Portland, OR - Sell or rent out house?
Hello,
My wife and I live in Portland. We are going to be buying a new home in the next few months. We have owned the home we live in for 3.5 years. I'd like to keep it as a rental property. We will either be moving to SW Portland to a better neighborhood or down to Corvallis to be close to family. Corvallis wasn't previously on the table, but with Covid-19 we are considered moving closer to family so that we can have more help with the kids. It would also be nice to get out of the City and they have amazing schools.
Can you provide some feedback on my analysis on whether I should rent our house or sell it? I am pretty heavily leaning towards renting it out, but I'd like some more eyes on it in case I am missing something.
Facts
Home location: NE Portland, near max line
- Approximate Market Value: $380,000
- Loan Balance: $325,000
- 4 bed, 2 bath
- 7,500 sq. ft. lot
- The roof will need to be replaced in a couple years. Garage door needs to be replaced.
- Most appliances are newer. Washer and dryer would need to be replaced for renters.
Monthly Costs:
- P&I: $1,305
- Property Tax: $294
- Insurance: $70
- Mortgage Insurance: $63
- Garbage: $40
- Total monthly payment when rented: $1,772
Monthly Rent:
- Range $2,200-$2,400 * 5% Vacancy = $2,090 - $2,280
Cash Flow before repairs, capex, and taxes:
- Monthly: $318-$508
- Annually: $3,816 - $6,096
Cash flow after repair and capex, before taxes:
Assume a reserve of 10% of rent for capex and repairs: $240
Monthly: $78 - $268
Annually: $936 - $3,216
Other Factors:
We would probably spend a couple thousand dollars less getting the house ready to sell vs. rent. There are some appliances that need to be replaced and we need a new garage door. If we sell, I probably wouldn't replace them unless the RE agent thought it would add more value than it cost.
I would also self-manage. I'm an accountant and I like learning about rules, systems, and all that boring stuff that other people don't like, so I'm not worried about learning the complex housing rules.
If we stay in Portland, I might also rent by the room. This would increase the total rent we could by a few hundred a month, but it would be more work.
Pet rent could be anywhere from $35-$100/mo. I am debating allowing larger dogs for a high pet rent. Large dogs aren't allowed very often as far as I can tell so I think there could be high demand for it.
My analysis:
We sell home for $380,000. Subtract out our outstanding loan balance for $325,000, commission of $22,800, and $2,000(?) of additional costs during the process. We end up with $30,200 (380,000 - 325,000 - 22,800 - 2,000).
Cash on Cash Return:
- Low-end: 3.1% (936 / 30,200)
- High-end: 10.6% (3,216 / 30,200)
ROI:
- Year 1 - Principal: $7,140
- Year 1 - Interest: $8,445
- Low-end: 26.7% ((936 + 7,140)/30,200)
High-end: 34.3% ((3,216 + 7,140)/30,200)
Also, the mortgage would be paid down by $7,140 in the first year and more each year after.
What are your thoughts on this? What if I had to add in a property manager? Would it still be worth it?
Thanks for any feedback you can provide!