Sell Rental or Not To Sell Rental

[randomusername]

New to MMM and have been devouring everything here.  I'm excited to achieving higher levels of badassity.  I think I know the answer to this question, but figured I'd put it out there for my first face-punch.

DH and I started renting out our primary residence about 10 months ago.  (We have been staying with relatives and renting in the interim, for various reasons... long story).  Rent covers mortgage, but we have a lot of equity tied up in the house.

We are in the process of buying a way cheaper primary residence in a LCOL area in rural Kentucky (remote tech work for the win!).  Utilities will be minimal since it is just a hair away from being off grid.

DH wants to sell rental property and use equity to buy new primary residence outright.  We would immediately have no debt - including mortgage.  I'm more inclined to hold on the rental since prices are trending up quite a bit in that area.  But then we have two mortgages.

So... what would you do?

[Villanelle]

Your rental income only covers the mortgage?  Sell!  If you want to own a rental, find one that actually makes money, not loses it.  (There are plenty of threads here on how to figure that out.)

[Slee_stack]

Your rental income only covers the mortgage?  Sell!  If you want to own a rental, find one that actually makes money, not loses it.  (There are plenty of threads here on how to figure that out.)

Too little info.  Is the mortgage a 15yr or less term? What's the rate?   If so, rent just covering mortgage may be OK.  Is the local seller's market strong?  How is the rental market?

Instead of cash flow, perhaps the OP is simply building equity more quickly.  Then there's the deductions on overall income.

That said, remote land-lording may not be the OP's cup-o-tea.  Also, the OP may be too heavily loaded on Real Estate if they don't have many other assets.

This probably comes down to doing the math and how comfortable (2) mortgages will or won't be.

One thing I STRONGLY discourage the OP from focusing on is DEBT alone.  That's only one side of the balance sheet.   Its really all about Net Worth...or more to the point...NW GROWTH.   Choose the path that maximizes that.

[Villanelle]

Ok... this is where I go from feeling awesome and mustache-full to feeling soft.  Renters are my brother and his wife (and now kids).  They totally cover mortgage and are making improvements to the house.  House is gaining value.  Rents in the area they need to stay in their endocrinologist area is kind of ridiculous (in a good investor way).  My DH and I can remove to rural area without changing our standard of living (frankly improving our savings), so it isn't a burden on us.  Maybe this is one of those, yeah... I get its not *necessarily smart* but its what I'm willing to give to family? 

Side note:  Not that it should make a difference, but my family decided to move to Puerto Rico in August of last year.  LCOL in a tropical paradise... what could be better?  Anyway... Maria was a HUGE wake up call and we learned a lot about both what we are capable of* and how important family networks are.  My family came through in more ways than can even be calculated.  Maybe survivors guilt here?

Anyway... maybe that provides some context.

*In fact, the weeks after Maria are how I judge my current badassity.  Frankly, right now I am failing big time.  We were harvesting coconut water and eating spam meals on our propane stove at the height of things!

If you want to do this to support family, I don't think there's anything wrong with that.  Not every decision needs to be a financial one.  Just make sure you've evaluated the financial aspect of it and are fine with the choice.

[elliha]

Ok... this is where I go from feeling awesome and mustache-full to feeling soft.  Renters are my brother and his wife (and now kids).  They totally cover mortgage and are making improvements to the house.  House is gaining value.  Rents in the area they need to stay in their endocrinologist area is kind of ridiculous (in a good investor way).  My DH and I can remove to rural area without changing our standard of living (frankly improving our savings), so it isn't a burden on us.  Maybe this is one of those, yeah... I get its not *necessarily smart* but its what I'm willing to give to family? 

Side note:  Not that it should make a difference, but my family decided to move to Puerto Rico in August of last year.  LCOL in a tropical paradise... what could be better?  Anyway... Maria was a HUGE wake up call and we learned a lot about both what we are capable of* and how important family networks are.  My family came through in more ways than can even be calculated.  Maybe survivors guilt here?

Anyway... maybe that provides some context.

*In fact, the weeks after Maria are how I judge my current badassity.  Frankly, right now I am failing big time.  We were harvesting coconut water and eating spam meals on our propane stove at the height of things!

If this means that you can get out of certain duties as a landlord I think this isn't such a bad idea. I mean, if you can just tell them to go and buy broken x thing and replace it and they can deduct that from the rent it will not be that challenging when it comes to effort. If you think that property prices are at least not likely to drop so that you will sell and make a very bad deal and you can get a second mortgage this might not be so bad. This could be a good thing for family that is not a bad thing for you.

[BiggerFishToFI]

If you decide to keep renting it, don’t forget about the 2 of 5 rule if you have significant equity gains since you first purchased the house. As a couple you pay no tax on up to 500k of gains as long as it has been your primary residence for 2 of the last 5 years and you haven’t taken the deduction already in the past 2 years