Paid off home Sell it or turn it into a rental?

16 Replies

We own a 3/1 in Akron Ohio, my mom's former primary residence. It's paid off. Worth about 85-90K with a little updating. Could rent for $800-900. 

Looking to generate cashflow through rental properties to help offset cost of my Mom's assisted living costs. 

The house isn't in a market that I would choose to invest in but we already own the property. Would you:  

1. Sell and use the cash to buy another property 

2. Rent it and get the cash flow

3. Rent it get then refinance to pull some equity out of it and invest in another property.  

Any input would be appreciated.

@Jason Dalka , You pose a basic question.

I used to live in the area, and that's an "A" area for sure. May even pull 100k in a straight sale, TBH.

Personally, I rent it, $900-950 assuming it has AC, $800 w/o AC. Then (or simultaneously), I would refinance and buy 2 more for rental purposes. You should be able to get near the $900 rent with a $50k mtg. At +$400 per property net, you'd double the income you'd see from just the single home after taxes and insurance.

But the fact that your family member is going to be in a care facility and possibly supplimented by the state it may not be so simple. The lump sum money may negatively impact the amount the state will supplement for care until all of her cash has been spent. Thus pushing you toward the rental game.

You're now firmly into life planning/legacy (wealth transfer) situation that cannot be adequately answered in this forum. Best of luck.

@Jason Dalka

Ellet is one of the best neighborhoods in the Akron city limits. Other than that, it's Fairlawn Heights, Wallhaven, and Highland Square.

I'm personally not a fan of out of state investing in Ohio. It's prime ground to get taken advantage of.

Good luck with whatever you do with it.

@Nate Richards That is the route I am thinking of going. We are trying to avoid any state/federal programs for her care. The required spend down of what she has worked her whole life to save is just not an acceptable option and I believe she will have more options if we are paying for her care. 

@Josiah Barkman What do you think of Wadsworth for rental property? I have family there, think the schools are good, steady growth and the preliminary numbers seem to work.

To be honest I really dont know much about wadsworths real estate market.  I know it's a nice area but I dont know much about the price or rents on houses there.

If the property has appreciated, be sure to check out the section 121 capital gain exclusion on the sale of a primary residence.  If you subsequently rent the house for 3+ years, you lose that valuable exclusion.

@Jason Dalka . Personally I’d sell the home and reinvest I’m liquid assets that can help care for your mother. 900 a month rent isn’t going to help much if a big expense (healthcare) arises

@Caleb Heimsoth @Dennis M. Thanks for the feedback, I should have added above that the goal is to acquire a small portfolio of small multi-family properties over the next few years to build/preserve her wealth as well as generate cashflow to cover/offset her living expense. Totally understand that being a landlord is work, I've owned a real estate brokerages in Chicago that focus on residential leasing ( yep, that's a thing in Chicago) I've worked with hundreds of owners and property managers over here and my brokerages has rented 15,000+ units over the years. I was planning on investing closer to Chicago so I wasn't sure I wanted a single door in Akron. Looking over what people are saying about the Cleveland/Akron market I might investigate a little more.  

@Jason Dalka I love Chicago but it's a tough market to be a landlord (taxes, crime, corruption, giant looming pension problems, super tenant friendly know what I'm talking about). If you're already investing elsewhere/have a house in Akron, why not start there? I would do a cash-out refi (tax free) and roll it into two more properties. Now you have 3 solid houses in a good market that has a lot of upside. 

@Jason Dalka I'd opt for number 3 but talk to an accountant and ask how much capital gains tax will you pay if you sell @90K; i.e. how much cash will you have left after paying Uncle Sam.  Then compare that w/ keeping the property for cash flow and what kind of cash you'll receive from refinancing.  

Taxes probably aren't substantial on a 90k house, so it will boil down to the asset. Easy to rent, maintain, decent neighborhood? Work needed?

Transaction costs  and effort on a sell and re-deploy at this price point will eat your lunch.  Keep if a decent rental. No way I'm paying 6% twice and hunting around for 2 months for 90k assets, but my title tells you how much I like expending extra effort.

@Jason Dalka I probably would advise you sell the house and invest with liquid cash. $900 for rent is not a big amount per month. It cannot help you too much. Maybe try sell it and try other investment methods. 

My advice would be to sell and hold the cash till you can find a better investment, many top economists are predicting a recession to hit soon which will make it a great time to invest your liquid cash