All Forum Posts by: Eric Bowlin

I use a formula to determine if I should sell it or rent it. I won't get into the weeds on the formula but I'll give some basic tips so you don't get burned:

First, account for water/sewer, insurance, and taxes if they aren't escrowed as part of your mortgage payment. Lets assume your insurance and taxes are escrowed and your water/sewer is 50/month for demonstration purposes (so 1150 total). I also will assume your rent will be 1400 because it should be better than any other house on the market,

Add your vacancy rate which you can find through researching your local rental market. I use 5%. 

Make assumptions on what you need for big ticket maintenance items (roof, siding, water heater etc) over the life of the home. Let's assume 3% of rents per year to go toward a savings for these items.

Make more assumptions about any month-month maintenance you may need to do such as lawn maintenance, snow removal, fixing lights and faucets etc. I might assume 2-5% depending on the age of the house and condition.

Take the yearly rent (1400*12=16800) and subtract your maintenance and vacancy costs of 10-13% (16800*.90 = 15120/yr). Now subtract your debt (1150*12 = 13800) so 15120-13800 = 1320/yr.

The calculations go on, but in short you are going through all your effort to earn 1320/yr. I don't know about you, but wouldn't want to work for so little. Plus, an eviction is costly so your cash flow needs to be able to absorb this risk.

Just my .02