Sell vs renting out my house

[Mike Bales]

Hello,

I live in Tacoma and I'm trying to decide if my wife and I should sell our home or rent it out.  It's 3 bedroom, 2.5 baths and 2300 square feet.  We have around $170k in equity.  Selling would be nice to pay off some debt and have the cash available to jump on a deal (looking for duplex or triplex) but can't decide if it'd be smarter to rent our house out.  If we did it would generate about $600 positive cashflow in addition to paying off the mortgage.  

Any feedback would be appreciated!

[Tess Robinson]

You know your house, @Mike Bales. You need to take into account any future capital expenditures (capex) that it will need (roof/water heater/furnace).  What types of routine or emergency maintenance will it need (water leaks / exterminator / smoke & CO2 detector maintenance / air filters / gutters / outside maintenance / paint / flooring / refresh between tenants, etc.). Will you mow the lawn yourself, or hire it out? Will you manage the property yourself (and take calls at 3am) or hire it out? You should set aside some money every month (from the rental income) to account for these items. These are called variable expenses, and as the name suggests, the cost will vary. Wildly, sometimes! Some investors use a percentage of the rent (10% for capex / 10% for Property Management / 5% each for maintenance & vacancy). You may use different numbers -for example- if you just replaced your roof.

You've already accounted for your mortgage payment. If that payment doesn't include taxes and insurance, you need to add that into your monthly expenses, as well. You'll want to pay your water/sewer/trash (don't leave that to the tenant), so count that as an expense as well. These are fixed expenses.

Then take your total income less your fixed & variable expenses:

$2200 - Monthly Rent
(220) - Capital Expense (roof, etc.)
(220) - Property Management Fee (you could do it yourself)
(110) - 5% Vacancy (money set aside each month to cover future vacancy)
(110) - 5% routine/emergency maintenance
(150) - Water/Sewer/Trash (I pay ~300 every other month in Tacoma)
(1600) - Mortgage (hopefully includes PITI)
(210) - Negative Cash Flow/month.... 

There are great calculators on here... and I'm literally GUESSING at your numbers, but this is what you need to be analyzing. There are tons of variables involved, so use your best judgement. Look over the calculators on BP, and find some like-minded people at Meetups, etc.

Good Luck!