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!!!

Your insurance shouldn't go up if it is a rental.  My insurance for rentals is less than half what I pay on my home as my home has contents that are insured.

I'd look around and see what you can get with the $30K.  Also do you need a property manager?

Cause I'm new in this field I was thinking to hire PM for the first year. Is 160$ a month plus 400$ initial payment for pics and docs.

You could always rent it for a year and if it isn't working out, sell then. Do you need the $30k profit in order to buy the second property? I would take a hard look at what your 12 month goals are and what your 24-36 month goals are and help use that to make your decision. If you are looking to scale significantly in the next 2-3 years, I would sell it and reinvest in something where your returns are a bit better or in something that you could BRRRR and recycle those profits. If you are looking to take a slower approach and don't need the cash to buy something else, then re-evaluate in a year and keep working towards that next property in the next 6-8 months.

if you keep it and rent it i would manage it your self. managing a single family is fairly easy. and will save you $160 a month. you can pay a lawyer to make you a lease or get one from bigger pockets. if you worry about evicting some one wait until that time come call a lawyer and pay them to do it. i wouldnt sell unless you have another use for that cash

I did this with my first property four years ago and it is working nicely. If you have the 20% down for your next home I would do it. I use a PM which charges 10%, but I find it completely worth it (have kids and own a business) they take care of everything so I don't have to put too much time or mental capacity towards it. They do all background checks, credit checks, walk though every 6 months, handles the covid issues, late payment fees and evictions if needed.I guess it depends on how much time and effort you want to put into managing it. They also got me $250 more per month than I was going to rent it out for doing it myself so that more than made up for the 10%.  I am currently looking for another house so I can now rent out the one we live in. This way the down payment is still 20% they want at least 25% if it is going to be a rental) and the interest rates are lower because I will be living in it. Also, my insurance is lower on the rental because they only insure the house not what is inside.

In my opinion you need to treat it like any other prospective opportunity. Run the numbers. What's the cash on cash return? What's your cash flow? Etc. If it meets your buy criteria, then keep it. If it doesn't, sell it. It may be easier to keep it, but it may not be wise.

If you find good deals then you can always use other people's money for your purchases. Otherwise you're not going to be able to scale, so the profit from the sale of the home wouldn't come into account for me. But I understand that's not everyone's plan.

Best of luck!

Sell it for either of the following reasons:

1) You didn't buy it as a rental which is why the returns aren't good.

2) You wouldn't buy it as a rental because the returns aren't good.

Build equity in a property that cash flows nicely. You'll be much happier.

Hope this helps,

have you considered using it for short term vacation rental? If you have a good area, might be something to look into.  My daughter handles that kind of transactions and is currently doing two rooms and an apartment in Idaho Falls.

@Dan Cerempei I have traditionally held onto even marginally positive previous residences for several reasons:

- You’ve already got really good mortgage terms. I look at this as a long term investment similar to putting into a 401k, where you have an opportunity to still build net worth over time due to appreciation and mortgage pay down that you’re not having to do, plus the tax benefit you get from depreciation.

- Typically these types of homes although they may cash flow less, tend to be in nicer areas, attracting a good quality of tenant, requiring very little R&M, and appreciating much better than the typical multi-units over time.

What town/city is this in? I would look at some of the specifics of the market as well when making this call - Since it is a buyer’s market, you want to look at whether you’ll plan to hold long term (5+ years), because if not, it is definitely a good time to sell.

Originally posted by @Bethany Turon :

@Dan Cerempei I have traditionally held onto even marginally positive previous residences for several reasons:

- You’ve already got really good mortgage terms. I look at this as a long term investment similar to putting into a 401k, where you have an opportunity to still build net worth over time due to appreciation and mortgage pay down that you’re not having to do, plus the tax benefit you get from depreciation.

- Typically these types of homes although they may cash flow less, tend to be in nicer areas, attracting a good quality of tenant, requiring very little R&M, and appreciating much better than the typical multi-units over time.

What town/city is this in? I would look at some of the specifics of the market as well when making this call - Since it is a buyer’s market, you want to look at whether you’ll plan to hold long term (5+ years), because if not, it is definitely a good time to sell 

is located in Gulfport, MS

@Dan Cerempei

Looks like it’s a growing pretty stable area. Probably pretty solid investment for the long term.

Have you looked at Air B&B rates? Not sure where exactly in town you are, but you can find a projection by going to airdna.co (no m at the end). Sign up for a free account and go into the invest section, put the address into the subsection called Rentalizer.

Being so far away, the one challenge you could have with buy and holding it is finding a solid property manager. That has either made or broken my profitability on these things. If you need tips on finding / deciphering what a good one would be let me know. And keep in mind a good PM can turn into a bad one over time.

@Dan Cerempei -Congrats on the 2nd home. My vote would be on keeping it as a rental like many other fellow investors have mentioned. In time it will build your networth, meanwhile collect cash flow & get the tax benefits. In few years refinance to pull some cash out (rent should be going up every year) & buy more rental. Good luck & enjoy the process.

This is hard to answer because every situation is different. However, here’s my two cents (assuming you already have the cash to buy your next property):

Keep Property #1: Focus your energy on identifying and purchasing Property #2. This time you’ll analyze it from the beginning to ensure it’ll make sense as a rental when you decide to move out.

Rent out Property #1 for one year. Sure, your projected cash flow isn’t ideal, but you’ll gain EXPERIENCE, and that’s invaluable. You’ll have a relationship with a property manager, you’ll have experience in turning a property into a rental, and have real data to use for calculating future returns. No amount of reading can replace getting out there and DOING IT. The first time is the hardest.

After one year, use your newfound confidence and re-evaluate. Can your 30k (or hopefully more at that point) be better utilized elsewhere? Valid question, and all part of the game, but one that you’ll be able to more confidently answer with some experience under your belt.

Good luck and keep us posted!

Best of luck on your investment here in Gulfport.  There are some really positive things in the pipeline here for population and job growth on the coast.  Tenant screening and lease management will be key.  If you decide to sell, let me know.

Hey, 

I personally believe that for constant income, you can go with renting your property as it can be your side income or else in selling you can invest the bulk amount in another part.

@Dan Cerempei Have you checked into refinancing your house? If you don't need the cash from the sale, but you can refinance the house using the current mortgage balance, you may be able to lower your payments so that it does cash flow better. I just recently did this myself and lowered my mortgage payment by about $200 in preparation to use it as a rental in the near future as we actively search for a home to buy or land to build on. Also, although a general rule of them to estimate 10% for PM, you may be able to find some lower than that. Ask around to other investors in your area. I'm in the Idaho Falls, ID area and we offer lower than 10% PM.

Also, as mentioned, you if you are able, you can try to use it as a short term rental (airbnb) to get more rent out of it with a little more work to manage it. Also, something to consider, is the $30k equity including accounting for commissions and closing costs when you sell? If the house is in general good condition and you don't need any of the cash from the sale, then I would probably keep it as a rental, even if it doesn't cash flow a lot, it will build equity and increase your income to help with future loans. Also, talk with your insurance agent. From my understanding your insurance will go up because they view it from the perspective that a tenant will not care for it the way the owner does and therefore puts it at more risk. Obviously this will also depend on what type of coverage you have on the home.

1) It's a seller's market, will you get top dollar for your property? 

General advice is don't sell any rentals that is in the positive cash flow (yours are not but we'll address that next), I've been struggling with this.  I looked one of my rental's market.  I purchased it for 160+2k in repairs = 162k.  There are 2 houses for sale at 235k range in that size in that area within a 3 mile radius.  I can ask that, 15 months after purchase.  This house is old, I mean, I bought it as a flip, I haven't fixed it, but IT WILL SELL for that much without me touching it!  It's a C grade house, built in the early 80's, going on 50 years.  If I keep it, I'm going to have to put in more repairs in it, I've already repaired the AC once, removed rotting trees that died during the latest bad weather event.  It's rental income is 0.8% of property value when I bought it, it's now even lower.  Projected income isn't rising because rent isn't matching value increases in that area - people who are buying homes in that area are not renters, rather, people who prefer to buy to rent and be landlords!  After doing the math I realized, it was time to get rid of it, trade it in for a similar property in a different locale without a lot of speculative buying, newer, less hassle to fix, even if it's a mark up a little during this climate, it's better than having to deal with fixing roof, fence, etc which brings me to my next point:

2) Is it really the full rent you get to keep? Now this scenario only holds true if all market prices stay the same for the foreseeable 5 years.  Maybe your rent money will increase, it hasn't for me for 3 years, only real estate taxes, so you have to analyze your market.  PM me if you have trouble.

-I set aside 6 months of payments for emergencies - I don't even have a mortgage and I do that.  Imagine being one of those COVID landlords and can't get non-paying tenants out.

-You will need at least 1 month of payments for taxes every year, sometimes 1.5mo depending on the situation, 1 mo for the rental management company, 1 mo for repairs, and you get to keep around 8 mo rent if you insure your rental.  I know people who don't insure.  I'm not sure about them but there's an option to not insure.  It's just not wise, but still, people do it.  So my general rule is if 8 mo of rent is less than your mortgage, which in your case is: 1600*8 = 12800 < 1200*12 = 14000, you're paying someone to build equity for you.  IMO: not worth. Take that 30k, put it in an ETF, divided producing retirement fund, whatever, re-invest your dividends, it's a *better* investment bang for the buck cuz in the end, your goal is to make money from the money you have without being too involved in the management of it as a real estate Investor going for Passive Income, don't forget that. Investor > Landlord.