Considering renting out currently owned home...

[ncornilsen]

So, I'll need to be moving in a few months for a new job. (I have a bathroom addition I must finish first...)

The current house value is 225K, and I owe 192K on it @ 4.5% (No pmi).
It would cost me 12K to sell (assuming I cover some closing costs and such, and do most of the selling legwork.)
Once I finish the bathroom, the value will go up 16K, but I'll have about 9K in materials costs to offset. (financed @ 0% for 24 months.)
Roll it all up, It's worth 241K, and I owe 201K on it... factor in selling costs and I'm at 28K in equity tied up in the house. 

With the bathroom addition, I could probably get $1500 a month rent for it. (It has a huge garage, new appliances, all that. Maybe I could get more... but not much more.)

The Principle and Interest are 1018/mo
Taxes are 266.6 per month
I'll assume insurance will go up to 60/month.
So, that's 1344/month to continue servicing the loan.

This leaves me with 1872/year in positive cash flow... a 6.6% return on that 28K in tied up equity, and falling as I pay more of the loan off. It seems a little tight to me.  It gets worse when I apply a 5% vacancy rate, or have to do any repairs. I'm also not quite liquid enough to buy a new property at favorable terms if I do it this way.  However, long term i'd get to keep all that appreciation.

It kind of looks like I'll need to sell...  Are there any factors I'm overlooking here?

[Another Reader]

Even if you were able to refi to a lower rate, renting with this financing structure is not going to make sense.  Add in vacancy and collection loss plus repairs and maintenance, and you are going to be feeding an alligator.  Better to sell and invest the net equity elsewhere.

[Johnny Aloha]

So, I'll need to be moving in a few months for a new job. (I have a bathroom addition I must finish first...)

This leaves me with 1872/year in positive cash flow... a 6.6% return on that 28K in tied up equity, and falling as I pay more of the loan off. It seems a little tight to me.  It gets worse when I apply a 5% vacancy rate, or have to do any repairs. I'm also not quite liquid enough to buy a new property at favorable terms if I do it this way.  However, long term i'd get to keep all that appreciation.

Is the house in a desirable area?  What kind of condition is it in?  Is there any deferred maintenance?

If it was me, I'd probably hang onto it for a couple years if it was in a great location and in great condition - this assumes appreciation will be positive of course.  Otherwise, I'd sell.

[ncornilsen]

Location is good, it's not downtown, but it's in a good Portland suburb with decent schools, low crime, and is 15 minutes from most of the major employment districts in the area. (Downtown, Beaverton, and SE Portland Industrial Area.)

Condition is good - it was remodeled just before I bought it, I replaced all the wiring in the house 2 years ago, I put a new, high efficiency HVAC system in two months ago, and I'll be putting a new roof on it this summer as well. All the big dollar, tough maintenance will be done this summer and is either paid for or included in the numbers posted above. The only thing this house could potentially use is new windows. The double paned aluminum windows currently in it don't leak, and the energy usage in the house is pretty low. I've replaced a few windows with high-end vinyl windows as they've broken, so they don't all match.

the value of this house has gone up 20K in the last 3 months... not factoring in the bathroom addition. realestate prices are going up quickly and inventory is low in my area. I expect another 7% value increase over the next 12 months, mabe up to 10% over the next two years.

Because all of the big ticket maint items have been done, I don't see any big surprises coming in the near future that would jack up my cashflow, except damage by renters and vacancy. I would have to put my savings on hold, but I could pay both mortgages if needed as well.

[Another Reader]

Rates are going up and some markets are already starting to cool as a result.  Keeping a negative cash-flowing house after a big run-up in prices due to heavily subsidized interest rates is a bit risky for me. 

Where's the new job?  Are you saying if you keep this house, you can't buy a new one in your new location on favorable terms?  Is this move permanent?  If so, that would be more motivation for me to sell and reclaim the equity. 

[ncornilsen]

After posting and reading about the frenzy going on in other cities, you're right - low rates are fueling the run up in prices. I haven't seen things cooling around here, but the cooling may be around the corner.

The new job is 37.5 miles from my house, which is an average commute of 45 mins. (I can do it in 32 mins in the morning, but more like 55 after work.). I could very well keep the house and live with the commute (which I will have to do for a few months 'till I finish the addition anyway)

If I keep the house, I'll have enough down to not-quite avoid PMI, but I'd have 0 safety fund and would be "borrowing" that money at the 7.65% rate that my student loans are charging.

It's looking like it needs to sell.