Sell or keep as a rental - St Petersburg, FL

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Sell or keep as a rental - St Petersburg, FL

Dustin Baldwin
Investor · St Petersburg, FL · Member since 2016 · 18 posts · 6 votes

So, since I am new to the world of real estate investments and I am trying to set my rental home business up the correct way, I need some advice. 

I bought a home in St Petersburg, FL as my primary residence 3 years ago. Its a 3/2 and I rented out the other 2 bedrooms at $500 a piece, essentially covering the mortgage, taxes and insurance. I did not put anything down on the house because I used my VA home loan and everything was financed. Original Loan amount: $165K

A year after living in it, I moved for a work opportunity and rented out the master bedroom for $600/mo. I now have it rented by room for $550, $550, and $600 ($1700/month). 

My dilemma: I have 3 options and I need some advice here to figure out what the correct investment decision is. 

Option 1) Continue to rent it out by room. I have very good tenants. A Police Officer, Financial Advisor, and a security guard. My expenses are $1038/mo and I clear $662 in cash flows. Renting it out by room seems to be easier than by house so far. 

Option 2) Rent the entire home out for about the same amount. Less tenant turnover which will be good once I start purchasing more properties. May be able to get $1750/mo 

Option 3) Sell the house and use the funds to start purchasing homes that are better suited as rentals and meet the 2% rule. (as this one does not). My original loan was for $165,000, currently $156,500 owed. I have not put any of my money into paying the mortgage, it has been all tenant. The public record lists the home valued at $195, CMA at $175. Realistically I could probably list it for $190 and sell it within 30-45 days.

My only hesitation is that the flood insurance rates are supposed to increase by a lot in the next 1-2 years in Pinellas County. This house is not in a flood zone, a mile from the beach, new movie theater and mall, and is the area is growing quickly. 

Pro's of selling: Free up VA Loan, cash the equity out, buy a cheaper home for the purposes of renting vs Primary Residence, TVM.

Con's that I can see: Risk selling too early in a Sellers Market when flood rates are going to force people to move into non flood zone properties and demand is going to skyrocket. This is only a theory. 

Sorry this post is long, but any suggestions or help is greatly appreciated! 

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Patrick LiskaPro Member
Investor · Verona, NJ · Member since 2014 · 1k+ posts · 832 votes
10y

selling and buying a cheaper home doesn't mean you can rent it for the same price ( unless you find one in the same area) your cash flowing $662 / month, that's pretty good, i would hold onto it. your not loosing money on the house, why not wait and see what the market and area does for you. if this is not in the flood zone than you have nothing to worry about and is better for you. it seems like you have some good professionals renting from you right now that i am sure take care of the place, and what better security system is that to have living right in the house, i would continue renting by the room until you have trouble doing so.

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  • Patrick LiskaPro Member
    Investor · Verona, NJ · Member since 2014 · 1k+ posts · 832 votes
    10y

    selling and buying a cheaper home doesn't mean you can rent it for the same price ( unless you find one in the same area) your cash flowing $662 / month, that's pretty good, i would hold onto it. your not loosing money on the house, why not wait and see what the market and area does for you. if this is not in the flood zone than you have nothing to worry about and is better for you. it seems like you have some good professionals renting from you right now that i am sure take care of the place, and what better security system is that to have living right in the house, i would continue renting by the room until you have trouble doing so.

    2Reply
  • Bob Ebaugh
    Investor · Saint Petersburg, FL · Member since 2013 · 73 posts · 29 votes
    10y

    That's almost 8000 per year on an unknown investment amount, but probably not a big number.  If you sell at 190K, how much do you have to invest?

    Have to be more descriptive on location to apply my thoughts to the location and its future potential, not a small part of the equation.

    If not in a flood zone, why worry about flood insurance?   If mandated by your mortgage, you are in a flood zone, even if improbable.

    My gut reaction is to stay put.   But more data is required....

    0Reply
  • Dustin Baldwin
    OP
    Investor · St Petersburg, FL · Member since 2016 · 18 posts · 6 votes
    10y

    @Bob Ebaugh

    Thanks for the quick reply. The property is in the Azalea Park neighborhood by the Tyrone Square Mall. Less than a block away from the park. The only reason I brought up flood insurance is the rates going up in a year or two will cause more demand for houses not in a flood zone (this property). 

    What do you mean by unknown investment amount? I didn't have to put anything down in cash if thats what you mean. Just had to utilize my VA home loan.

    If I sold for $190 I would end up with roughly 20-30K depending on closing costs and other costs of selling. 

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  • Faisal Farnas
    Investor · Saint Petersburg, FL · Member since 2012 · 55 posts · 19 votes
    10y

    i am also new to the game but I have been researching the area for a while now. I can tell you that finding properties that satisfy the 2% rule that are not in a war zone are almost impossible. I think your cash flow is excellent. Do you mind telling us what year you bought?

    I am not an expert by any means, but if it were mine, I would keep it.

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  • Dustin Baldwin
    OP
    Investor · St Petersburg, FL · Member since 2016 · 18 posts · 6 votes
    10y

    @Faisal FarnasIm really happy you told me that the 2% rule is impractical in this area because I have been going crazy looking for deals that would come anywhere close to it. I have been researching different markets all over Florida and unless it is Section 8 housing or really bad areas down in South Florida. I bought my SP home in June 2014. 

    Do you have any rental properties in St Pete yourself? 

    0Reply
  • Bob Ebaugh
    Investor · Saint Petersburg, FL · Member since 2013 · 73 posts · 29 votes
    10y

    I like that neighborhood...but now better understanding the flood question, it is a valid concern.  My crystal ball is cloudy on what that will translate to in additional insurance cost.   Almost all of ours are out of the flood zones.   That said...if the big one comes...we will all suffer since the entire market will take a big beating.   And if the insurance is too costly, it will impact the future resale value.   A good reason to be far from the coastal areas.

    The big advantage you have now is the 100% financing where any replacement investment only replacement may be closer to 75%.   Unless you do the same thing all over in your new area?  

    The 8000 per year on a 20,000 equity position is pretty good return.   Can you take whatever you're paying for a rental where you live now (I assume you rent) and add that to the mix and do better?   Assuming you're willing to have roommates like the last time?   That's not something I would do...but I'm not you.  Maybe consider a duplex or triplex?

    I don't have an answer.   You have to make your own guesses and compare the expected returns.   For what it's worth...we only make 8-10% on average before appreciation/depreciation in St Pete.   But that's with little leverage due to restrictions on borrowing in a 401K.

    Best of luck....whatever you decide.

    1Reply
  • Dustin Baldwin
    OP
    Investor · St Petersburg, FL · Member since 2016 · 18 posts · 6 votes
    10y

    Bob, Thank you very much for your insight. I'm actually renting a 3 B/R condo and sub letting the other rooms. Covering the rent. The only reason I'm willing to have roommates at this point is that I'm 29, no kids, no wife. I guess I better take advantage of the situation why I still can.

    You bring up a good point. 8K annually on 20,000 equity is a very good return. I never thought of it that way. For now I think it is in my best interests to hold on to it. 

    Thanks again! 

    1Reply
  • Evan Bellingar
    Investor · Newberg, OR · Member since 2016 · 90 posts · 19 votes
    10y

    Hi Dustin,

    Of your options, I would keep the house and rent it as a whole unit: less management and turnover than renting room by room. Selling to access equity is something many people do, but if you have time and patience, keeping a cash flowing property will pay off in the long term.

    Evan 

    1Reply
  • Christine T.
    Investor · Palm Harbor, FL · Member since 2015 · 86 posts · 18 votes
    10y

    I'm also leaning toward keeping it as well.  You didn't mention how long is left on the current leases you have or if it's month to month.  In any case, it's paying the bills and making you at least a little bit of money while paying down your mortgage.  While it may not meet the 2% rule, you are still clearing over $200 per tenant.  Good job on your choices and thank you for your service to our country.

    0Reply
  • Account Closed
    Saint Petersburg, FL · Member since 2013 · 110 posts · 38 votes
    10y

    Investment advice: NEVER slaughter the goose that is producing golden eggs, (Golden Eggs=Cash Flow).  Cash flow is what keeps the lights on, it's what you make when you are awake or sleeping.

    I would save some of the cash flow and use that money as vacancy\maintenance protection and down payments for other rentals that will cash flow. Set yourself up for FHA financing in some cases they will do 3.5% down.

    1Reply
  • Lesley Resnick
    Real Estate Agent · Jacksonville, FL · Member since 2015 · 1k+ posts · 1k+ votes
    10y

    This one sounds like a keeper.  The transaction costs for selling and buying something else are going to eat into your equity.  If you are clearing $662 a month, you are going to be hard pressed to beat that with all the other costs and time it will take to get another property online.  If you can convert it to one tenant that would help, but the rent will probably be less. 

    0Reply
  • Dustin Baldwin
    OP
    Investor · St Petersburg, FL · Member since 2016 · 18 posts · 6 votes
    10y

    Thank you everyone for your recommendations! I was hesitant at first considering the lack of meeting the "2% rule" but I'm glad to know that I was not in the wrong by thinking this is a good opportunity. I am very new to real estate investing so I didn't know if there is something I wasn't factoring in or overlooking other than vacancy and maintenance. Everyone on here has been very helpful! 

    So, how important is the 2% rule really? Especially if you are producing good cash flow after expenses? 

    -Dustin 

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  • Account Closed
    Saint Petersburg, FL · Member since 2013 · 110 posts · 38 votes
    10y
    Originally posted by @Dustin Baldwin:

    Thank you everyone for your recommendations! I was hesitant at first considering the lack of meeting the "2% rule" but I'm glad to know that I was not in the wrong by thinking this is a good opportunity. I am very new to real estate investing so I didn't know if there is something I wasn't factoring in or overlooking other than vacancy and maintenance. Everyone on here has been very helpful! 

    So, how important is the 2% rule really? Especially if you are producing good cash flow after expenses? 

    -Dustin 

    In my opinion, if you are getting a return on your investment the 2% rule is not important at all. Just have a fund to absorb the inevitable change in your situation, (Something breaks, a tenant leaves..etc) because it WILL happen.

    0Reply
  • Paul Gilo
    Orlando, FL · Member since 2016 · 74 posts · 22 votes
    10y

    I think most ppl would be happy if they could get the 1% rule to work. 

    You have nothing in and your making money on it... its like a gaggilion million % ROI. :)

    Keep it. Save the cash flow and when you have enough for a down payment, purchase something else.

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