Sell or keep my property as a rental?

Question

It’s been a while since I have been on this board. I purchased my current home in 2012. If I sold it today I would profit approx $250,000.

My end goal has always been rental properties and passive income. This is the only house we own. Our all in expenses are $1,100 but they are renting at $2,300, which is a nice chunk of change each month.

My dilemma is do we sell or do we hold the property as a rental? My other dilemma is if we do sell, I do not want to buy in this market. It seems counterproductive to sell a low risk property just to buy a high risk property.

We could live at my parents home for a year (it is their vacation home not their main home). But i would hate to go too long without a place of our own.

Would you sell and reinvest the profit or hold as a rental?

Joe Villeneuve · Answer

OK.  Now that I know the PV, here are the revised numbers to my previous post:

1 - You have $250k at risk if this becomes a rental.

2 - The $2300 in rent isn't the important "chunk of change".  It actually means very little on its own.  What matters is your cash flow, which would be $1200/month...$14,400/yea

3 - If you profit $250k if you sell, you need to compare that to the cash flow...and how long it will take the cash flow to equal the profit if sold...which would be over 17 years.  What's happening is you are buying cash flow with your equity.  By leaving your equity in place, you're spending $250k up front to get $14,400/year...and, you don't make a profit until you recover all your costs.  This means 17+ years.

...#'s 1 thru 3 don't change...

4 - I PV is $350k.  Using that number, that also means you're paying in equity, $250k for a house valued at only $100k more.  This is a terrible ratio.

5 - If you sold this house, and took the profit, and use it as a 20% DP, that would mean you could buy RE worth 5 times the DP...or, $1.25M.

6 - If you took that DP money, and split it between a rental/investment property and your residence, I bet you could make the rental house have at least $1200/m in cash flow and still live in a nice house.  In fact, I would be surprised if you couldn't double your cash flow.

This is a house that needs to be sold...and fast.  You're losing money exponentially.

Ashley Lynn · Answer

@Joe Villeneuve Thank you for the advice. I’m having such  hard time with this decision. My husband wants to sell. I am torn. We live in South Florida. the property is worth at least $340,000 based on what two just sold for. It’s a 2/2.5 townhouse. I bought it in 2012 for $70,000. I still owe $70,000 after refinancing twice. Once to get out of mortgage insurance and again to get my current interest rate of 2.2% (closing costs, added some debts several years back, shortened the term of the loan).

The taxes here are also high and we have a homestead on our home. So we only pay $2,300 a year in taxes.

Joe Villeneuve · Answer

Here are a few things to consider:

1 - You have $250k at risk if this becomes a rental.

2 - The $2300 in rent isn't the important "chunk of change".  It actually means very little on its own.  What matters is your cash flow, which would be $1200/month...$14,400/yea

3 - If you profit $250k if you sell, you need to compare that to the cash flow...and how long it will take the cash flow to equal the profit if sold...which would be over 17 years.  What's happening is you are buying cash flow with your equity.  By leaving your equity in place, you're spending $250k up front to get $14,400/year...and, you don't make a profit until you recover all your costs.  This means 17+ years.

4 - I don't know what the property is worth, but if you've owned it for 9 years, I'm guessing between mortgage paydown and appreciation, the house is probably worth at least $500k.  Using that number, that also means you're paying in equity, $250k for a house valued at twice what you are paying for it.

5 - If you sold this house, and took the profit, and use it as a 20% DP, that would mean you could buy RE worth 5 times the DP...or, $1.25M.

6 - If you took that DP money, and split it between a rental/investment property and your residence, I bet you could make the rental house have at least $1200/m in cash flow and still live in a nice house.  In fact, I would be surprised if you couldn't double your cash flow.