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

Question

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.

Mike Dymski · Answer

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 Marcordes · Answer

@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 laws.....you 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.

Caleb Heimsoth · Answer

@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

Grant Delmonte · Answer

I think you can have two choices, either rent it right away, get your rent, or sell your assets so you can invest in others.

TIm Harstead · Answer

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

Michael Lee · Answer

@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.

Steve Vaughan · Answer

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.

Crystal Smith · Answer

@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.

Jason Dalka · Answer

@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.

Dennis M. · Answer

@Caleb Heimsoth

I agree and I’d also add being a landlord is work , it’s not passive and that may not be something long term you wish to do .its not a mutual fund and not everybody wants to deal with rentals

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

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