To rent or to sell.. We need some expert input

[margo]

So we're moving (hopefully) next Spring, halfway across the country. We're unsure what to do with our current little house. Sometimes it seems really smart to turn it into a rental, and other times it feels like we can't afford that risk.

We don't have any investments, and thinking that this would be payed off in 13 or 14 years seems like a good decision for our future income.. We also are basically living paycheck to paycheck. We've had a lot of transition lately, and are hoping to be up-on-our-feet again by next summer. But once the house is sold, it's sold - feels so final, and would hate to look back and regret it.

I have no idea how long it would take us to come up with enough money to put down on another house and that's the biggest issue (and probably a no-brainer to all of you) -- but I look at the $300-$350/month we'd get above paying the mortgage and can't help but see that as a loss if we'd get rid of it.

We don't know enough about all this renting/selling/owning stuff to really make an informed decision. Any input will be greatly appreciated. I like the idea of renting out, and have to start somewhere, right? :P

So here are the numbers:

Market Value: 87,000 - 90,000
Original Purchase price: $97,000
Original Mortgage Amount: $45,000 (refinanced early 2013)
Interest Rate: 3%
Mortgage Term: matures in 2028
Term remaining: 163 more payments
Amount remaining on mortgage: $41,474
Gross Rents: We're estimating we could get $750-800/month based on what other properties are going for around here
Principal and Interest (the P&I of your PITI - should match with the above info): $449.62
Taxes and Insurance (the T&I of your PITI): Interest YTD is $740.. I need to get the real number on this one.
HOA costs: none
Deferred maintenance notes: recently put a lot of money into new furnace and a new water heater

[waltworks]

50% rule says that you'll end up with something like $400 a month in rent net of expenses, so the property probably won't cash flow if your other numbers are correct. Given that you want to move and you're living paycheck to paycheck... I don't see holding it as a valid option unless you can come up with money to move.

Your P&I doesn't seem right - this is a 15 year loan at 3%? That should be around $310/mo, not $449. Maybe the $449 is including taxes/insurance?

Since it's a primary residence, and you've got $50k in equity, I'd lean toward selling it just because it'll get you out of the hole you're in now and you won't have to pay any capital gains.

Honestly, it sounds like your problem here is your income/spending, and without resolving that you are going to need to sell the house just to make the move. Maybe post a case study over in one of the other forums?

-W

[escolegrove]

Your numbers look pretty good. My husband has a job that has us moving alot (active duty military). Our goal is to retire with his military pension and cash flow from the house. At first we were going to do stocks/bonds but we have found this real estate has worked much better for us. We started by buying the houses as primary properties and keeping them when we moved onto our next base. As we got richer we now buy houses as pure rentals. I got the idea from watching/helping my parents as kid with their rental that was my mom's house before they got married.

 We have been very successful. Our numbers are small but over time they have been growing. They have been great houses in good neighborhoods. I love being able to leverage my investment and having someone else paying off my mortgage. Once your emergency fund has been built with the extra monthly cashflow for the deferred maintenance you can use the extra towards your new primary.

The biggest things we have done is self management. I have been very successful managing our houses from a distance. In my experience no one care about the house as much as you do. In addition I have been able to save all the property management fees. In my areas the management fees are one months rent to place and 10% monthly fee. I am starting a blog/website about self management. Let me know and good luck! We started right after I finish grad school so I understand what's it like to make these decision when you are just getting started financially.

[Another Reader]

The $300 to $400 a month you think you will get will quickly evaporate.  You need to allow for vacancy and collection loss, property management, taxes and insurance, repairs and maintenance, picking up the utilities between tenants, rehab costs between tenants, and so forth.  You can expect about 45 to 50 percent of your gross income to disappear before you pay the principal and interest portion of the mortgage payment.  At best, you will average out cash flow neutral and you may even lose a little over time.  You can save a little if you self manage, but that can be difficult from halfway across the country.  Finally, you need reserves to make capital improvements and you are living paycheck to paycheck.  In your shoes, I would consider selling and starting over.

[Blindsquirrel]

 Sell it. Your first investment house should be very close to you. Long distance first investment property with marginal numbers is not a good way to start IMO.

[theonethatgotaway]

You need to sell the house. The numbers don't add up and you will be very stressed if someone doesn't make a payment or makes late payments. You also need money for repairs and maintenance that will be requested by a leasee. You don't seem to have that right now. Move, save up, and try again.