Should I sell or rent out?

Question

I am a contractor in Southwest Florida nearing completion on a new construction home (Home A; 3 bed, 2 bath, 2 car garage, 2500+ sf, a pool). There is no mortgage and I estimate the value to be about $675,000 when finished.

My original plan was to sell the home (A) and use the money to begin construction on 2 additional homes (B and C) but I am interested in the possibility of renting home A out for the cash flow instead of selling it. I would still need to pull out around $450,000 from the home to continue to run my business and to begin construction on homes B and C. I feel like the rental income from home A would enough to pay off the $450,000 loan to build homes B and C while still maintaining ownership of home A.

Are their any experienced investors that can weigh in on this and help me analyze this situation? What is my best option here?

I appreciate any help you can offer,

Mike

Corby Goade · Answer

If it cash flows and it's in a desirable, growing area, keep it. Especially if you are doing some small scale developments and have decent income. That depreciation will be your friend- literally tens of thousands of dollars in your pocket and you can cost seg year one if you need the room.

Theresa Harris · Answer

Run the numbers to see if it would actually cover the mortgage, insurance, taxes, etc.  As Dafina noted, you'd still have almost $225K tied up in the home-will the cash flow from the home offset what you could make off that money?  Even sitting in a bank at 5% interest, you'd be getting over $11K a year in interest.

Dafina Sharpe · Answer

I would rent it out especially if the rent is covering the $450k mortgage and you see that area appreciating greatly in the future. Being that it’s a new construction you probably won’t get many maintenance calls (which is the biggest headache of being a Landlord in my opinion).

You basically have to ask yourself how would you invest the $200+k equity that you’re leaving in the house otherwise? Would you put it in the stock market? Bank account? Buy 4th house “D” and flip it? Etc. I think based on that answer you can do a better calculation of what gives you the best return on your money.