Should we keep our home as a rental

23 Replies

Hello everyone,

We are currently living on the outskirts of Memphis, TN in a great, up and coming area. We purchased a home in 2013 for around $400k at 3.5% with $0 down and no PMI with a VA loan. Now we are getting ready to move with the Navy and are trying to decide to sell or rent the property. We would be able to net about $200-$250/month. this would be our second rental property.

Thoughts? 

Thanks,

Jared

I'd definitely rent it out.  You have a great interest rate and increase that cash flow.

so your close to getting about $7 dollars a day profit by tieing up 400k as an absentee landlord? Sounds aweful

Steve B. the thing here is that b/c we used the VA loan we didn't put any money down on this property. If we sell we would payback the loan in full and maybe have a bit leftover as cash out.

$250/month seems a little tight to me. Might be a good short term solution though. How much are you renting it out for?

We would be renting it out for ~$2450

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Sounds like a nice home. If you sell it will you be able to get another VA loan?

If it's empty one month you loose a whole year of positive cash flow.  

Who will manage it and at what cost?

A $400k home requires much more upkeep than a normal rental.

IMHO it will be a looser and you need to sell it and get on with your new life.

Thank you for your service and good luck,

@Jared Smith  

Been to Millington. I kept my first house as a rental after I moved out and bought a new residence. Worked out well. I know other people in the military that have bought a house at each duty station and kept them as rentals when new orders came. One person I know has a house in PA, CA, and TX. When he went to Afghan, he didn't buy a house there. Another person I know has a house in VA, FL,& TX.

You are right, I should have accounted for that. it's still a bad investment, but not aweful

@Jared Smith  

If the numbers don't work, then it may not be worth keeping.  Can you get somebody transferring in to rent the house for their 2-3 year tour?  Check with the housing office on base.

If the property is negative cash flow, then you need to decide if that still makes sense.

@David Krulac yes. The house is in one of the best and most preferred neighborhoods in Lakeland, TN. The Lakeland elementary school is actually in the development and it is either a 9 or 10 on Greatschools.com.  Rentals go fast in the neighborhood (many homes rent out to officers from Millington on 2-3 year tours) and the school district is being refined to build a new middle/high school not far from our home (breaking off from a much larger system). The area shows many signs of being on the up and up.

@Jared Smith  

There may be certain tours where you would not want to buy a house.  One Navy officer that I met had two tours in Antarctica.

@David Krulac  

I agree with that. we really wanted to rent here in TN, but ended up buying this home b/c we could get a mortgage for $200-300/month less than the what the rentals we're going for in the neighborhood we wanted. Along with the tax advantages it has worked out well so far.

We may be moving to San Diego next so I am excited to see what opportunities are ahead.

@Jared Smith  

SD, DC and Norfolk are among the areas where you can get multiple tours in the same geographical area and not have to move.  Good Luck.  I think SD has just about the most perfect climate in the US.

Originally posted by @Jared Smith :

Hello everyone,

We are currently living on the outskirts of Memphis, TN in a great, up and coming area. We purchased a home in 2013 for around $400k at 3.5% with $0 down and no PMI with a VA loan. Now we are getting ready to move with the Navy and are trying to decide to sell or rent the property. We would be able to net about $200-$250/month. this would be our second rental property.

Thoughts? 

Thanks,

Jared

I'd only pursue this if there is an big upside for appreciation, or if you planned on keeping the house forever as a rental.

Run the numbers, subtract 15% a year for vacancy and on going maintenance and repairs during each year, subtract 15% per year for maintenance and repairs to get it market ready once you decide to sell it.

Example if you were to keep it for 5 years and sell at the end of five years:

12x$200=$2400 year gross profit
15% for vacancy, maintenance, repairs ($-360.00 per year)= $2040 gross profit per year
15% set aside to repair, repaint, replace to get ready to sell on market = $1800 

$7000-$8000 net for 5 years of rental.

Appreciation over the term you would keep it would be the only incentive, and it could be a big reason why to rent it. If you gain $50,000 in equity you could leverage that upwards in further investments.

I would sell it if I were you.  That's a big mortgage should the home go vacant for any period of time.  Let me know if you need an agent!!!

My first thought was sell to lock in your tax free cap gain. Even if you don't have that, in this situation I would sell.  A $400k house as a rental?  Maybe buy your next place with future rental potential in mind! 

@Jared Smith  

Everyone has a different opinion. My husband is active duty military. We own in CA, SC, and VA, with 5 different properties and growing! Everyone has their own opinion but we have done amazing making these small "margins" work with other people paying down our mortgage. I love being able to turn personal properties into rentals as they required a small amount of cash for a large asset to have someone else paying off.

It really depends on your long term goal, but ours is to use these "retirements baskets" into reasons that early retirement at 44 is successful! 

We had the amazing opportunity to be able to talk about our journey and business model on podcast 103. 

Let me know if I can help! Look forward to seeing you around

@Elizabeth Colegrove 

I actually had your podcast recommened by another friend and BP member on Friday. I really get where you are coming from in your discussion.

The thing that resonates with me is the Class A neighborhoods. The home we have now in Lakeland, TN (near Millington) is definitely Class A and there is a large volume of transients that move through the naval base, FEDEX and other like jobs that our neighborhood of 400+ homes hardly ever has ever rental openings, but there are often multiple homes for sale.

We think if we can maintain the right type of tenant we will be fine. Since we did $0 we are assuming risk of the loan amount, but can afford to take a small cash flow margin while someone else pays our principle down.

We are working toward A similar plan as you as I plan to retire from the Navy at 42-45 years old in 7-10 years. This is really our jumping point to determine if we want to carry multiple rentals or just keep it to the one we have in Alexandria, VA. Let the journey begin...

Everyone would like to own class A property, however, the problem is that most of those places are NOT profitable for renting.

 I bought my first house in 1987 and  5 years later I got a job transfer from Miami to Central Florida. I had the same dilemma as you should I sell it or rent it as I was moving upstate 4 hours away. I tried to sell it but not much interest at the time. So I rented out...many years later the house appreciated in value. I was able to to do a cash out Refi for my RE Investments. Today I'm glad that I didn't sell the house, still renting it with cash flow and with great tenants.

@Jared Smith  

Exactly! Over time the houses we have accumulated and the "margins" have widen. So while in the beginning it wasn't much it is starting to really add up! 

Let me know if you need any help! You should also join the military landlord Facebook page. It is a great group and resource too!

$400,000 seems extremely high for a rental property. Very risky. 

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