Rent Out my current house?

Question

Should I rent out my current house if there’s no positive cash flow? I bought it before I was interested in real estate...

Adam Bartomeo · Answer

You should include in your decision making process - capital gains and appreciation. If you claim a primary residence for 2 out of 5 years you do not have to pay capital gains. So, you can rent it for 3 yrs, let it appreciate, and sell it with out the tax burden. Of course there are other questions about cash flow, risk vs reward, and other tax benefits but this is some food for thought.

Dan H. · Answer

There are many BP users who would only purchase a property if it has cash flow.  Some of these users need the cash flow to sustain the property.  Others are in markets that typically only generate return from cash flow.

There are also many BP users who are into total return.  They do not care if the return is via cash flow, value add, appreciation, etc.  I fall mostly into this camp, but I also look at effort.  On the effort scale, value add is more effort than realizing market appreciation (which requires an ELOC or a refi).  Market appreciation is more work than cash flow.

If I discount the extra effort involved, why would I care if my return was via value add, equity paydown, appreciation, cash flow, etc.?  Well you would care if you need the cash flow to sustain the property, but I do not need the cash flow.

In addition, most of these BP users who are cash flow is required do not take the effort to understand what appreciation does for cash flow.   They view initial cash flow as being the cash flow.  The actual cash flow is the cash flow achieved over the holding period.  Case Shiller has the 3 best cities for residential buy n hold return for this century are all extremely poor initial cash flow cities.  Have you seen the recently released BP spreadsheet on return by city?  Its long duration was 2010 to 2018.  Not super long.  Do you know where the large West coast cities that have very poor initial cash flow ranked on cash flow over that period?  Around the Middle and this was with a calculation error that underrepresented the CA cash flow.  What do you think it would show for a 10 year period?  15 year period?  20 year period?  For 20 years it would likely show similar results to Case Shiller.

Now to your question.  It seems like you do not need the cash flow to sustain the property.  I would run conservative forecast numbers and determine the expected return.  I would then compare that return to other potential investment opportunities  taking into account that buy n hold small unit count residential is not passive.  For me to choose to keep a buy n hold residential property, I expect a return far in excess of the just over 9% lifetime return of the S&P 500.  Doing this exercise will enlighten you to your best move.

Good luck

Josh Bakhshi · Answer

Chris,

There are too many open questions like Why would you consider it?  Do you have experience managing a property? Can you cover the shortfall? What is your end goal?

Anna Sagatelova · Answer

Unless it's going to appreciate like crazy, no, probably not. But, as Kody pointed out, you might be able to make it cashflow. If not, you'd be better off selling and reinvesting into a cashflowing property or two.

Kody Thompson · Answer

No! Investments must Cashflow otherwise it becomes a liability. Look into refinancing for a lower payment to see if it cashflows or if you can add a mother-in-law or garage ADU to make it cashflow.