Need Input - Should I rent my home

2 Replies

I am attempting to plan the next steps of my life. There are a couple different strategies that I am listing below. I would appreciate your opinion, but without too much bias with this being a Real Estate investing site ;).

Background:

I landed a good secure job last year and things are going well. I also operate a web design/digital marketing company that help produce extra income.

Currently, I live in my childhood home with my family (wife and two kids - I am 30 years old). I inherited the interest of the home and finished paying off the mortgage last year. I own 62% interest of the home and my sister owns 38% (we worked it out this way and the deed reflects this). We were planning on moving into a new house this past summer, but I felt it would be smarter to wait until next summer. We REALLY want to move, but at the same time I want to be smart with my decision.

The home is realistically worth only about $80,000. 

Dilemma:

Again, I want to move bad, but unless I would sell my home now, I would not be able to get the home I want. If I did decide to move now, after selling, I would use the money from the home to pay off student loans and to have some extra. 

I started thinking about my current situation though. Not many people can say that they own a home and don't have a mortgage. All I would have to do is buy out my sister's interest of the home and then I could put the home up for rent and make profits on it without having much overhead just taxes, insurance and repairs (at least I think).

My home requires some work though. If I was going to just sell the house, I was going to do only the necessities and then put it up on the market. If I would buy out my sister's interest, I would repair more than that. The home could use windows, hardwood refinishing, furnace in the future, and basement carpet are the major things.

Before I would even try renting out the home I would want to pay a good chunk of my student loans off (if not all) and then pay off my sister - around $30,000. I would also do some minor repairs and eventually do the major repairs, though I would potentially refinish the floors - let's say that is $2,000. Paying off all of this would be $62,000. 

Strategy Options:

Strategy 1 - Sell my house

Pay off as much student loan debt before this summer. Sell my home and just buy a new house.

Positives - Short-term benefit of spending less and getting satisfaction quicker. I wouldn't have to worry about paying off my sister as it would come out of the sale of the home. I can put my kids in a better school district, feel better about where I am living, but I would not be where I want to be financially yet. 

Negatives - We have outgrown our current house and really want to move. The purchase of the new home would take away a lot of my disposable income I currently have. Vacations and the style of life I live now would be drastically reduced.

Strategy 2 - Rent my house

First, pay off my student loan debt. Keeping this consistent with the first would position me to be able to buy a home at anytime if I decide not to rent my home. Then after I would pay off my sister's interest. I then would spend more money to get the house ready to rent and look into the business side/league aspects of renting a home.

Positives - Long-term financial benefit; I would assume that I can get roughly $900 a month renting this home - after taxes and insurance it would be safe to say I would profit $725. I would always have a fall-back home in the case something happens financially. I want to have multiple rental properties at some point, so this would be my first and it is ideal by not having a mortgage. I could use the extra $725 to offset my new mortgage or invest with it.

Negatives - I push back getting a new house by at least a year or two. I take a risk with my house in the fact that it is older and having to spend a lot of money in the future in repairs for tenants. I will have to move my kids to new school districts.

Questions:

  • Do tenants occupy rental homes longer than a duplex/condo?
  • Is it more difficult to rent a home?
  • Does it make sense to rent my home? 
  • Is $725 profit realistic with a $900 rental fee without a mortgage?

What do you all think? What makes more sense? Let me know if you need more information.

I'll try to answer your questions. Please keep in mind that I'm not from your area.

1. Usually I get at least a year out of my tenants. I have had a couple that have stayed 3 plus years.

2. No, I can usually rent them out right away but sometimes it may take a couple months depending on what work needs to be done.

3. Maybe not. It looks like there are a lot of much cheaper properties in Canton and you could probably get a much better return on your money if you sold your current home and bought something else that makes more sense to rent out.

4. No. I save out 8.33% for vacancy costs, 20% for repairs and CapEx, and then about $50 each for property insurance and property taxes. That puts you at about $545 profit per month.

Best of luck!