Rent vs. SELL - a paid off personal residence

[jwilliams0215]

Working the mustachian muscles, my wife are I are looking to move closer to our places of employment, reducing our serious car clown commutes. Note: I posted this last week in the RE forum, but due to minimal responses, I'm hoping to illicit more responses here!

Due to the new location we are looking in, renting makes the most sense, at least for a few years until we have a family.  However, we are torn on what to do with our paid off existing personal residence.

I'd expect to net $150K after selling fees if we sold or gross $1,300 monthly if we rented. Doesn't meet the 1% rule.

Option 1
From a cash flow perspective:
$1,300 estimated monthly rent
-$300 - Property Insurance and Property Taxes
- $210 - Repair Fund / Reserves / HOA
- $130 - Vacancy Estimate   
$660 NET MONTHLY CASH FLOW

5.3% return (and having to personally manage the property)

Option 2:
Sell and receive $150K net.

In this case I'd have to figure out how to invest / or hold Cash for the net proceeds if we went this route!


How would you approach this situation?

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[4alpacas]

If I were in your position, I would sell the house and invest the money.  The investment choices would be dependent on your current investments, income level, and length of time before buying another place.

[Bob W]

I would just keep and rent it.  You may have heard that the economy is doing much better and real estate prices are set to rise by a good percentage.   

Be sure you have the right and decent insurance.  Insist the renters have renter's insurance and that they do things such as lawn care.   Be patient and find really good renters. 

Ignore the 1% rule in this case.   If you play your cards right that property will be a very nice post retirement income generator for many, many years.   

You'll always have the option to sell in the future it you decide otherwise.   So for now keep it rather simple.   

Hopefully your apartment or other rent with the move will be far below the $1,300 income from the rental.  Ad that to car savings and bam.

Regarding the car savings --- that only really works well if you are getting rid of a car.   Your savings will be pretty smallish if it is just gas and depreciation.    But there is always the time and hassle of commuting to consider.

[TerriM]

OP, would you be willing to share where you live?  It would help to know what the RE market is like in your area.

[frugaliknowit]

I would either keep it as a rental or invest the proceeds in REITS as a hedge against Real Estate inflation since you will likely be purchasing again.

I don't think it's very important either way, as long as you invest the funds prudently.

[jwilliams0215]

Great information all.

In addition to making sure the house is properly insured, I will likely purchase umbrella insurance for additional protection.

In regards to car savings, my commute would go from 30 miles each way to about 13. My wife's would go from 23 miles each way to next to nothing and we could go down to one car. To get her that close to the job, we would be renting in a much nicer area and thus paying higher rent (offset by moving to a much smaller place). Since we're downsizing, the rent would be lower than $1,300 / month. The lifestyle improvement with the improved commuting is worth paying the extra rent cost (at least on a temporary basis)!

We live in Tampa, FL. The land of few mustachians it seems!

[jwilliams0215]

I would either keep it as a rental or invest the proceeds in REITS as a hedge against Real Estate inflation since you will likely be purchasing again.

I don't think it's very important either way, as long as you invest the funds prudently.

I thought about this as well in regards to the REITS. They would not be in tax advantaged accounts though.

[Hannah]

I would do a sunk cost analysis in this case:

Assume you have already moved, would you take $150K and buy that exact house for a rental or not? Can you get a better higher yielding house with the $150K?

This is how we decided to sell one of our former houses and keep the other one.

[lackofstache]

I would do a sunk cost analysis in this case:

Assume you have already moved, would you take $150K and buy that exact house for a rental or not? Can you get a better higher yielding house with the $150K?

This is how we decided to sell one of our former houses and keep the other one.

Unless you plan on moving back into this house post retirement, this is the way to figure it out. If you had $150K would you invest in in rental property? Would your best option for a rental property be this house? YES to both of those, KEEP IT. NO to either, SELL & INVEST somewhere else.

[TerriM]

Ok.  Here's your market trends:

http://www.trulia.com/real_estate/Tampa-Florida/market-trends/

Your area has not reached previous highs, but is maintaining a lower volume than you had previously by about half.    I'm not sure at this point whether I'd suggest selling or keeping it, but just be aware that the property could go back down again, especially if the volume of sales goes back up.   I think the question is whether you could buy a second home and keep this one long-term for a rental.  If you're need to use the proceeds to buy another home, then selling now to maintain the higher sale value might make the most sense.