Buy, Sell, or Rent?

13 Replies

Hi BP! This is my first post. I've been listening to the podcasts religiously for a few months now and thought I'd reach out to get some keen insight on a few big decisions my family has coming up.  I am eager to get into real estate investing and have a couple of possible ways to start due to our family situation. 
I was laid off from my job in April but have a great severance package. That said, we are planning on moving from Chicago to Grand Rapids, MI. 

We purchased our townhouse in Chicago last July.  It is new construction (we're the first owners) and has high end finishes (marble, marble, everywhere). It's a 3 bed / 3 bath with 2 car garage in an up and coming neighborhood and situated in a townhouse community with its own private park - an amazing place for a young family. We won't make our money back on it if we sell - the market just isn't there yet considering how much we put into it (~15K) because we had planned to live here for a few years. With the loss of my job, we're acting on our plan to move to Grand Rapids earlier than expected.  We plan to raise our young family there.

So - two questions - 

1. Would you rent out the townhouse in Chicago and start your investment portfolio?  We likely won't be able to get any cashflow out of it due to the rent comps in the area.

2. Would you buy or rent in Grand Rapids to start? We were thinking of renting for a year so that I could get to know the area (my husband is from there), and my long term plan was to start investing in that area.  But now I'm thinking that even if we stay in a place for a year there, why not buy something that we could then rent when we look to purchase our family home a year or so down the road? I'm not worried about getting another high paying job in that area, so I'd likely have a W2 to back up our healthy finances.

Thanks in advance for your insight BP tribe!

Hello Allison! Congrats on making the first post and welcome!!! 

So... Like all business decisions it's all about the Pros and Cons. If I was in your shoes I would ask myself these questions..

What is your end goal? 3..? 4...? 15 Properties? You don't want the final stages of life to feel like a rat race trying to build an empire the last minute.. So, Will NOT selling the house now prevent me from buying a investment property in the future?  Could I be maxed on Debt to Income already? Or too close to prevent another purchase?

You stated that your long term goal is to invest in the Grand Rapids area.. Are you content with having a home 3 hours away? What if a pipe breaks? Tenants trash something? Can you find an A+ property management (PM) company to assist if your life gets too busy?

I would try to limit as many risks... If I find an A+ PM company to assist me that is thorough and meets my needs.. then build that equity and set a goal of when you would like to sell. (If your long term goal is to invest in the Grand Rapids area)

Also... lets say 5 years down the road you need to sell that property.. Do you think you can sell it with tenants living there? If not, Can you afford the Mortgage plus your Rent for a few months? (Limit those risks!)

I hope I helped, Good Luck!!!

@Allison Lucas of course only you can make decisions for your family but here is my 2 cents. 

If you can rent your house out and just break even that's ok. You can hold onto it and eventually make money in a sale or increase in rent????? Or if you are able to rent it out and lose a little money that doesn't worry you because you see that the market will increase allowing you to sell in a future date to make it worth it, go that route. Or you can sell now and hopefully break even or if you are not dying that you are not getting the money back that you put into it.

When you move I personally think that you should buy. We moved and just rented thinking that we will only be here a short time or we would find a house if we stayed. Well 6 years passed and we are still making someone else rich with our rent money. We haven't been able to buy here because the prices went up crazy high a year after we moved. We are moving state next month and I will buy a property. We may stay there, we may not???? I figure, no matter how long I stay there, if I sell for the same price that I bought it for, I lived rent free. I don't want to sell, I would rather rent and increase my assets. Though the market has shown that properties always increase in value over the long haul, even with the recessions. 

Have a Great Day!

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I would consider selling it and taking the small loss.  It sounds like the rent will not cover the payment.  You now have to switch your mindset and treat it as an investment.  You would buy it as an investment property?  Probably not, because it wont cashflow.  With it constantly eating cash for monthly mortgage payments, property management fees, turn over and repairs,  it may hurt your investment goals and will effect your mindset.  I wouls sell it and start fresh in Grand Rapids with something that you can make money on.  Real estate is a numbers game, so run the numbers.

If you sell today and lose 20k its over.  If you rent and lose 300 per month hoping for market apreciation it buys you 5 years to sell and break even.  Thats assuming the market will rise and you can sell it for what you have into it during that time.  If the market drops you would still loose 300 per month and may have to take the loss anyway.  Personally I would sell it and start fresh, if its new you shouldn't be out any more than the realtors comissions and some closing cost.

Sell the townhouse and take the loss now rather than lose money every month. I am sure the condo was expensive and will hurt your DTI (if you have a mortgage) once you get another job and you attempt to buy more properties in GR. No reason to have dead weight bringing down your ability to buy other properties in the hot market we are in.

As for GR I would look to buy or rent and see what is out there. It all depends on what areas you want to live in and what you are comfortable with spending. This is a great market with lots of opportunity for cash flow. 

Hey @Allison Lucas , first I'd like to say congrats on becoming active on BP! This is a great resource to make connections and begin/continue the path to financial freedom. From the Podcasts and even the posts above i'm sure you can see that there are many opinions / strategies to REI.

One thing I always tell my investors is, starting out try not to lose money :) . If you don't have the proper spread on your first couple of deals. Then the exponential growth you may be looking for might be difficult to achieve. But it really depends on what you are looking for. I'd start with the freedom number. When Passive Income > Fixed & Variable Expenses you are essentially free from the daily grind/rat race. Once you know what that number is, work backwards. 

Everyone is going to have a different answer on how to get there once they do the math for themselves. Don't take one persons opinion as the gospel. But learn from everyone you can. 

Good luck!

There is some great advice on here. Also here is a post I wrote a while back to try and help people in your situation.

https://www.biggerpockets.com/forums/48/topics/305...

Its not the end all, be all answer, but it can walk you through some of the thought process for making this decision. Really what it comes down to is whether investment is really an investment or something that will just hold you back from making progress in your investing career, disguised as an investment.   

I will also say sell. If it was not purchased with the purpose of renting it will not make a good rental. Rent or sell you will lose money so just remove the band aid quickly. Selling is better that having a renter destroy a new home.

Move, rent for a while till you get established and start fresh. Renting is far less expensive than home ownership.

Thanks, everyone! Really great advice here and a lot to think about. I was definitely leaning towards selling the townhouse as I didn't want to think about renters ruining it. Also - great points about DTI - it carries no small price tag and would likely hurt my future investing goals if I kept it (and it was losing money). Thanks for the insight there!

@Kevin Harrison Your link isn't working for me. Is it a PRO link?  I'd love to read the post.

So here's what I'm getting from everyone's advice re: GR - I think we will look for rental grade properties to buy/live in/eventually rent at the same time as looking for an actual rental and see if we land on anything that works for both our family and our investment goals. 

Appreciate the responses on my first post - yet another testament to the BP community and offerings!

sorry about that. no its not a pro link. here try this one. I may have copied it wrong.

https://www.biggerpockets.com/forums/48/topics/305273-should-you-sell-your-home-or-make-it-a-rental-asked-and-anwsered

I'd sell the townhouse, then buy a small multi-family now in GR. Prices should continue going up there, so I'd get in now. Let the other tenants pay your mortgage while you explore the city. Find an area and/or house you love and then buy that. Put a tenant in your place in the multi and you've got a great cash-flowing, and given that it's GR, appreciating , investment property as well as a house you love. 

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Townhouse is in Avondale - which is an area that is seeing appreciation, but it is definitely a "luxury" townhouse, so I'm not sure it's worth putting tenants in.  That said, it's now on the market, but we might consider renting if it doesn't sell for around the price we want.  Agree about buying a small multi-family in GR!!  We're going to look for both multi-family and a 3/2 single family to buy.  If anyone has any suggestions on neighborhoods to look within Grand Rapids, that would be greatly appreciated!