I have a single family home in Minneapolis south suburb (worth $250K-currently owe $150K on the mortgage) which I've lived in for 14 years. Last year I spent close to $40K to replace the windows and the siding (I have one year to pay off before getting hit with a big interest rate; planning to do a cash refinance and pay the $40k that way) but now, I've decided to move to TX. Would it be wise to sell or rent at this point? I appreciate you helping me to figure this out in advance.
Real Estate Coach · Member since 2018 · 245 posts · 216 votes
7y
@Aria Aref Adib I see this alot. There was no need to replace siding on a house that people are renting. Typically, siding doesnt improve rent. Because you spent so much on siding and windows, I would sell because now your expensive windows and siding are depreciating.
Why: you need a true cost build-out that includes Capex, increased property tax, and increased insurance.
Capex: you will need to make repairs to the home.
Property tax: if you are not the owner occupant then taxes sky rocket. This is different for each local market, but you need to figure this out.
Insurance: your stated expense is owner occupant. You need the proper insurance.
Also, and most importantly: if you sell now you don't get taxed on capital gains as it was your primary residence. Take the tax free gain and build out an investment plan on how to deploy that capital properly!
Do you know how to finance your next home? The debt on your current home will count negatively when getting a loan approval for your next property. Yes, once you can show rental income, that will be shown as income, but it's not a 1 for 1. Know your debt leverage and how you can finance going forward.
As other suggested, figure out how much it costs you to hold the house (taxes, repairs, etc) and add in flights from TX if you have to screen tenants. Even if you are getting $1900 a month for rent, it may not be worth it. Could you take the money from that house and buy a rental property closer to where you will be moving?
Buying a house to live in is different than buying one to rent for many reasons. A person buying a home will appreciate the new siding and windows, someone renting won't.
Real Estate Agent · Saint Paul, MN · Member since 2015 · 224 posts · 214 votes
7y
Wow thank you @Tim Swierczek! @Aria Aref Adib lots of great answers here from many experienced investors. @David Barnett is spot on about including repairs, CapEx and vacancy. Easy to leave out but brutal when those costs come due. I also really like @Armin Nazarinia idea about investing in Texas. I know nothing about that market but it might be worthwhile for you to look into if you could leverage the proceeds of your MN sale into better cash flow in TX.