Rent or sell? Roseville California

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Rent or sell? Roseville California

Kristine Lynch
Roseville, CA 路 Member since 2019 路 8 posts 路 0 votes

Looking for as much feedback as possible. We currently own a 3/2 single family in Roseville CA and always had the intent of renting it out when we decided to move. For the past 4 years we have been house hacking and renting out the other bedrooms. Now we have the option to move out into another house and rent a room cutting our housing expenses in half.

Original purchase price: 290k

Balance on Loan: 250k

Rents in our area: 2,000/mo

Mortgage, interest, taxes: 1,600/mo

Vacancy at 5%: 100/mo

Repairs at 5%: 100/mo

Maintenance at 5%: 100/mo

Cash Flow: 100

Other notes: we would have to put in about 6,000 to get it rent ready.

Or we could sell it for 400k and walk away with a minimum of 100k in cap gains tax free.

If we put it in a savings account at 2% that鈥檚 2,000. Cash flow of renting it out for a year is 1,200. It seems like a no brainer to sell but we want to be sure we are looking at all the pros and cons before deciding.

Please advise :)

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Cory CarlsonBusiness Member
Real Estate Broker 路 OR 路 Member since 2018 路 311 posts 路 226 votes
7y

Hey, I made this for you. I did a ton of guess work on this analysis but i feel like I am close using your numbers. While operating expenses are pretty low in this analysis it just goes to show there are perhaps better places to put your money than to use this as a cash flowing rental. Utilize you're 8.4% compounding appreciation and buy something that performs better. The question is what other opportunities are out there to reinvest your equity, and do those returns beat your projections? I guarantee a small multifamily would find at least a neutral leverage position (CoC = cost of financing) in your market with $150,000 to reinvest.

503-222-0282
Constant Commercial Real Estate Inc543 Reviews
WebsiteView Page
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  • Blake Edwards
    Real Estate Agent 路 Brentwood, CA 路 Member since 2018 路 285 posts 路 225 votes
    7y

    @Kristine Lynch Exciting times!  If you rented out all the rooms once you moved out of your current home, would it cover your mortgage?

    If you didn't sell, do you have enough cash for the downpayment on a new home?

    0Reply
  • Kristine Lynch
    OP
    Roseville, CA 路 Member since 2019 路 8 posts 路 0 votes
    7y

    @Blake Edwards yes renting it out would cover the mortgage but only providing $100 a month in cash flow after expenses.

    Don鈥檛 necessarily need the cap gains for the next purchase.

    0Reply
  • Blake Edwards
    Real Estate Agent 路 Brentwood, CA 路 Member since 2018 路 285 posts 路 225 votes
    7y

    @Kristine Lynch - That's awesome!  Even if you had to come out of your pocket a couple hundred dollars on the original house, it may be worth it as you would have two homes - One where the entire mortgage is paid for, and the other where your can throw that extra cash flow (however small it may be) onto the mortgage of the new home.  You essentially have two homes for the price of one in Northern California (which is unheard of).  

    You are in a good position however, as if you sold, you are able to walk away with $100k tax free money to put down on another home if you wanted.  If you didn't want to, like you say, you move into a home where half your expenses are covered.

    If it were me, I would go with the two homes which are not only appreciating assets, but the tax breaks alone may make it worth it for you.

    1Reply
  • Dan H.Pro Member
    Investor 路 Poway, CA 路 Member since 2015 路 7k+ posts 路 8k+ votes
    7y
    The part that you are missing is what resulted in a home purchased at $290K now being worth $400K, market appreciation. You also need to realize that there is rent appreciation, your cash flow is likely to increase faster than inflation going forward. Does this mean I am advocating keeping it? No because 1) your get your occupancy exemption on cap gain. 2) The rent to value ratio is 0.5%. Those can be found easy. So there is nothing that makes your SFR a special RE when it comes to being a rental. I suspect that if you looked around and networked you could find better rent to value ratios. In addition, I suspect most duplexes to quads in your area would have better rent to value ratios. We own quite a few rentals. Our worse performing in terms of value is our ex home. It was purchased to be a good home for us and not to be a good rental. I should have sold it to invest in something producing a better return but I had planned on giving it to our child as his starter home. Good luck
    1Reply
  • Kristine Lynch
    OP
    Roseville, CA 路 Member since 2019 路 8 posts 路 0 votes
    7y

    @Dan Heuschele thanks Dan! It鈥檚 good to hear advice from personal experience!

    0Reply
  • Greg Lieberman
    Real Estate Agent 路 Roseville, CA 路 Member since 2018 路 21 posts 路 14 votes
    7y

    Hi Kristine!  I agree with Dan.  The rent to value ratio is too low for my liking and the return on equity is almost the same at 0.8%  Another option would be to try and refi some cash out, but then you would have negative returns.  I think you're better off selling, keeping some cash for your next home (where you can house hack again) and deploying the rest to another property (most likely in a different market).

    If you want to stay in Roseville, I am working on a seller carry 4-plex deal near old town.  If you guys are looking to house hack again, let me know.

    0Reply
  • Mike Alber
    Member since 2019 路 10 posts 路 1 vote
    7y

    @Kristine Lynch I'd love to hear what you do, as I'm in a very similar spot.  (We bought our house without taking rental cashflow in mind... thinking of selling vs. renting to keep another appreciating property.)   I keep thinking about how I wish I'd bought Southern California property 10 years ago when I first moved to town... and now I'm thinking about selling it?  But it could be the right move, for you and me!

    Good luck with your decision! 

    0Reply
  • Dylan VargasPro Member
    Rental Property Investor 路 Chico, CA 路 Member since 2016 路 625 posts 路 336 votes
    7y

    @Kristine Lynch Welcome! I dont think its a bad idea to take some money off the table. There are many other opportunities out there for better returns, fix and house hack, duplex or 4 plex etc. Take the money and run! Just my 2 cents. Good luck and keep us posted.

    0Reply
  • Kristine Lynch
    OP
    Roseville, CA 路 Member since 2019 路 8 posts 路 0 votes
    7y

    @Greg Lieberman thanks Greg! We will definitely look into multifamily in the near future.

    0Reply
  • Kristine Lynch
    OP
    Roseville, CA 路 Member since 2019 路 8 posts 路 0 votes
    7y

    @Mike Alber thanks Mike! Good luck to you too! I think we will sell.

    0Reply
  • Kristine Lynch
    OP
    Roseville, CA 路 Member since 2019 路 8 posts 路 0 votes
    7y

    @Dylan Vargas thanks Dylan!

    0Reply
  • Kristine Lynch
    OP
    Roseville, CA 路 Member since 2019 路 8 posts 路 0 votes
    7y

    @Blake Edwards thanks Blake! All good things to consider

    0Reply
  • Blake Edwards
    Real Estate Agent 路 Brentwood, CA 路 Member since 2018 路 285 posts 路 225 votes
    7y

    @Kristine Lynch not a problem! If you want a great recommendation for a rockstar agent up there in the Roseville/Sacramento area, feel free to shoot me a PM. Let us all know what you decide to do!

    0Reply
  • Blake Edwards
    Real Estate Agent 路 Brentwood, CA 路 Member since 2018 路 285 posts 路 225 votes
    7y

    @Kristine Lynch not a problem! If you want a great recommendation for a rockstar agent up there in the Roseville/Sacramento area, feel free to shoot me a PM. Let us all know what you decide to do!

    0Reply
  • Cory CarlsonBusiness Member
    Real Estate Broker 路 OR 路 Member since 2018 路 311 posts 路 226 votes
    7y

    Hey, I made this for you. I did a ton of guess work on this analysis but i feel like I am close using your numbers. While operating expenses are pretty low in this analysis it just goes to show there are perhaps better places to put your money than to use this as a cash flowing rental. Utilize you're 8.4% compounding appreciation and buy something that performs better. The question is what other opportunities are out there to reinvest your equity, and do those returns beat your projections? I guarantee a small multifamily would find at least a neutral leverage position (CoC = cost of financing) in your market with $150,000 to reinvest.

    503-222-0282
    Constant Commercial Real Estate Inc543 Reviews
    WebsiteView Page
    2Reply
  • Caleb Heimsoth
    Rental Property Investor 路 Durham, NC 路 Member since 2016 路 7k+ posts 路 7k+ votes
    7y

    @Kristine Lynch sell period. This isn鈥檛 a good rental property

    0Reply
  • Steve Vaughan
    Rental Property Investor 路 East Wenatchee, WA 路 Member since 2014 路 10k+ posts 路 16k+ votes
    7y

    My wife and I live in a .5% rental return home in an appreciating market. Similar to yours.  I think we would keep this and rent it out at least for a couple years if we bought a new primary.

    But, our house is a 1962 original bullet-proof beast with hardwood floors and plaster walls with wire mesh inside. Not a pretty newer build.  It also has a little MIL unit in the lower quarter and will be paid off soon.

    The type of house would influence my decision.  Fancier and less tough? Lots of yard to care for? What type of neighborhood?  

    Glad to see you are aware of the cap gain exclusion.  No real harm in renting it out for up to 36 months if you feel your market has a little more appreciation room.  

    Might be a grest candidate to 'sell' with a lease option. Lock the price in (Plus a 5%ish premium) with a higher quality tenant and save over $10,000 in agent costs if they exercise 馃憤

    0Reply
  • Jim BlackburnBusiness Member
    Lender 路 Florida Based (48 states Puerto Rico) 路 Member since 2017 路 321 posts 路 121 votes
    7y

    @Kristine Lynch

    If you live in the property, and if your primary residence now, why not tap into the equity of the home equity line of credit, before you move out to rent it? That way you can use the cash to put down another property.

    954-993-1625
    Stairway Mortgage, a Division of NEXA Mortgage LLC597 Reviews
    WebsiteView Page
    0Reply
  • Kristine Lynch
    OP
    Roseville, CA 路 Member since 2019 路 8 posts 路 0 votes
    7y

    @Cory Carlson Thank you, Cory! Love the spreadsheet!

    0Reply
  • Nathan Mellor
    Moreno Valley, CA 路 Member since 2017 路 17 posts 路 7 votes
    7y

    @Kristine Lynch would sell 100%

    0Reply
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