To rent or to sell??

Question

Hey Guys,

I am in the process of purchasing a new primary residence. I am trying to decide if I should rent out my current home or sell it. Here are the numbers:

Owe on property- $135k

Should sell for $145k plus ( no realtor fees to pay ).

Will sell very quickly.

Current monthly note- $950 ( including taxes and insurance )

Will rent for. $1,350 a month very quickly.

Great area and house is in very good condition.

Michael Baradell · Answer

@Pat Martin  thanks for the response. I can see where you are coming from with the "Dave Ramsey" philosophy, however I don't believe that philosophy is always accurate because each scenario is different. For example, I was able to purchase this property 4 years ago with 100% financing at a low rate for 30 years. I would not qualify for this now a days due to my income. I am all into this property for less than $4,000. So, even though it may not be the ideal rental ( just because I paid retail for it ) I still think it makes since to keep it. I am flipping property's at the moment, but I do plan on building a rental portfolio in the next few years. I think this is the easiest way to get started. Thoughts??

Pat Martin · Answer

A good way to look at things is that if you didn't currently own that house would you go out and by it for a rental.  That makes your answer pretty clear I think.

Bob E. · Answer

Doesn't seem like you will get much out of a sale (10K) if you sell it.  Keep in mind if you list on the MLS the other agent will want something, and even if you handle both sides yourself you will still have some closing costs.

Assuming you have a 30 amortizing mortgage then part of the monthly payment is building equity for you.  As it stands your cash flow is almost 5k a year (less maintenance/vacancy) and might grow more if you can raise rent.

Bottom line could you do something with the 10k equity that will generate a better return?  If you can then sell and move on to better things, otherwise hold and enjoy the modest cash-flow.

Mike Sattem · Answer

Hey Michael, (great name!)

The most important question is what will you do with the money made from the sale, and how long do you have left on the note. The property as-is wouldn't make for a good purchase as a rental property, however if you are close to having it paid off, you may think about holding it. I ran into a similar situation, and chose to keep the property even though it wasn't ideal, as a way to expand my portfolio without having to shell out any more money. I have since revisited selling this property versus keeping it as a rental over the last several years, and continue to keep it as a rental because it breaks even on a year-to-year basis, and it is almost paid off.