Unfortunately I recently went through a divorce. I kept the house which didnt have much equity in it. It appraised at $260K last summer and I owe $1500 per month on a $237K loan. The loan is a 3.65% fixed rate loan and includes PMI. The monthly payment is $1500. I can rent it for $1750 to $1800. It is in a very desirable neighborhood and is one of the cheaper/smaller houses in the neighborhood. I am looking to relocate and trying to figure out if I should sell or rent it. If I do rent I have $5K extra cash on hand to set aside in an emergency maintenance fund and I also make a decent income. Because I am looking to relocate a few hours away I am considering property management. Does anyone have an opinion? Thanks for taking the time to consider my situation.
It will be a money pit with that rent to value ratio. It is a very poor choice as a rental property investment.
When you're doing our analysis, be sure to include other monthly expenses. 8-10% management. 6-10% capex. 6-10% maintenance.
Assume taxes and insurance is escrowed and included in the $1500/mo
That doesn't give much cash flow, or possibly even negative cash flow.
There's a blog post here on BP that talks about 'why you shouldn't rent your primary home'. It talks about a lot of the fit and finishes you put in fit your lifestyle, but may not map well to a rental property. Worth a read.
Thanks for the input I really appreciate it!
The only time we recommend clients convert their personal residence to a rental property is:
1 - They either are so under-water on the value that they would lose too much month if they sold; or
2 - If they would choose to buy the property as an investment if they didn't otherwise own it.
And you need to be ok with making the emotional detachment from the home. Does the thought of 'renters' sleeping in 'YOUR' old bedroom and not keeping up your rose bushes make you angry?
Otherwise - sell it and invest the proceeds elsewhere.
Thanks for the reply Marc! I am 100% not attached to the home and have no problem with someone living in it. In fact after going through the divorce I almost dont like being in it. It is a big house for one person.
I am looking at this from a few viewpoints. The first is that I want to get into real estate investing and I am already in this house so it seems like an opportunity. However I am realizing that the numbers are not very good.
The other way I am looking at it is that I am from the area and like the flexibility of renting it so that I could potentially move back some day.
If I sell I will only make a couple thousand after all the taxes and fees. If I rent and manage it myself I am probably around $0 total cash flow. The only positives would be that my equity in the house is increasing and I would have flexibility to move back in someday. Also I know I cant count on this but I do feel confident that the house is in a prime location and will continue to increase in value.
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