtor. But always advocate holding on your assess for +10 years before considering selling.

You have to be careful with cash out. Although it may be tax free, it is not interest free in most cases. Deductibility of interest follows use. If you are using cash out to pay off consumer debt or buy a personal residence, the interest is not deductible.
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Joe SplitrockPro Member
Moderator
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
4y
@Arianna Crawford based on what you shared, selling may be the best option. Since it was your personal residence and you lived there two years, the income is tax free. It is a good chance to pay off debt and get established on a strong track. Selling the property also allows you to use the VA loan again, so you can come into your next property debt free.
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Chase LowryPro Member
Cleveland · Member since 2021 · 95 posts · 52 votes
4y
Depends on your goals bruhv…
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Erich Brown
Realtor · San Diego, CA · Member since 2019 · 20 posts · 8 votes
4y
@Arianna Crawford
Like many of the others said before, it depends on the goals for your property. Based on the pictures and your statements, im guessing this is a PCS? If so, there are a couple of things to consider:
1. You have used some of your entitlement here in San Diego so your lower purchase power might require you to pay to close in the new location.
2. Is there cash flow? If so, would it make more sense to move the equity into another property (or two) so that you have more cash flow? This will also free up the entirety of your VA loan benefits to purchase a 2 to 4 unit property in the new location.
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Noe Farias
Real Estate Agent · Houston, TX · Member since 2021 · 4 posts · 2 votes
4y
Definitely would recommend talking to a local agent or property management co who can help you find a range of what rent you could command. You already know what it costs you to own the home so it will be easy to see if it will cash flow. That’s why others have asked what your goals are with regards to what you want to cash flow and long term what you want out of it.
Good problem to have, best of luck.
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