Hey all,
I haven't been on the MMM forums in a million years, what with being busy implementing my personal plan for financial domination. But now I've come to a crossroads and I'd like some advice.
For the past four years I've been living in Flyover Metro OH, in a great house that I bought cheap at the bottom of the market. YAY! Now my boyfriend's living to ExpensiveTown, California and I'd like to join him. We've already worked out a pretty sweet rent deal there (since I'm not crazy enough to buy in ExpensiveTown), AND I've worked out a deal with my employer to work remotely, which I'm very in favor of.
The question is, what to do with my house? Details posted below, including my personal analysis--but I'm open to face punches if I've forgotten something.
Original Purchase Price: 100K (in 2012). I originally bought it with 10% down, fixed 30 yr.
What I think I can rent it for today: 1300-1400 plus utilities (1350 used for my personal analysis)
Estimated Selling Price today: According to realtor, probably 150-160K
House Description: 2 br, 1.5 ba single family home on a quiet culdesac, in a rapidly appreciating (young professional) neighborhood--they're building a fancypants local microbrewery within a few blocks of my house, and all the cool trendy restaurants are also within walking distance. In fact, you can walk to everything--library, grocery stores, parks, municipal pool. I haven't updated much in the house, so no pretty granite countertops or other fancy things. No garage, etc, but definitely in an easily rentable neighborhood.
Cons are that it's an older house--100 years old, poor insulation, probably higher repairs than a new house would be. So I've rounded a bit higher on estimated repairs below. That said, I think it would be fine as long as I don't get absolutely horrible renters. Most of the other houses in the neighborhood are the same.
Costs:
Management costs: ~$70/month
Insurance and Tax: $245/month
Estimated repairs (1% of purchase, and rounded up for good measure:) ~$100/month
I also currently have a mortgage, which is $675, but that includes the $245 insurance and tax, which are escrowed in... so basically $430 left in monthly costs.
Not counting water, utilities, etc, as those would be the property of the renter.
So: it definitely passes the 1% rule.
By my calculations, the cap rate is ~10% (assuming 95% occupancy), not counting appreciation. My total yearly cash flow should be about $5K, subtracting all expenses including the mortgage. But is it better to go that route or just sell it, pocket the cash and invest in the stock market?
I've been puzzling over this for a few days, and the way I hit upon thinking about this is that if I can make $5000/year from the rental, I'd need to make 25x that, or 125K to have the equivalent 4% spinoff in the markets; so basically, unless my house appreciates to where I can pocket 125K or greater after all selling costs, it makes more sense financially to rent.
Disclosure: I already have another house in another city I'm renting from a distance, and I already have someone who I trust to manage it. AND I'll also be coming back to the neighborhood periodically. So the concept of renting is not that scary to me.
To all: what's your analysis? Am I missing something important here? Am I thinking about this wrong? Please let me know your thoughts!!
Thanks!
Tracy