Should I rent or sell

Question

I’ve never owned a rental property but have experience within the area due to past jobs and my career.  I’m getting married and moving in with my finance after the wedding.  I’m 38, we both make good incomes and considering what do with my residence.  Constructed in 2004, nice family neighborhood with expected increase in value of 5% a year approx.  Owe 138K.  Appraised at 210K approx.  Avg rent in the area is $1,600/month.  Taxes are $2,200.  Insurance is $900.  Mortgage is $1,100 ($650 goes to principal) a month on a 15 year fixed with 12.5 years left to own.  The house will be 30 minutes away from my new residence. Excluding HVAC and electrical, I do my own maintenance and work.  According to my figures, I think this is a good opportunity to rent vs “cash out”.  Do you agree?

Jaren Barnes · Answer

@Chris Biehle It looks like your thread got buried somehow and went unnoticed. So hopefully this bump with the attention of others who can help.

@Brandon Turner @Ben Leybovich What do you guys think?

Edith TenBroek · Answer

I agree with your decision to rent.  From what I can tell it looks like your payment with interest is $650, and you will rent for $1600?  That meets the 50% rule.  You know the condition of the house.  You know the neighborhood.  I think you have a lot going in your favor.  So take the extra cash from the rent, throw it on your mortgage, and build equity even faster.  Then if you like the landlord biz you can cash out some of your equity, or even sell at a later date, and buy something with even more cashflow!

Good luck!

Edie

Account Closed · Answer

Chris, thanks for asking your question.  I leared from it.

Chris Biehle · Answer

Thank you again.  I apoligize, on my last responce about proceeding to rent I had not seen the other responces encourgaing a sell.  I certainly appreciate.

I work in business insurance and I have many clients that are property investors, flippers, buy and hold etc...  After telling a client that I was going to sell my house and buy a fixer/upper to rent out, he responded, "so you're going to sell a house that is ready to rent, pay a broker a commission, buy another property fix it up and then rent?  Why not just rent your current home and at minimum your net worth increases $700 a month?   responded, "good point".  The only thing else I was considering was if I sold to just reinvest and forget about it.

Regarding the area that I'm moving to, there appears to be alot of good properties.  Rent is relativley the same $1,200 to $1,500 (South Minneapolis), however the values are extraoridnaly high.  I can't seem to find anything that would cash flows well.   My hope is to rent my existing home, work out the bugs and learn from my mistakes and be well positioned when I do find another home to purchase down the road.

Thanks again.

Bill S. · Answer

@Chris Biehle  FWIW I think the decision to hold and rent is good. Remember you have costs associated with the sale of it. If you re-invest you have costs on that end as well. You have the advantage of the lower rate because the current loan was financed as an owner occupy. Non-owner occupied loans require more down payment and have a higher interest rate.

Do some learning on how to be a good property manager/landlord. There are three things that are important with owning rental properties, Tenant selection, tenant selection and tenant selection. The right tenants make it a dream and bad tenants make it a night mare.

Chris Biehle · Answer

Thank you very much for all the replys.  I'm going to proceed with renting and just see what happens.  Sink or swim right?

Thanks again!

Andrew Syrios · Answer

With an $1100/month mortgage, I'm pretty sure that house won't cash flow. You have a lot of equity, I would sell. Then take that money and buy some properties in cash flow neighborhoods to hold.

John Horner · Answer

I think also depends on what the returns are in other areas you are close to.  For instance if this is 9% return, could you cash out the $70k equity you have and buy a property or use as down payment on a property and get 20%-30% Cash on Cash return?

Rachel H. · Answer

It's up to you to see what you can handle. If you work a full-time job, you'll have to figure in time to manage the property or hire property management. I believe both @Ali Boone and Lisa Phillips on here, both writers for the BP blog, have a fresh perspective in this realm.

Hope that helps, good luck!