First Post: Thoughts Renting vs. Selling

Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes

@Joshua Parvin Welcome to the community! It looks like you're in great position and have the flexibly to grow. Take advantage of while you can!

What you described seems like a win-win as far as the current primary. You stated; "Including the heloc, the current home would be netting around $350/month in positive cashflow after renting it." - Unless your running numbers correctly to hard to say that's accurate. You must include CapEx, maintenance, vacancy, insurance, property taxes (higher as an investment property), and PM unless you plan to self manage. A lot of investors round it up and call it 15%. If you do that still get $350 of cash-flow I would NOT SELL that property. Loosing a 3% fixed rate mortgage in this economy is a bad move. You didn't mention the condition and potential future repairs with the property but I'm still not selling if it rents easy and works as LTR. With rental increases you could have that property paid off quickly. Call it the foundation to your future portfolio.

When I bought my first property the goal was a live-in flip and future rental. Every decision I made brought me closer to moving out and renting the property. You're in a position to make those choices. Stay on a personal budget and take advantage of what you have. Aim the ship in the right direction, get more REI education, and think in 2-10 year timelines with property purchases. There's so many strategies and you don't know what will "fit" yet so just learn and acquire quality properties. The educational side will help you build a buy [box]. If you can fix/flip or add value along the way you'll make that equity (capital) go further. Cheers.

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Drew SygitBusiness Member

Property Manager · Royal Oak, MI · Member since 2012 · 13k+ posts · 9k+ votes

6mo

Quote from @Joshua Parvin:

Hey BP community! I have recently come across the Book on Rental Property Investing and have very much enjoyed it. I have been planning to get into investing in rental properties for some time now.

Now that I am taking action I wanted to run a scenario by you.

I purchased a home in 2020 two weeks before everything shut down. Got an amazing rate under 3%. Also have built some incredible equity in the last 6 years.

That said, the home I purchased is a larger SFH and I am not sure that it will fit into the portfolio I plan on building. Granted, I am new to all of this, so my ideal portfolio may change in time. But I have two scenarios I am considering.

1. Sell the current home and take advantage of the equity. Then immediately purchase a home that is a better rental property as far as location and size goes. (Lower maintenance cost etc). Live in the new home a couple of years while I study up more on rental investing and then start targeting a second purchase in the next two years. Move into the new home and rent the old. Then rinse and repeat.

2. Rent the current home and utilize a heloc for the down payment on the next home. Purchase a second home and live in it for a couple of years while planning a third purchase. Including the heloc, the current home would be netting around $350/month in positive cashflow after renting it.

The questions I have:

Have you ever done this and how did it work out for you? For those with experience, do you feel this is a good plan? Finally, are there other options I am not currently thinking about yet?

Thank you so much for your time and response.

Have a great day!

This is called "stacking" rentals.

Many successful investors have done it.

If you're single, you could sell current property and cash out the first $250k of profit tax-free.
- This doesn't count the amount you've paid the mortgage down
- Only counts appreciation.

So, how much has the house appreciated since you bought it?

Also, how much could you rent it out for versus your current PITI mortgage payment?

One word of caution: stacking properties with HELOCs is pretty risky. Interest rates for HELOCS can change monthly, just like on your credit cards. So, if interest rates spike, you could find yourself in a negative cashflow situation.

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Rick Albert

Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes

6mo

Generally speaking wealth is built on keeping, not selling. With that said, I sold both my house hacks to reinvest. It always comes down to "is there a better use of the equity?"

There is a third option, can you expand on your current property? Convert the garage into an ADU? Potentially build a second standalone unit? Sometimes it can make sense since you are "saving" on the land acquisition while not losing your low interest rate or the property.

I would also make the argument that since you are early in your investing career, maybe selling isn't the best option. You could keep it for a few years, then sell, where most of the equity is tax free (you lived in it 2 out of last 5 years up to $250K if single) but you would have to pay back depreciation recapture. Or you can do what I did which was sell my last house hack, pocketed most of the money and then did a 1031 exchange for the modest amount needed to complete the exchange. But that way you have a few more years of loan buy down and you have a better sense of what is working for you.

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Lindsay DavisBusiness Member

Real Estate Broker · Birmingham, AL · Member since 2019 · 327 posts · 203 votes

6mo

@Joshua Parvin,

You’re in a good spot.

Given that renting your existing property out will yield positive cash flow even after you establish a HELOC against it, I think that's a compelling alternative.

You also have an excellent rate on the property for your primary mortgage, so unless there are glaring issues with the asset, my take is that it's worth keeping around. Then, use your HELOC and any additional equity to acquire a second property.

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Aaron ZimmermanBusiness Member

Accountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes

6mo

You'd want to be looking at toe to evaluate if you want to keep the current property. For instance, if you have $200k in equity and you're going to get $350 per month in cash flow after all expenses, you're getting a 2% ROE, so it might Be time to sell.

for your next property, are you in a position to house hack? If you choose to open the heloc, I'd discourage you from using it to fund your next purchase as you'd be 100% leveraged which is not a great spot to be at in this market

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Jose OrtizBusiness Member

Accountant · South Florida · Member since 2026 · 47 posts · 18 votes

6mo

Joshua,

From a tax standpoint, the biggest thing most people miss is this:

- Selling while it’s still your primary can give you a tax-free exit. Once you convert it to a rental, that window doesn’t stay open forever.

- The HELOC + rent path can work, but now you're adding leverage and relying on a pretty thin margin. It's not wrong — just a different risk profile.

This isn’t really about which property is “better.” It’s about whether you want to lock in tax-free equity now or defer and build around it.

Worth thinking through before you commit either way.

I hope that you found some value in this. If you want another set of eyes, you can find me on the BP tax/financial services finder.

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Mohammed Rahman

Real Estate Broker · New York, NY · Member since 2020 · 2k+ posts · 1k+ votes

6mo

Personally I'd think twice before giving up that sub 3% rate. That mortgage is an asset in itself at this point and you really can't get that back once it's gone. Option 2 keeps that rate intact and still gets you moving toward your next purchase, which is the right instinct.

On the $350/month, positive cash flow is always a good sign but I'd want to make sure you're accounting for maintenance, vacancy, and longer term capital expenses before leaning on that number too hard. A roof, an HVAC system, or even a month or two of vacancy can quietly eat through months of cash flow. Make sure the real number still works after you stress test it a bit.

The thing I'd also stress test is whether the new home you move into pencils out as a future rental too, since it sounds like the long term goal is to rinse and repeat. Buying with that in mind from the start puts you in a much better position down the road.

Happy to connect anytime, my DMs are open!

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Dave FosterBusiness Member

Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes

6mo

@Joshua Parvin, If you sell now, you could take advantage of the 121 exclusion that allows you to take the first 250k (500k if married) of the gain tax-free. But if you decide you want to try it out as a rental, you would still have exactly three years to take advantage of the 121 exclusion if you decided to sell the property.

If it does well as a rental, and you want to hold onto it, you could always do a 1031 exchange in the future if you ever decide to sell the property. A 1031 allows you to defer all of the capital gains tax and depreciation recapture and reinvest it into another investment property/properties. You would be able to scale into any type of investment property or multiple properties in any state, using the tax you would normally have to pay.

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First Post: Thoughts Renting vs. Selling

First Post: Thoughts Renting vs. Selling

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