Renting or selling my 1st house

15 Replies

I'm in process of buying my 2nd property as my maine residence. Thinking to rent my 1st property. Just numbers don't really add up. So: 

1) 1200$ mortgage payment 

2 ) extra 100$ a month cause we are loosing homestead exemption (from 1400$ going up to 2600$)

3) Aditional 50$ for rental insurance a month

4) Property management 10% of 1600$ of expected rental amount = 160$

MATH IS : 1600-1200-100-50-160=90$

I know, i may loose money at the end of the year after repairs...But my view is to gain equity and market value gain,,, looking as a saving account/ retirement.

Option 2 is to sell it and profit 30k and maybe reinvest in a better rental oportunity.

Thanks for y'all answers. Exited to be a new member of the bigger pockets!!!

Do you anticipate rent increasing in the future? If your market has significant rent appreciation, what may not seem like a good deal now could potentially be an excellent deal 5 years from now. If the property is in good shape and doesn't need too many repairs in the near future, you may be better off holding out for a little while until the numbers do make sense.

@Dan Cerempei

I agree with Denver.  It could easily make sense when you evaluate over the next five years to keep the property.  Also realize if you are holding 30k in equity after transactional costs of selling and buying you may not have all of that available to put into another property.  Frequently people forget the frictional cost to buy and sell a property.  Once you include the costs of selling and financing a new property your could use up 8-10% of your equity.

Some other expenses that may need to be considered are: "Capex" (unless all your high ticket items are new and you don't expect any major home repairs like a roof to be done within 5 years) and General Maintenance issues costs. These will lower you cash flow even more.

Lowering your mortgage could possibly help, but if not, then Option 2 would be my thought. 

Play with the numbers but no fudging for Option 1.

Ask yourself the questions "Would I buy this property as a rental if I didn't already own it?" and "Can I get a better return on the 30k tied up in this property through a different property or investment?" 

I hope this helps!

Do you know roughly how much equity you have in your current property? Perhaps a HELOC could be an option. As Denver and Jonathon mentioned, if rent appreciates over the next few years it may bet worthwhile to hold onto it.

As for renting, are here different options for your area, such as AirBnB or renting to college students if near a campus (by the room)?  Just a couple thoughts.  

I had the same problem about 6 years ago and I choose not to sell because I know appreciation is huge. Now price is move 500K between 6 years ago and today. Now My problem is I have to go back to that house again otherwise I have to pay huge tax :) LOL

So depending on your scenario, check your zillow, sometimes it is OK not to sell if you know appreciation ahead. I can check for your address and count the probability of success.

Originally posted by @Carlos Ptriawan :

I had the same problem about 6 years ago and I choose not to sell because I know appreciation is huge. Now price is move 500K between 6 years ago and today. Now My problem is I have to go back to that house again otherwise I have to pay huge tax :) LOL

So depending on your scenario, check your zillow, sometimes it is OK not to sell if you know appreciation ahead. I can check for your address and count the probability of success.

 14033 Waterford Cir, Gulfport MS. I will appreciate that.

Don't sell this house now. Market appreciation is too good in your area.

Fannie Mae just releases data that the home price growth is slowing to 3% only in 2023.

If you still want to sell: you rent it out for 1 1/2 years and then sell, if you sell within 2 years of holding as primary, it's still tax-free.

If you keep this house for more than 2 years as rental then if you sell later, your profit is taxable from the basis. So be careful. What you can do in this case is move back to that house at later time before selling to reduce the tax obligations.

Or never sell. If you want to acquire the cash from the house, just do refi.

As an investor, broker and property manager in the area, I would suggest selling.  Our market is NOT an appreciation market.  In my opinion, our market is pretty close to the top.

I typically say keep all properties and never sell, but after doing a quick CMA it looks like you could actually make a little profit with only holding it for a couple years. I would certainly reinvest that money into a better rental area. We are typically selling properties in the $60-70k range and averaging $950-$1200 rents.

@Dan Cerempei , while you're debating, check out how the numbers would work for your second primary residence (if you were buying it to to rent out instead).  No better than the first one?  Worse than the first one?  Get where I'm going?

ie.  Typically, primary residences don't suit being turned into rentals, at least during the early years when their mortgage is a very high percentage of their value.

ie.  It's only after years and years go by, when the mortgage goes down and appreciation kicks in, that cash flow and/or refinancing can happen effectively.

I suspect that if every time you buy a property, to be your next primary residence, then Lenders will balk. ie. Your Debt-To-Income Ratio won't allow you to become a purposeful investor in CASH-flowing properties.

Just sayin'.  Cheers...

@Carlos Ptriawan Would you be willing to give me your opinion on my property as well? It is my first house, bought it 2 years ago for $195,000. My husband and I have been doing mainly cosmetic renovations to it. Probably will have it done by late spring early summer. We are debating whether to keep as a rental or sell. We are both very new to this.

2620 Kerry Ln, Mound, MN 55364

Katie, the chance for your area is 50:50. For those who want to sell especially in the cash-flowing area: you guys really need to think about your family's future ten years ahead. What will happen in the next 10 year is all houses nationwide will be much more unaffordable as the rate of appreciation currently surpasses three times of rent growth and wage growth. In some areas, house appreciation is running above the parallel line of wage growth. When the dollar devalued like today and wage growth stagnant and college cost is getting more expensive, your actual source of income is really the equity in your house. If you sell it without a proper backup plan, your family's future might be impacted.

Also with today's sub 3 percent, it almost like gov. is giving you money for free for 30 years. Don't sell if you can, if you desperate then it's something else.