Moving out, should I turn my primary residence into a rental?

Question

3 BR/2.5 BA condo.

The cap rate and cash on cash return I am calculating is negative.  Using a vacancy of 8.3%.  My loan to value is 73%. I am being very conservative with my numbers (thinking of difficult scenarios). Moving out of state and will be purchasing a new primary residence there.  Appreciation in this market is probably around 6%.

If I sell, it’ll be after owning the condo for 1.5 years.

Very new to this- hope my question makes sense.

Theresa Harris · Answer

Fast forward 2 years and ask yourself where you think housing prices will be (no crystal balls) and if you would have regretted selling it or keeping it.  Also remember they are paying down your mortgage.  Final decision is yours and you need to be comfortable with it.

Theresa Harris · Answer

If you run the numbers with only the basics-mortgage, condo fees, insurance, property taxes; how much does it cost you?  Now how much can you get for rent?  Now if you are out of state, will you get a property manager to look after it?  Add in those fees.

Will Fraser · Answer

Hi @Nabeel Qureshi, welcome to the BiggerPockets forums!

Assuming you have a 30-year fixed-rate mortgage at a sub 4% interest rate (from 1.5 years ago), If it were me I would keep the property and lease it out for the long-term future, unless I needed the money now.

Ideally you could see some nice cashflow with the condo and still participate in a relatively high appreciation rate.  Never a bad combo!

Will Fraser · Answer

Wow, these interest rates are so ideal!!

I'd try it for a season and see how well your assumptions hold!  You may find that you run at a slight cashflow loss each month, or you may find that functionally your vacancy is closer to 4%.  You'll only know for sure by trying it, but when you are backstopped by good equity, a stable loan, and a high appreciation rate you're in a pretty safe experimentation zone :)

Jordan Drinkhouse · Answer

Operating at a loss seems risky.

Nabeel Qureshi · Answer

@Theresa Harris

rent - (mortgage+HOA+insurance) - property management. = $38.

This doesn’t factor in any maintenance, HOA increases, vacancy rate, capital expenditures, or a property manager leasing fee- all of which will make me cash flow negative ...

Nabeel Qureshi · Answer

@Will Fraser great idea! Thank you! I’ve never rented before so was a bit nervous but I think just gotta dice right in! I already own the property..

Nabeel Qureshi · Answer

@Will Fraser thanks!

Brand new to this but a lot of what I read seems to emphasize positive cash flow. But my cash flow negative based on calculations.  Based on our job incomes we can probably stomach some losses.

And I have a 30 yr at 2.75. If renting it out id prob hang on for at least 10-20 years.

I can afford a down payment on next primary residence.

Thanks for the help!

Moving out, should I turn my primary residence into a rental?

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