Sell or rent departing residence

[Michael LaCanne]

Hi Mike from Minnesota! 

listening to bigger podcast for last several months and I have worked in the mortgage industry for 7 years, specially in Heloc s the last 3. I want to be first time investor.

looking for advice on whether to sell or rent my departing residence.

Purchased the property $312,000 in July of 2020, wasn’t planning on moving right away but im starting a family and we are under contract to purchase a bigger house 10 minutes away a couple years sooner than originally planned. Took 20% down mortgage at 2.65% insurance is $1,200, taxes $3,900. Since I wasn’t planning on moving it’s not a flip but we spent a ton of money on improvements and maintenance I just don’t see us recovering even though the neighborhood just 8 minutes west of downtown minneapolis. 

Because I have spent so much on the home I have as much saved up as I would like and having extra cash would help and I’m not as well prepared for negative cash flow as I would have liked. 

I’m buying a new house using $75,000 as part of the down payment from a Heloc at 5% but likely will go up with rates the next 2-3 years and may not be able to pay down as quickly as I want. 

I’m estimating a sale of $350,000-$375,000 which isn’t great considering I could have probably close to that with out all the maintenance I’ve done.

Rents-  I’m showing comps range $2,200-$2,900, looking at $2,395 per month. 

Because of the Heloc I'm getting all sorts of ROI calculations from 5-25% changing vacancy, maintenance and management calls (may self manage) and don't know if it's worth it in a rising rate environment especially with tighter cash flow as I have a baby coming in a few months.

Seams like a great opportunity to take the risk but it’s under the 1% rule on rents of purchase price but not there and tough timing with a new family getting started.  Would I be better off cashing out of my departing residence and perhaps try to later buy an investment property in a cheaper location that passes a 1% rule later in life even though I have a great location with a hot rental market and a good 1st mortgage?

appreciate any advice!

[Tim Swierczek]

@Michael LaCanne There is a lot of info here, but I think some key data points are missing. What is your current PITI? How much cash would you net from the sale after all expenses? I wouldn't worry about the 1% rule. That is just a rule and hasn't been realistic in most situations in the Twin Cities for the last 3 years or so.