First property, Keep or sell?

Question

Hello all thank you for the help!

We just finished renting out our old house for the first year and cannot decide if its better to keep as a rental or sell, get the equity, and move that into a better cash flowing property and setting us up for a better spot financially. The house is in the far suburbs 2188 sq ft, 2 story, 4 bed 3 bath 2006 build, 2.5% interest, bought with VA loan 0% down. Purchase price $225K, estimated value $370k.

Total mortgage $1480

Property management fee $200

Additional insurance (home warranty) $80

HOA $37

------- Total cost: $1760

Rental income: $2000.

------- Net: $240 per/month

With this property, I REALLY love the 2.5% rate and know we will likely never see that again. We have a lot of sentimental love for the home. We are active military and will be moving a lot so the local property manager is a must. With the location we doubt we will be able to raise the rent, and not anytime soon. We don't have a lot of cash reserves to cover any emergencies that insurance may not cover, but there is a lot of equity in the home. We are thinking the best option would be to sell the house, get a large emergency fund set aside, AND have money set for the next property to fix and flip or just down payment to get a better cash flow (once rates come down some more). But with the 2.5% interest rate are we crazy? Is our risk tolerance just to low?

Carter Neal · Answer

Hey @Cade Speroni, appreciate the detail you shared — sounds like you're at a meaningful crossroads with this property.

You're definitely not crazy for wanting to hang onto a 2.5% interest rate — that's a golden asset in today’s market. But at the same time, it’s smart that you’re looking beyond just the interest rate and asking: “Is this the best use of our equity right now?”

Right now, you’re netting about $240/month or ~$2,880/year on a property with potentially $145K+ in equity. That’s around a 2% return on equity, which is low — especially when you factor in management fees, minimal rent growth potential, and limited reserves to cover big-ticket items. That equity is doing a lot of sitting.

Now, you mentioned the idea of selling and waiting for interest rates to come down before reinvesting. A few thoughts on that path — and why it might not be ideal:

• Psychologically, there’s rarely a “perfect” time to buy.
Most people wait for better conditions that never line up just right. Either rates are high, inventory is low, or prices are climbing. Sitting on the sidelines often leads to inaction — or regret when prices rise again.
• Rates might not come down as fast (or far) as expected.
Even if they eventually trend down, there's no guarantee they'll hit a point where it suddenly becomes “worth it” to jump back in — especially if home prices continue appreciating during that wait.
• Appreciation doesn’t wait.
If you’re out of the market for 12–24 months, you risk missing out on both appreciation and equity-building from loan paydown — not to mention any cash flow from a better-placed property.

Psychologically, there’s rarely a “perfect” time to buy.
Most people wait for better conditions that never line up just right. Either rates are high, inventory is low, or prices are climbing. Sitting on the sidelines often leads to inaction — or regret when prices rise again.

Rates might not come down as fast (or far) as expected.
Even if they eventually trend down, there's no guarantee they'll hit a point where it suddenly becomes “worth it” to jump back in — especially if home prices continue appreciating during that wait.

Appreciation doesn’t wait.
If you’re out of the market for 12–24 months, you risk missing out on both appreciation and equity-building from loan paydown — not to mention any cash flow from a better-placed property.

So if the plan is to sell and reinvest, I’d personally lean toward doing it sooner rather than later — even if that means taking on a higher rate in exchange for a stronger market or better-performing asset. You can always refinance down the line if rates improve, but you can’t go back and buy at yesterday’s prices.

That said, I totally understand the sentimental side. This was your home, and that connection matters. But from a purely investment-focused lens — especially for military families who move often — keeping your capital flexible and working harder may set you up better long term.

Hope that gives some food for thought. I’m a licensed agent and help people think through tradeoffs like this regularly — no pitch, just love the strategy side of real estate.

Wishing you the best either way, Cade — you’re asking all the right questions.

Jaycee Greene · Answer

Hey @Cade Speroni, welcome to the BP Forum! Your risk tolerance is YOUR risk tolerance...there's no too high or too low...it's what you want it to be.

But I hate to be the bearer of bad news, but if you can't raise your rents or lower your expenses, then you need to sell ASAP IMO. Also, this property is now an investment property so the phrase, "sentimental love", should be removed from its description...that's a recipe for financial disaster!

I would look into doing a 1031 exchange for a different property that can support itself in terms of cash flow. You have to move on from the 2.5% interest rate - it's like a dinosaur...it's extinct ;-)

Dave Foster · Answer

@Cade Speroni, if you have lived in the property for two out of the previous five years you've owned it, you may qualify for the primary residence exclusion, which allows you to take the first $250k ($500k if married tax tax-free if you sell.

Since you converted the property to a rental, you could also defer any additional tax left over in a 1031 exchange if you did get the 121 exclusion.

It sounds like this would be the time to sell and take all of the profit tax-free.  Yeah, 2.5% is great.  But if you don't have contingency funds.  And are going to rely on 3rd party management and Insurance (the home warranty).  Those are not really reliable partners many times. Now is the time to fix all of that with no reinvestment requirements and no tax.  And solve your risk tolerance

If you want to rent it out for another year or so and see what happens, that's fine.  And even if you rent it long enough that you don't get the 121 exclusion, you could still do the 1031 exchange and defer all of the tax and depreciation recapture and reinvest it into another investment property equal to or greater in value than what you sell your relinquished property for.

Last thought - Unless you're planning on moving back into it, lose the sentimental attachment.  That will cloud your investment analysis. Look forward, not backward.

Brendan Mullenholz · Answer

Don't let a 2.5% interest rate deter you from bigger better things.  It is tempting to only look at that aspect of the plan.  If you come across a good flip situation it might make sense to sell your home and go to a higher interest rate.  Run the numbers to see if it'll make sense to do this now or if you want to wait a couple years to get max value.

Mike Klarman · Answer

So you make a $250/month premium on your unrealized equity of 145k that sits inside the house.  That's 2% APR.

I would think someone could find a better spot for the money, but you can lose too and wish you had the 2% APR while you waited for the exact right time.

In 5 years, your unrealized equity can be 200k and your premium should be 400 - 500.

I'd have to have a plan that I thought was fool proof for the money, or do it and put it in the VIAF as Warren Buffet suggests to every American.  I think that fund has made 12% - 20% returns per year.

Drew Sygit · Answer

Why are you paying $80/month for a home warranty?

In our experience their service is deliberately so slow that an owner has to pay out of pocket to keep tenants happy:(

Please verify this for yourself here on BP.

Utlimately, this isn't a bad deal for a Class A property that you probably put 0% down on.

Your only way to improve your return is by pursuing riskier Class B or C rentals.

Mark Towey · Answer

Just a question regarding your home warranty. From my understanding, when you purchase a home warranty you pay for the whole years price for whichever plan you choose at once and its not paid monthly. Are there different options than this for a home warranty?

Cade Speroni · Answer

The company is use is called Old Republic and they do a monthly or annual option

Mark Towey · Answer

Just a question regarding your home warranty. From my understanding, when you purchase a home warranty you pay for the whole years price for whichever plan you choose at once and its not paid monthly. Are there different options than this for a home warranty?

First property, Keep or sell?

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