Sell primary home vs rent it out

[Shashank Viswanadha]

Hi first timer here, trying to figure out what the best option would be. Sell vs Rentl

I have a primary residence with almost 50% equity in the home ( considering appreciated value ). Split on whether I should rent the home out or if I should cash in on the sale.  

If I sell the home the proceedings will go into the  new Primary home we'll buy around Atlanta suburbs area. Even if not we have enough cash to cover 20% of the downpayment for the new home. Considering the interest rates are around 5% wondering if this money is better served if it goes towards the downpayment ( and we can refinance if the rates go lower ).

We aren't active investors so we don't anticipate to put the money to good use, so checking if this forced rent option is going to serve us better overall in future. 

Pros ( selling )  / cons ( renting )

- Market is priced right to lock the appreciated value.

- Money from sale will cover a huge downpayment for the new home ie., sell loan/amount. Considering interest rates are high the more amount down the better it is.

Cons ( selling ) / Pros ( renting ) 

- Home financed for with low interest rate ( 2.75 % ) and only 19 yrs remaining.

- Forced entry into investment so good long term stable value. NYC suburbs so don't expect the market to tank like other upcoming metro areas.

- We know the home and neighborhood and  its in good condition so don't expect a lot of work.

What i'm looking for is some validation on the numbers. If its terrible mistake to rent it out or vice versa. Are there are any red flags or benchmark numbers that I can run it against.

[Patrick Drury]

@Shashank Viswanadha
Based on this sentence "We aren't active investors so we don't anticipate putting the money to good use, so checking if this forced rent option is going to serve us better overall in future.". I would say hold on to it and rent it out if you aren't active and have no plans. Depends on what you are looking for. If buying rentals is something you do very passive and want to put the least amount of work in renting out would be a great option vs selling. There isn't exactly a one size fits all answer. 

[Connor Cushman]

Will it cashflow as a rental?

Sounds like you could still access some of the capital through a HELOC if needed to help with the down payment and use the cashflow to pay that back down quickly or not touch the property at all and just buy your next place while you cashflow on the rental. I would hold on to it.

I'm north of ATL if you're looking to connect with people down here :) Good luck!

[Penny Brown]

Heloc all day, my friend.  Keep it, put a tenant in it and rent.  You get the best of both worlds.  You get cash in hand by tapping into the equity, but with a heloc, if you don't use it, you don't pay.  Whereas if you get a lump sum thru a refi, your monthly payments start immediately.   On your  rent analysis please add management fee, vacancy, and utilities until tenant takes over.  

[Samuel Eddinger]

@Shashank Viswanadha - With that interest rate, you would be crazy to sell! Interest rate on the buy is at 6% now. HELOC is definitely an option to tap into the additional equity. I'm also a CT guy so reach out if you want to chat more.

[Andrew Garcia]

Hi @Shashank Viswanadha,

I would recommend a hybrid scenario.

You can get a HELOC or a second mortgage so that you can have the down payment while still being cash flow positive.

You get better pricing at 4 different levels if you are putting at least 20% down. 20%, 25%, 30%, and 40%. The difference between 20% down and 40% is a little less than .25%.

If you would like, I can run a payment analysis to see if it would be better to get a HELOC or second lien for the 20% or sell for the 40% down.

I would need more information, however.

Hope this helps! Let me know if I can be of any assistance.

[Joe Almeida]

Based on all the replies received, looks like we all think holding and renting may be the best way to go.  

First of all your current interest rate is something you may never see again. You can take out the amount of money you need to put a deposit on another house - talk to a mortgage lender in your new market of Atlanta to run all your numbers. Stamford is a great rental market, meaning you'll get top dollar and plenty of renters to pick from. Once you turn it into a rental, you will be able to depreciate the property yearly resulting in a great tax savings. You need to look at this house as a retirement plan. You put money into your plan and now it will grow every year - your renters will pay off the mortgage. Better yet, you may be able to pull your original down payment out as the HELOC and have your new retirement plan paying for itself!

[Jordan Murrell]

I am going to play devils advocate. If you do not want the headache of renting, potential tenants not paying rent, destroying the property etc. If you would feel more comfortable waking up with an extra $100,000.00 in the bank, over potential $1000.00 income a month, I would say sell it. Yes, interest rates are on the rise but having that additional $100,000.00 in the bank is piece of mind, which you dont have while trying to track down PM's or maintenance people etc.  

[Carlos Ptriawan]

I will sell. Don't do HELOC :) lol

Why sell? once you rent it out, there are this troublesome tax rules of qualifying/non-qualifying use and you need to come back to live in that house to get free 500k tax free. If you sell now, your 500k is tax-free.

Rent doesn't make money so much. Selling does.

If you afraid with the new interest rate, buy with 5/1,7/1,10/1 ARM and increase the down. Problem solved. You will make money in no time even if market is flat.