Author Topic: Case Study: Sell, Rent, or just Stay Put?  (Read 1958 times)

Frugal Vegan Mom

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Case Study: Sell, Rent, or just Stay Put?
« on: November 24, 2014, 02:08:13 PM »
We stumbled upon a house this weekend just 3 blocks from our current house that might be perfect for us long term.  We have 2 small children in a tiny house and were planning to save some more in the next couple years and then move/possibly rent our current house, but...  should we go for it now?

Current House:

Market Value: $130K
Original Purchase price:  $114K
Original Mortgage Amount: $91K
Interest Rate: 5.125%
Mortgage Term: 30
Term remaining: 25
Amount remaining on mortgage: $79K

Current Mortgage payment including taxes & insurance:  $750/mo. 
Estimated Rental Income:  $1100/mo. 

The Potential House would cost about $165K and we could only put 10% down if we did not sell Current House. 

I feel like this is risky and money would be tight for a couple years, but when I start working again within the next year (just had a baby), we will be making significantly more and plan to completely pay off mortgage of Current House within 7 years. 

Do we take the risk and go for the long term goal of owning a mortgage free rental property?  Or play it safe, get what money we can out of Current House, and enjoy our better house without the financial strain?

Dicey

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Re: Case Study: Sell, Rent, or just Stay Put?
« Reply #1 on: November 24, 2014, 02:56:26 PM »
Your new house mortgage will probably not cost that much more, given that you should be able to lower your interest rate to around 4%. I'm going to take a stand from what I'm fairly certain will be the minority side of the chorus and say if it's really as good a deal as you think, GO FOR IT!

If you want to stay at home with your babies, sell the first house. Try working with a local lender who will get creative (80/10?) or let you pay down the balance once the first house sells to avoid PMI. Or consider a short-term loan from a family member to bridge the gap. Worst case, consider PMI a tool for building wealth and don't worry too much about it.

Otherwise, keep it. Proximity is a huge plus for a rental. Keeping it might allow you to move back into it once your kids have grown. Then you cam rent or sell the bigger house, depending on your needs.

Finally, listen to your gut, and don't be afraid. Please let us know what you decide!

waltworks

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Re: Case Study: Sell, Rent, or just Stay Put?
« Reply #2 on: November 24, 2014, 11:42:44 PM »
In the interest of keeping things simple I'd probably sell your current house. As a rental it's thoroughly mediocre (fails 1% rule, albeit not by much) and stretching to afford another house/potentially paying PMI/stressing out about having emergency money for problems with tenants/maintenance/etc sounds like a terrible idea when you have small kids.

If it were renting for $2k/mo, I'd say keep it for sure. But it's just not that awesome of a rental and you're going to incur some financial and life costs to keep it, so I say sell. But the world won't end if you don't, either, it's probably not a horrible money pit.

-W

escolegrove

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Re: Case Study: Sell, Rent, or just Stay Put?
« Reply #3 on: December 04, 2014, 01:32:53 AM »
Honestly it depends on your goals, leverage tolerance, etc. Your comfort level and whether you think prices will go up considerably. We personally don't put alot down on our houses. We prefer to stay as liquid as possible. We also rent out the previous house. It allow us to receive cash flow, have someone else pay off our house while building equity. We personally are buying an more expensive personal this year because we want to be able to grow into it. It will be tighter but it will also allow us to lock in todays price.

SunshineGirl

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Re: Case Study: Sell, Rent, or just Stay Put?
« Reply #4 on: December 08, 2014, 11:49:14 AM »
If your jobs are secure and you love the new house, I'd probably keep the old house as a rental. It probably would depend, too, on how often good houses in your neighborhood come on the market.