Should I sell or rent out my property? Need serious advice!

Question

I bought my house 5 years ago with the intent to live in it for a few years and then turn it into an STR. Unfortunately, recent regulations have made it so that I can no longer STR in my neighborhood. I have about $250k in equity in the home and my realtor believes if we list it we will probably get a bidding war in this market and since our neighborhood is highly desirable. If I LTR it will cash flow $300-500 per month, which isn't bad but I want to get much more serious with STR investments in our market (I started an LLC for Airbnb arbitrage and just no bites yet). I could mid-term rent my house, which would cash flow more like $1k per month but there's more potential for vacancies. If I sell, I could use the cash from the sale of this home to get my business really going and even buy multiple STR permissable properties. On the other hand, I am locked in at a 3% interest rate on a home that will likely continue to appreciate well. Not a bad predicament to be in but I feel like I'm in analysis paralysis... what should I do?!?!? I am inclined to sell because I feel like I'm sitting on cash and I do not like the idea of taking out a HELOC or other loans to continue my investing journey (I got debt free in 2022 except for the mortgage).

Lauren Samford · Answer

Just wanted to let everyone who responded know the latest update because I'm just PROUD and THANKFUL for this community. We decided to furnish and try MTR and WOW the demand was incredible, we cash flow well over $1500/mo! We moved into an apartment while we shopped for the next property, and we took out a HELOC and used for a DP on multi-family! So that one decision to rent gave us the leverage we needed to buy the next property and generate multiple streams of income. The next property may not cash flow as well in the beginning but the zoning and location is gold. I think over time buy & hold is the way to go, and I can't believe how far we've come in only 8 months! Thank you to everyone who weighed in and helped us get educated on leverage! Tax season will be telling now :)  For anyone still on the fence, what did you decide and how did it work out for you?

Theresa Harris · Answer

One other thing to consider is tax implications if you sell.  You have a lower interest rate on the mortgage, but if you turn it into a rental and sell it in 5 years, you will have to pay capital gains tax.  If you sell it now (or in the next 2 years), you won't.  When estimating cash flow, don't forget to account for vacancies.  Eg if doing a short term rental, don't assume it will be rented all of the time.

What do the numbers look like if you took that money and bought a home as a rental?

Lucia Rushton · Answer

@Lauren Samford something to think about, I would not bank on buying properties for STR as many cities or HOAs are changing their guidelines and with little notice. Putting all your eggs in one basket to me is Investir suicide. But totally my opinion.

Marc Bacchi · Answer

Hey Lauren that's really great! Congrats on taking the steps and seeing the benefit already, that's a really good feeling I'm sure.

I haven't gotten that far myself, but I did just this week close on a HELOC so I'm ready when I find the right deal at this point.

I guess at this point you just keep on moving forward, taking steps.

Bonnie Low · Answer

Congratulations, Lauren! You've done really well on that property. Not every property is suited to MTR or will cash flow that well but you're clearly in a great market and have a great product and that makes all the difference.

Lauren Samford · Answer

Not a bad decision but just an update: we decided to rent it out Mid Term Rental. So surprised by the level of interest and how much we could charge for rent! Now we have a cash cow we can use for our next investment. The deciding factor was talking to a neighbor who bought his house for $140k in 1994 and now it’s worth $640k. He said never in his wildest dreams would he have thought in 30 years his property would be worth that much. So that made me decide to keep it and see how much it appreciates. Good luck to you as well!!

Marc Bacchi · Answer

I don't have an answer for you, just wanted to say I am in almost the exact same predicament.  Primary home, @ 200k equity, 2.8 % locked, want to use equity to begin real investing.

Not sure if I should sell and lose the awesome interest rate, or rent to get about $700/mo cash flow from this one property.  Analysis paralysis, natural aversion to risk, but want to break myself of that cage.

I also try to always do everything on my own, no mentors, help, partners, etc, so that has also held me back.  I think looking to get face-time with someone who is experienced in this specific situation and market status would be really helpful to answer some internal questions and provide guidance and external motivation to make a decision and get moving.

Good luck whatever you choose!

Erin O'Connor Smith · Answer

Nice! I like "30-day stay" on audible.

Marc Bacchi · Answer

Excellent.

I am thinking along the very same lines.  I'll probably be here for another year or two, but I'll keep the property when I do find my next step, and aim for Mid Term rental, to get the higher income.  Will also likely use a property manager to make it even easier, albeit a little less profit.

Best wishes!

Should I sell or rent out my property? Need serious advice!

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