selling or turning primary residence into a rental

[Bruna P.]

Hi,

I'm new here but have found valuable information on this site so I decided to join.  We currently own a townhome in Virginia since Nov 2015.  We are now debating about selling it vs turning it into a rental property since we are planning on moving to a better school district.  See details below:

Primary Residence: Northern Virginia

Purchase date and price: Nov 2015 - 325K

Loan balance as of today: 297K

Monthly mortgage payment: $2058.00 (30 year fixed at 3.625%)

Home value: 350K-360K  (based on 4 renovated townhomes that sold during summer 2017 in or close to our street)

Our home has been renovated too: new hardwood floors in main and second level, new kitchen cabinets and tile floor, two updated bathrooms, lighting fixtures, etc so it can possibly go for a little more than 360K but not more than 370K

Rentals are going for: $1700-$1800 in our area.  Not sure how easy is to find a tenant though.

We can probably refinance into a conventional loan and drop PMI or get a lower PMI rate since our townhome has appraised in value. If we refinance our estimated monthly payments (30 year fixed) could be around $1800-$1900 so we wont make any money on a monthly basis.

or

Should we just sell it, and take 40-50K (gain) add some savings and put 20% down to our new home which will probably be in the 375K-400K price range.

What would you do and why?

Thank you in advance for your time!

[Greg Scott]

Your monthly mortgage payment is $2058 and the property can only rent for about $1800. That puts you $258 negative cash flow before you even start talking about repairs or (presumably) HOA fees. Your rate is pretty good now so it is not clear if refinancing would help. Even if you got the mortgage payment to $1800, this is definitely not a good rental situation.

You said your alternative was to roll sales proceeds into another personal residence, but why is that the other alternative?  If you were just going to rent the house, you didn't need the proceeds to buy a new residence.

With $50K proceeds you could probably buy 2 single family rentals (or at least one duplex) that actually are good investments that would generate good cash flow.  That would be my choice.