Author Topic: Advice Needed - Sell or Rent Home?  (Read 387 times)

Stashaholic

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Advice Needed - Sell or Rent Home?
« on: November 09, 2017, 09:53:53 AM »
Hi everyone, my family and I are moving out of our current home and would like advice on what to do with it. I've been reading blogs and forum posts of what others have done and thought from our situation and some analysis, that selling is the best option, but a friend gave some arguments that we should hang on to it and rent it out.

Current Home Value: $300k just outside Houston, TX w/ tax rates around 3.3%
Mortgage balance: $174k @ 3.125% 15yrs fixed with 12 yrs left
Monthly PITI is around $2100
It's a 2009, 3 bed, 3 bath, 2680 sq ft home that could rent between $2100 - 2400 in our neighborhood.

I would have to refinance the $174k to a 30 yr, with a higher interest rate in order to drop my PITI to $1600. Otherwise, I would actually be losing money monthly with even the highest rent price.
My plan was to take the equity after all the costs (could be $100k+) and invest it in 2-3 $150k properties and rent those out. I'm looking at $150k homes in a neighborhood that rent for $1400-1600 or maybe even more. I would then hire a property management company to handle all those properties and be hands off. Online calculators I ran were giving about a $200/mo profit after all expenses. I figured that even 2 $150k properties at $1400/mo rent each would easily beat the rent from our home.

Friend though is suggesting that I keep the home and rent it out, then take equity out of the house, which would probably max at $60-70k and use that to buy 2 $150k rental properties. I would then own 3 properties, one is our house with a very low interest rate of 3.125% that would get paid off in 12 yrs and probably appreciate much more. I also wouldn't lose money from all the transaction costs involved with selling a home. I argued though that would mean I go back to owing more on the house by pulling equity, which would bring my monthly payments higher and then the rent is also low vs the home value (I figured I should follow the 1% rule). I also argued that I would lose homestead exemption so taxes will go up, and if I decide to sell the home later, would mean I will also get hit with taxes on the gains.

Anyways, I hope that's enough info but let me know if there's anything else that would help. Thanks!


marty998

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Re: Advice Needed - Sell or Rent Home?
« Reply #1 on: November 09, 2017, 01:28:26 PM »
Most people here will say sell it. I don't know enough about your local market to comment. Usually boils down to whether you are investing for income or capital growth.

I argued though that would mean I go back to owing more on the house by pulling equity, which would bring my monthly payments higher and then the rent is also low vs the home value (I figured I should follow the 1% rule).

Yes but the debt is attributable to other assets. You can't analyse the returns on the current house if it contains debt used to fund other assets. Include this debt in your analysis of the other assets.

I also argued that I would lose homestead exemption so taxes will go up, and if I decide to sell the home later, would mean I will also get hit with taxes on the gains.


The first part of this is a relevant factor. The second part is not. It is not possible to go broke paying capital gains tax, unless you take your gains and put it all on black before lodging your tax return.

inlandandalucia

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Re: Advice Needed - Sell or Rent Home?
« Reply #2 on: November 13, 2017, 09:55:04 PM »
Instead of selling it, I think you should rent this home or you can stay with your family. If you have desire to purchase a new home, go for it without selling it.

Cubert

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Re: Advice Needed - Sell or Rent Home?
« Reply #3 on: November 14, 2017, 04:31:31 AM »
One thing that would help you out is to run some numbers in a spreadsheet I use that calculates "cash on cash" returns. Off the top of my head, I can tell you that if you can find decent quality 150K homes to rent at 1400/mo., that's a good way to go. You're almost guaranteed zero vacancies in higher demand areas. Reach out to me direct if you want to get a copy of the .xls. Cheers!
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Stashaholic

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Re: Advice Needed - Sell or Rent Home?
« Reply #4 on: November 30, 2017, 10:41:24 AM »
Sorry for the late reply. We started moving last week and then thanksgiving arrived. Thanks for the responses.

So we decided to list the home for sale at $290k, and also for rent at $2100/mo. Rent is on the low end, but the idea is to prevent it from being on the market too long. If leasing turns out to be the first thing that happens, I would refi to a 30yr and drop the monthly to $1600, which will then produce positive cash flow. The sale price is just right, and hope to get action from that, maybe even get a higher bid. Other comparable homes are currently listed at $300k+ but have not had much movement. Our hope is still to get it sold, so crossing fingers this happens first.