Rent or Sell Townhome?

2 Replies

I am looking to move in the next year or so and purchase a new home in the area.

Should I sell my current townhome? Here are the numbers:

Current Estimated Value: $640,000 

Current Mortgage Rate & Balance: 3.25% & $353,000 

Mortgage Payment: $1650 

HOA Amount: $199

Yearly Taxes: $5500 Yearly Insurance: $750

Based on comps in the area, rental rate would be between $3000 -> $3200.

I have no debt other than this mortgage, and enough cash on hand for the new house's down payment as well as a hefty emergency fund. I also have experience managing my mother's 6-unit apartment building, so I know what's it's like to have renters.

Do the numbers make sense financially to keep it as a rental?

Thanks.

Hey Mark,

I'm in a very similar position with a condo I own (and rent remotely) in Boston. The answer to your questions is "it depends" (of course). It all starts with your short & long-term investment goals, options for reinvestment, and tolerance for managing tenants.

What I have done to evaluate my options is to create excel spreadsheets with various scenarios (rent as-is, cash-out refi & rent, sell now, rent & sell in X years, etc) so I can calculate the IRR for each scenario. The IRR analysis will allow you to compare your options financially taking into account different timing and cash-flows. you'll also want to consider some scenarios factoring in low / avg/ high appreciation and rent increases. Don't forget about taxes and all other expenses in your IRR calcs (if you don't know how to run IRRs, search BP, google or YouTube and you'll any # of resources to learn).

Given your mention of having cash for a down payment on a new primary residence, you've got multiple "good" options here. Looking at your numbers, you could cash flow $600 / month just renting it now, or take some cash out in a refi to redeploy on another rental property while still cash-flowing (albeit less, maybe ~$100-$200 per month). Finally, you could also use a HELOC to do a flip or another project.

Justin

@Mark H. I like the positive cashflow. I'd keep it.

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