Keep my home and rent or sale it

5 Replies

Hi guys,

I am a new member here 

This is my situation:

I bought the home for 300k and current market value is 370k.

Based on current market value i have 200k equity on this home.

I live next to big university and homes around here doesn't stay vacant at all and we rent it to Masters or PHD students.

I can get 2400/month rent and I will be managing the property. (Will have 600 cashflow/month) (Never been landloard myself)

We have 10% down for our next home and we will be able to get/save 10% in next 2 years and remove pmi.

In this situation, would you guys suggest to keep the home and rent it or just sale it?

Let me know if you need any further information.

Thank you,

-Raj

Hi Raj,

I just recently started acquiring properties myself. I currently have a SFH that I am renting out. In my opinion, this would be a great opportunity for you to see what kind of landlord you are. I would actively or passively manage the property and experience firsthand how it is to be landlord while gaining more equity and cash flow. At the same time, adding that cash flow to your already 10% down payment. After you have saved enough money, I would then take the down payment and buy another property with it.

Can you just continue living in the house until you have saved a 20% downpayment for the new house? Then keep your current house as a rental and buy a new house to live in.

Make sure you become familiar with your state’s tenant laws and select a screening process so that you can run a background check on all tenants before you become a landlord. You do not want a potential tenant to take advantage of you as a new landlord. Screening is so important to find a great tenant. Or hire an agent to find your first tenant.

It will never be anything except a negative cash flow property. The rent to value of the property will not cover your expenses.

Additionally the 200K in equity has a opportunity value of 10% which means $1666 must be deducted from the $2400 monthly rent to pay for your dead equity. That only leaves $734/month to cover all your expenses and debt repayment on the property. It is a money pit.

Bottom line is the property is a very poor income investment and should be sold.

If you sold the house you could use the $200k of equity to buy $1M worth of rental property (assuming you're financing with 20% down).  Instead of having one rental you could have many.  Or you could go into muti-family.  I'd think hard about that.  You could grow your wealth much faster by scaling up.

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