Renting out vs Selling, plus a few questions

5 Replies

Hi everyone,

My soon to be wife and I own a house in East Nashville but are moving to St. Louis for her new university job. She bought it 4 years ago for 125K, put down 25K down payment on a 30yr mortgage at around 4% interest. The house is now worth (conservatively) about 225K. It's a small house, about 675 sq ft, that was gutted and re-made before she bought it in 2014. It has a big fenced in yard and is in a hot neighborhood that has long been in the process of gentrification. A few questions:

1) Should we sell it or rent it out? We're leaning towards renting.

2) What should our target price be? Looking at other places in the area, we were thinking about $1,400/month.

3) Property manager or not? We're leaning towards a property manager cause we'll be out of state, are not terribly handy, and both will be busy with our careers.

4) What's the best way to go about getting it rented out? I assume it'll have to be cleaned and repainted. 

5) Should we refinance to a 15 year mortgage to get a lower interest rate? I realize this will increase the mortgage payment and eat into any profits if we rent, but we can easily afford it and would like to get the sucker paid off.

Any and all advice is super appreciated!!

Ralph,

To sell or to rent? It sounds like you have made up your mind already. Either way it looks like you will be ok. You should take a minute to think about your plans with your future wife. Congratulations by the way! Is there a chance you would move back to Nashville in the future? Is the market still climbing fast over there or has it flattened out? Were you planning on being landlords at some point? I know lots of questions.

I’m guesstimating if you sold the house you would walk away with about 100k in your pocket after realtor fees. It may be possible to buy 2 or 3 rentals near your new home with that 100k. It would be worth a look at the numbers if you could cash flow more on the 2-3 new rentals than your original house.

Another option would be to take that 100k and buy a quad. Rent out 3 units and live in the 4th for a while and live there rent free. If If I could go back to that stage of my life I would want to go that route.

If you do decide to rent out your current house I would definitely find a property management company. I would not go to a 15 year mortgage. 4% is not bad. It’s still possible to pay down the house early by making extra principal payments. This leaves the option of paying the original amount if things get tight for one or two months.

I am no expert on the matter but I hope this helps you out and let us know the route you end up taking!

@Sammy G. Under the 50% rule, $700/month is eaten up if the gross rent is $1,400, and the other $700 will go to the mortgage (I think it's 680 or so), which means net rental cash flow would be nothing...not a very strong case to rent

@Daniel Burke Not *100%* decided, but that was our knee jerk reaction. East Nashville, and Nashville in general are still hot, though a little slowed from the last few years. There's an outside chance we may come back if she gets a professor job at Vanderbilt down the line, but I imagine we'll end up on one of the coasts. My lady is usually more conservative and risk averse...

.....by renting, I'm trying to look at the long term and imagine us eventually paying this place off while also enjoying the ongoing appreciation. But - I do hear that we get to avoid 500K of Capital Gains taxes since it's been our primary residence for 4 years. As for using the would-be profits to buy more rental properties in St. Louis:

a) Her job term is only 2-3 years, with a high probability we'll move again after

b) We're newbies in this RE thing, and if *I* am nervous about reinvesting the money, I KNOW she will be (again, conservative and risk averse). 

Although I suspect that's how/why I found my way here -- trying to learn about this whole game. I've just gotten started on the low-cost index fund thing, but slowly cozying up to the idea of a cash flow hustle. Part of it will be educating myself, but the other, more difficult aspect will probably be convincing/educating her.

@dick

@Dick Stevens  Heard that. Like I said though, we'll probably be moving again in 2-3 years. Does that mean you wouldn't recommend buying any rentals until we've "settled" somewhere?

Thanks for the info yall!! Would love to get your thoughts on any of this. Also forgot to mention we've paid down only about 15K principal from the original 100K mortgage.

@Ralph Noyes if your cash flow in zero, sell. Take your capital gain and invest in RE which is going to give you positive cash flow each month. Because it’s your primary home, you’ll have capital gain tax advantages.