Case Study: Sell or Rent? We are moving to be closer to work and family

[kaadalac]

We are moving to be closer to family and work to reduce daycare/commuting costs and be in a better school disctrict. We are weighing the pros and cons of selling vs renting. Would appreciate some 3rd party insight.

Market Value: Redfin says $355k, my REA friend thinks she could sell it for $400k in Portland's hot market.
Original Purchase price: $177,000
Original Mortgage Amount: $165,000
Interest Rate: 3.74%
Mortgage Term: 30
Term remaining: 27 (refinanced into 5/1 arm 3 years ago to reduce monthly rate while in school)
Amount remaining on mortgage:  $153,000
Gross Rents: $1800 (potential based on comps, we currently occupy the home)
Principal and Interest (the P&I of your PITI - should match with the above info): $604
Taxes and Insurance (the T&I of your PITI): $220
HOA costs: 0
Deferred maintenance notes: New construction in 2010.. No major maintenance predicted for at least 5 years.

[nereo]

If you can sell the home for $400k but only rent it for $1,800 it seems like a no brainer to me - sell and pocket the profits.

Using basic rules of thumb, operating expenses and vacancies make up about 50% of the rent.  That leaves you with $10,800/yr, or a cash flow of $912/year ($10,800 rent - $9,888 in PITA). that's pretty close to $0.

Your original purchase price does not figure into the equation - only what you could currently sell it for vs what you could get in rent.
From your numbers you could sell for $400,000 - (6% sellers costs /$24,000) with $153k remaining on your mortgage gives you net $223k

So which would you take - $223,000 now or $912/yr.  Since you have 27 years left on your mortgage you won't get a boost in cash flow anytime soon, so ignore that.

[GoBigRed]

I would sell.  Nereo pretty much sums up the reasoning.  If you put that $223,000 in an index fund, you will be better off than pocketing the annual rental income, if any.  You also are selling at a very high and hot market in Portland.  I would take advantage of that while you can do so.  There is no guarantee that the value will keep going up, and as it stands with the numbers provided, you would be betting on more appreciation for renting to be an option. 

[Jon Bon]

Sell it yesterday!

Also, you get to keep all that profit my friend! If you lived there the past 3 years (actually only 2) you can keep all that money and pay nothing to the tax man. I see lots of people trying to hold onto houses with lots of (appreciation) equity but not lots of rental potential. DO NOT DO THAT.

If you want to save a few bucks use a flat fee agent (500 bucks gets you in the MLS) or Redfin. Using a full service agent is going to be expensive! Unless your REA friend is going to cut their fee but I highly doubt that.