Rent vs Sell vs Invest = Confusion

[scenicnights]

I am so glad a friend of mine referred me to this site.  I've been battling with a decision for months and have yet to find an outlet to get advice...until now.  I want to thank you all for your inputs/opinions ahead of time.  Here's the skinny:

I have a house that I owe $200K on, but it is worth $370K.  I nice $170K in equity ain't too shabby.  However, I no longer live there and am currently renting it for $2500.  I'm only profiting $400mo on the rent because of property management fees (I live out of the area), mortgage payment, taxes, and insurance.  So, it is bringing in $4800yr.  I haven't had any maintenance issues, but I'm sure they will occur and that profit will be much smaller.  Also, I need to save the $4800 in case my renters move out and it takes me 2mo to find new ones.  I re-fi'd for a 3% rate and now have 14yrs left on the loan until it's paid off.  After it's paid off and with inflation, I could probably clear close to $3000mo on this or $36K year.  I'm 36 so I'll be 50 when it's paid off.

I will be earning a pension when I am 39 but it is only $2000mo for the rest of my life...$24K yr.  That will make $50K yr take-home  when I'm 50.  I'm also investing and should have $500K by the time I'm 50 if I keep it up.

My question is do I sell my house, take the $170K in equity and invest it in a Roth IRA or stock market or do I hang onto the house and keep renting it?  Putting up with the stress of renters, possible maintenance, and the fear of it sitting empty for a couple months while new renters are moving in.  Taking the $170K is tempting because it's stress free sitting in a fund and watching it grow over time at an average of 6%-10%.

[Thegoblinchief]

4800/year divided by 370K value of house: 1.3% annual return

4800/year divided by 170K equity: still only 2.8% return

I would sell the property unless house prices are going up quickly in the near-term.

Once it's paid off, 36K on 370K is a nice 9.7% return. With the 50% rule, however, you're probably going to get a real rate of return closer to 5%. And the next 14 years, with vacancy and upkeep, you'll probably break even at best.

Caveat: not an experienced real-estate guy myself, just an active forum reader.

[taekvideo]

4800/year divided by 370K value of house: 1.3% annual return

4800/year divided by 170K equity: still only 2.8% return

I would sell the property unless house prices are going up quickly in the near-term.

Once it's paid off, 36K on 370K is a nice 9.7% return. With the 50% rule, however, you're probably going to get a real rate of return closer to 5%. And the next 14 years, with vacancy and upkeep, you'll probably break even at best.

Caveat: not an experienced real-estate guy myself, just an active forum reader.

You're forgetting that payments towards the mortgage increase equity... that increase in equity should count in the ROI.  Also don't forget that houses do tend to rise in price over time (at least with inflation), so that can be added to the ROI as well.

@OP I'd recommend keeping the place... and don't the property managers in your area put up with the renters?  I know in my area, when I rented a managed property I never even knew who the actual owner was.

Also, is it possible to pull out some of that equity to invest elsewhere without giving up the place?  Could have the best of both worlds ;)