Rent out or sell my current home?

Question

We have $100k in equity in our current home and our mortgage is $850/month. This home will rent for $1550/month($700/month cash flow). We are currently looking for investment property to rent out. We’re also looking for a new home. Would we be better off keeping this home and renting it out or using part of the equity for a down payment on another property?

David Laws · Answer

Thank you guys! Another question.  I’m new to this and currently own no investment properties. Would it be wise to use the equity to put down on several properties?

David Laws · Answer

Thank you guys!

Brandon Rush · Answer

Hey David,

I believe it all comes down to your long term goals. Are you looking for long and steady cash flow over the next few years or are you looking for more a aggressive return over the next few years on your investments?

If you are looking for long term investments, you could pull out some equity in your home, rent it out and purchase your new home. Depending on the prices of property in your area, you could potentially, purchase an investment property as well leaving you with two investment property and your primary residence. Keep in mind, doing this will decrease the cashflow on your original property since you will be refinancing, most likely resulting in a higher monthly payment.

If you are looking to be a bit more aggressive, you could stay in your primary residence, refinance it and use the proceeds to pick up a BRRRR or flip. This will build up capital quicker, allowing for things to happen sooner. Going this route may allow you to pick up some investment property over the next few years.

Last thing is you can house hack. While this is not for everyone, it has multiple benefits and will help speed up your investing journey.

One thing I see is you mention $700 cash flow. Based on your numbers you will most likely be looking more at $400-$500 a month in cashflow when taking maintenance, capex and other operating costs into mind.

Either way, its a nice thing to have $100k of equity and you have options. Good luck on your journey!

Anthony Dooley · Answer

It's only $700 per month of cash flow if everything goes perfectly and you manage it yourself (time is money). Believe it or not, tenants don't always pay. Things break, pipes get clogged, their pet has fleas, etc. This costs money. You purchased this as a residence and you probably paid retail price for it, because it was on the MLS. By renting it out at retail price, you are not really making much after all expenses are considered. Sell your house and buy a rental property with the equity. It will cash flow very well.