Need Advice: Should I Sell or Rent Out My Primary Residence?

Question

Hi all. First time caller. Long time lurker.

Could really use some advice. I’m absolutely torn as to what to do here. I live in Fairfax County (Virginia), in a nice area – about 30 minutes from Washington DC. My home (3bed/2bath condo) is worth about $300,000 and I owe about $195,000 on mortgage. I have about $100,000 in equity in it. The all-in mortgage payment is $1560. I could rent it as-is but would rather not - would rather not deal with the constant calls to fix stuff if its rented out. I will have to spend about $10k-$15k to get it “rent ready” – but I will be able to rent it out for $2000/month to maybe $2200/month. The $10k-$15k cost to upgrade is not an issue. I will also need to get a property manager. I’m afraid of getting sued so I was thinking of refinancing the home under a newly formed LLC (Probably Wells Fargo Commercial Real Estate Financing – I will personally guarantee the loan) and put the title under the LLC too.

My dilemma is, do I just sell and take the $100,000 now and put it in like an S&P 500 Index Fund or keep the property and take the $265/Month to maybe $465/Month Free Cash Flow – after all costs - and take advantage of all the tax deductions and depreciation, while the renters are paying off the property slowly.

Chris Pasternak · Answer

Would you buy this as a rental had you not accidentally lived in it for the last however long? This seems clear.

Sell and not pay capital gains because you've lived in it? Double check with accountant.

Where are you moving to?

What will you use the proceeds for?

Reid Chauvin · Answer

Hi @John Lee - this sounds like a pretty good opportunity to give renting out a property a trial run, if it's something you have interest in. I'd suggest reaching out to a few property mgt companies in the area to get quotes as well as their opinion on whether upgrades are even necessary in that particular market. I'd look at the numbers they provide and see if it still makes financial sense. If renting it out doesn't go well then you can always sell.

Happy to answer any questions re: refinancing or purchasing. I just moved from DC and am licensed to lend in VA.

Nathan Gesner · Answer

I haven't read the other responses but expect I'll repeat what some of them have said: sell the house and move on.

1. You are not motivated to rent, which means it will be a big stressor in your life. Freedom is worth more than a few extra dollars in the bank.

2. Your cashflow won't be there. As a general rule, you want the rent income to be about twice the mortgage payment or more to make a good rental income. After paying for maintenance, capex, mortgage, taxes, insurance, and other costs, you won't actually be making much (if anything) for cash flow. That will only increase your stress.

Trevor M. · Answer

Why do you need to spend 10-15k to make it rent ready, but not need to spend that to make it sale ready? I am assuming this is going towards freshening up the place, which you will still want to do when you sell to get top dollar. As far as your 100k in equity, you will not get that when you sell. After closing costs, title fees, commissions, selling concessions, etc you MIGHT get 80k back. My opinion would be to put in the 10-15k for upgrades, take care of any maintenance items now while your living there, rent out the place for a year and see how you like it. If you don't then just sell it.

Joaquin Camarasa · Answer

It seems you are closer to sell it than to rent it by the way you wrote the post. I hope you can really get the 100k you expect, condos are still the coldest asset.

I think it comes down to how hectic is your life right now.

If you decide to use those 10-15k to get it ready, I do not think you should be getting that many calls if you rent it out. You might even be able to manage it yourself and save some money. Also, if you go this route it might be worth for you to get a home warranty so you do not spend too much time looking for contractos to fix small issues.

Marian Huish · Answer

It’s really difficult to advise not knowing what your current situation is @John Lee.  Are you single or do have family obligations?  what are your living plans moving forward?, do you have a steady full-time job and money in the bank?  You likely don’t need a property manager or to move funds into an LLC as condo rentals are generally low risk, Particularly in a place like Fairfax Virginia.  I would consult with a local realtor to discuss the market and get better hands on advice relating to your particular situation.  Best of luck!

John Teachout · Answer

I'd probably sell it and redeploy the funds elsewhere. Much of the time, people's residences do not make good rentals. Some things to consider are what your interest rates are, whether the property would cash flow as a rental (probably not) and whether you could sell and take the gains tax free. Those would all be part of the equation. You could put it on the market and see what happens. If it doesn't sell for what you want, then renting would be another option. What would your personal housing plans be if you sell?

Patrick M. · Answer

Pick up the WSJ- the institutional money is pouring into the rental market. They see no let up in housing demand (Goldman Sachs). Do a 1 year lease and if is not for you sell it at likely a higher price in a year.

I hate talking people into things, especially someone so riddled with fear like yourself... but I see this as a great opportunity to get into the game.

Patrick M. · Answer

You may be painting to rosey a picture of how much cash you will be walking away with after the sale. 10-15k to get it ready?

You sound like you are full of fear and trepidation- not like someone who is willing to take in the risk. Much of your fear is misplaced- insurance is there for a reason.

If you are serious then scout out a property manager and sit down with them, let them explain what they can do and how much they can rent for.

You are in a nice area, each year you hold onto the property you will get a little cash flow and some nice appreciation.

Michele Fischer · Answer

Hard to say.  A few years ago I would have said convert it to a rental, but it's not the sure bet it used to be when 25% of our tenants are refusing to pay rent.  It still feels less volatile than the market though.

I would not invest in the upgrades without getting really familiar with what tenants in your area are looking for an willing to pay for.  We learned the hard way when we first started that tenants don't care about the same things we do and that tenant proofing for durability can be money better spent.

I would skip the LLC and keep the property manager.

Need Advice: Should I Sell or Rent Out My Primary Residence?

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