Sell Primary Residence or Rent it out?

[joe189man]

We bought a 4bed (plus office) 4 bath 3,500 sf , 3 car garage house about 2 years ago in a western us metro area (HCOL) for $524k putting 20% down. we refied about a year ago to a much better rate, 4.25%, but now rates are in the 3.8% range. we owe about $411k on the property. 

We may need to relocate or move within our city within the next 3-6 months for a few reasons, none of which are important to the question.

I think it could rent in the $3200/month range, and i think it could sell for ~$560k.

if i refi at current amount owed and rent we could clear ~$800 a month over PITI on the property, if we do a cash out refi (to an 80/20 LTV) its about $650 a month and about $30k out the door.

i believe the area will continue to grow and a new commuter train (light rail) is soon to open about 0.5 miles from the home, increasing value and rent-ability.  i am leaning toward the cash out refi and rental option but my wife wants to sell

All that said, its not a good rental by any historic metrics i have reviewed and i understand this. With growth potential in the area and price appreciation is it worth keeping and renting or is my wife right and should we just sell it?

[srad]

Its your house so its up to you.  I wouldn't hate you if you keep it.  You probably would do ok on the appreciation side, but if it were me, I'd sell.  Take the tax free money and move on to something else.

Couple of reasons for the sell side.
is 3200 a high price for your city?  I wouldn't want a rental that is priced at the top of the market, those prices fall first. 
I also wouldn't want a home that large for a rental, more people = more potential problems.  Screening can solve a lot of that though.
Would you want to float a 2 month vacancy for this?  I"m cool floating my 1k units, but if i had one in the 3k range, 2 months missed rent would sting.

I also just went through this with my primary.  it was a nice home in a hot area,  so i tried renting it over the 3k range (which is reasonably high for my city).  After interviewing several possible tenants we decided this is stupid, lets take the tax free money and buy some better rentals.  Best decision I've made, we got a big check, and are now rental shopping.

[joe189man]

You are probably right, selling is smarter i just don't want to be priced out of the market here some day if we want to come back,
Within 2-3 miles you have $2+ million dollar homes and homes in the $1+ mill range will rent out in the $5-6k a month range according to zillow
zillow is how i came up with the rental price of $3200

[cchrissyy]

everything about this says sell, but the light rail opening soon gives me pause.

[srad]

If you really think you will be back in a few years than go ahead and keep it.  Rent it out to a nice family, and your problems should be minimal.  Would you self manage?  if not, you are now down to 500 a month.  Since you are in a large house, i'm guessing you have family, if you don't you could buy a smaller house in the area to keep.  A 2/1 in a nice light rail area shouldn't have an issue getting rented.  But those are probably in the 350k to 400k range and would only rent for around 2k.  So you won't be cash flowing very much (or at all).

[joe189man]

yea its not a good area or city to be buying rentals today as prices have gone up 50-100+% in the last 10 years
we have two kids with often visiting grandparents and use the office for work some times
its more house then we need but its 1.5 miles and 2.5 miles from our works and 1 mile from daycare

the light rail opening will be the wild card

likely to self manage and do small maintenance things

[rothwem]

If you really think the light rail is going to be a game changer, there’s no reason why you couldn’t rent it for a short amount of time to see what things do.  You already own the house so it’s not like there’s the associated transaction costs with buying the house to use as a rental or to speculate for appreciation.

With that said, it’s a pretty awful rental and you’ll likely be more less cash flow neutral or slightly negative when you consider the maintenance and management costs. 

Also, maybe this is just my naivety, but I’m surprised that there’s a market where normal people pay $3200 for rent.  A 5/4 in a nice area where I live would cost about the same as your house, but the rent would be ~$2500 or so. Did you enlist a realtor to help you get those comps?