Author Topic: Case study: Rent or Sell  (Read 963 times)

omega13

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Case study: Rent or Sell
« on: January 21, 2017, 02:52:22 AM »
Hey everyone. Another rent or sell question that I would really appreciate your input on.

Market Value: $315k
Original Purchase price:$236k (most recent refinance price)
Original Mortgage Amount: $236k (due to refinance)
Interest Rate: 3.5%
Mortgage Term: 360
Term remaining: 358
Amount remaining on mortgage: ~$235k
Gross Rents: $1,700/month
Principal and Interest (the P&I of your PITI - should match with the above info): $1,060
Taxes and Insurance (the T&I of your PITI): $365/month
HOA costs: $80/month
Other: I did a cash out refinance to use some of the equity for stocks/a rental property.

The area I am in has experienced great appreciation in the past 3 years. However, I am not counting on that being the case forever.


Selling:

Pros
: I would rather have a place with no HOA and more land. This would be a good way to take some of the equity and re-purpose it towards a property that fits my needs better. Even if the house is worth less and more of a fixer upper. It's frustrating to think that over the course of 30 years, if HOA remains unchanged, I will have paid close to $29k in HOA dues.

The neighborhood is also becoming a lot more crowded.

Plus I could use some of that equity towards an actual rental property. Establish another income stream.

Cons: In the current market, if I sell high, I have to buy high. Unless I choose to live really far out. Non-mustachian increase in commuting distance and car expenses.


Renting it
:

Pros
: The property is in a desirable neighborhood. Given that I owe less than what it would cost to buy the same property now, I could capitalize on somebody else paying the mortgage down. The 1% rule doesn't quite fit but depreciation could help reduce the tax burden.

Count on some form of long term appreciation of its value.

Cons: The house is pretty nice. With wooden floors and such. It would worry me what the tenants would do to it. The consensus here seems to be, if it was not meant for a rental, not the best idea to make it a rental.

The cash flow would be almost non-existent according to my calculations.


What would you do?
« Last Edit: January 21, 2017, 02:59:15 AM by omega13 »

Ryland

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Re: Case study: Rent or Sell
« Reply #1 on: January 21, 2017, 09:59:47 AM »
This is great. Good problem to have!

Consider your tax implications. MadFientist just came out with an amazing article around saving money through real estate taxes. Well worth a read. Could be instrumental in your decision.

http://www.madfientist.com/tax-benefits-of-real-estate-investing/

Quote
Cons: In the current market, if I sell high, I have to buy high. Unless I choose to live really far out. Non-mustachian increase in commuting distance and car expenses.

This sticks out for me. This is a limiting belief. There are still good deals out there, they are just harder to find. If you're open to buying a real estate investment in another city and renting it out while you rent where you want to live it could be a massive way to start cash flowing and get some long term value appreciation.

Well worth a quick read of FrugalVagabond's blog, ebook and his real estate anaylsis spreadsheet. His blog is the best underground FI blog out there, especially around real estate.

frugalvagabond.com

My last part here is the most important to consider -- I think you have to consider your needs and wants for the next 3,5, 10 years. Do you want cash flow? Where do you want to live? Rent or buy?

What I'd do... (and my life is very likely different then yours so keep hold of your grain of salt)

I would sell the property. Collect the cash. Find a rental property to invest in outside of the area that meets or better exceeds the 1% rule. And I would let that churn out cash flow and value appreciation for the next 20 to 30 years.

If this is your looking to live in the current and future homes, then I've read the question wrong. Feel free to let me know, and I'll try to lend a hand :) Good problem to have. Good luck!

Another Reader

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Re: Case study: Rent or Sell
« Reply #2 on: January 21, 2017, 10:48:56 AM »
This is great. Good problem to have!

Consider your tax implications. MadFientist just came out with an amazing article around saving money through real estate taxes. Well worth a read. Could be instrumental in your decision.

http://www.madfientist.com/tax-benefits-of-real-estate-investing/

Quote
Cons: In the current market, if I sell high, I have to buy high. Unless I choose to live really far out. Non-mustachian increase in commuting distance and car expenses.

This sticks out for me. This is a limiting belief. There are still good deals out there, they are just harder to find. If you're open to buying a real estate investment in another city and renting it out while you rent where you want to live it could be a massive way to start cash flowing and get some long term value appreciation.

Well worth a quick read of FrugalVagabond's blog, ebook and his real estate anaylsis spreadsheet. His blog is the best underground FI blog out there, especially around real estate.

frugalvagabond.com

My last part here is the most important to consider -- I think you have to consider your needs and wants for the next 3,5, 10 years. Do you want cash flow? Where do you want to live? Rent or buy?

What I'd do... (and my life is very likely different then yours so keep hold of your grain of salt)

I would sell the property. Collect the cash. Find a rental property to invest in outside of the area that meets or better exceeds the 1% rule. And I would let that churn out cash flow and value appreciation for the next 20 to 30 years.

If this is your looking to live in the current and future homes, then I've read the question wrong. Feel free to let me know, and I'll try to lend a hand :) Good problem to have. Good luck!

This is a troll, schilling his website.  Mods?