Home is worth ballpark $300k. Paid off, no mortgages or liens. Located in a moderately easy to rent city, especially if priced right. Conservative monthly rental payment would be $1800/mo. Property taxes and home owners ~$5k yearly combined. Area home value appreciation tends to just slightly outpace inflation. I already have 6 figs in the stock market.
So. Sell and put it all in the market?
Or. Keep it, rent it out, and put rental proceeds in market while hoping to see the home value trend continue?
Inherited a Paid Off House – Sell and invest in market? Or rent out and invest rental income in market?
byu/Overunderware inpersonalfinance
Posted by Overunderware
36 Comments
If you already have 6 figs in the stock market I’d personally lean toward keeping it and renting it out. That $1800/mo minus $400ish for taxes/insurance still gives you solid cash flow plus you’re diversified beyond just stocks. Being a landlord can be a pain but at those rent prices you should be able to find decent tenants
I mean, do you want to deal with being a landlord or don’t you?
Do you like to do maintenance work? Do you like dealing with tenants? Do you relish the idea of having to evict someone?
If not, don’t do this. Just sell the house, especially at a time when home prices are looking to dip. I’ve never known any sane individual who did this and felt it was worth it.
Theres an easy case for keep and rent it.
But!
That’s a hassle, sell it get your lump and move on with your life is my vote.
If you could clear $1000/month after taxes, insurance, maintenance, etc, on an 11 month rental schedule (expect 1 month loss during tenant turnover), it is a good way to generate income if you don’t mind the administrative burden of being a property manager. It’s also a different asset category than more money in the market.
Both can be profitable. The answer likely lies in whether or not you want to deal with renters and the headaches that can come with that.
If you had $300k would you buy a house outright to rent it out?
I think it 100% depends on your willingness to take the good/bad of what a rental offers. Even if you have a property manager there are many uncertainties.
As far as the money goes, it looks like you’ll be positive by around $14,000/year w/ prop mgr and low maintenance. I am not counting depreciation off your taxes.
The opportunity cost of that $300k in the market (historically) is around $24,000/year.
Depends if you want to be a landlord. Personally, if it was me, and I didn’t have an attachment to the property, I’d just sell it, not because it’s a bad asset by any means, but I just wouldn’t want to be a landlord or deal with it. If you live far away from the property that also adds it’s own set of issues.
Does the world need more landlords?
For me the big two questions are…
How old is the roof and how old is the HVAC?
If either of those are needing replacing then I’d sale and take the money.
Renting out single family homes underperforms S&P 500 by a lot, even in high-growth metro areas.
If your goal is to maximize net worth, it is really difficult to justify rental properties when you take into account property tax, maintenance, insurance, etc…. Especially when the opportunity cost is zero-effort, buy-and-hold S&P500 which returns 9-10% nominal annually over last 30 yrs.
Sell it. You don’t want the stress of being a land lord and you get a stepped up basis right now to sell it with almost no tax due.
Do you want to be a landlord?
Is the house local to you or would you have to travel to deal with issues? Are there any major maintenance items or code issues that need to be done now or soon like new roof, HVAC replacement, electrical, plumbing, sewer work?
Is the home located in an HOA that can have unplanned for assessments or be an issue to deal with if it has restrictive rules that your tenants will run afoul of?
OP do you have the skill set to be a landlord or the skill set to be in the stock market? Or both?
Using your figures that’s 17,600 a year or less than 6% annual return on your $300,000. This presumes full and constant occupancy and no required repairs and a meaningful amount of work to maintain the property.
You can get a higher return by dumping that money in the market and doing nothing at all.
I sure wouldn’t rent out a house worth $300k for $1800. More like $3K+
Sell and put into bonds until the market corrects (stock prices are way high, geopolitical uncertainty). After 10-20% correction dump the money in Roth IRA mutual funds….or rent the house out. Do not buy into the stock market now
If you inherited $300k, would you go buy that house to become a landlord? Unless the answer is “yes,” sell the house.
The real question mostly comes down to whether or not you want to be a landlord. If not, then sell it and find a different vehicle for the proceeds. It is a nice diversification option, but it’s a lot more work than most people want in their investments.
If that appeals to you, then I’d find a really good local property lawyer and talk to them about the things they see in the area. For instance my house is paid off and the rents are great here. I’ve considered moving and just renting the place. However, the county is not great for small landlords, and a single bad tenant is likely to leave me dealing with an eviction for months on end. So it’s a great town if I wanted to own 20 rentals and spread the risk around, but owning just 1 seems unpleasant. Despite the income potential I don’t think I’d be willing to deal with renting this particular property, but I might sell this place and buy rentals in a neighboring county with more favorable judges.
I’d also consider a property management company unless you just really like hiring plumbers and such. They’ll eat into your profits a bit, but they can really help distance you from the unpleasantness of being a landlord. Definitely do your due diligence on the company. Based on what friends who have used them have told me signing up with a crappy one can be almost as annoying as just handling it yourself.
If everything is updated I would keep it but if nothings been updated since the 90s you won’t get the people you want to rent it
Sell it. There are families out there looking to buy their first homes in a scant market
Do NOT sell!!! Market is raging but overdue for a correction.
Find a good company to manage it for you.
So you’re looking at a cash flow of 16,600 a year before house maintenance. 300k at 6% is 18,000 with zero maintenance
Are you local to it? If not, renting can be a real nightmare or you lose a big chunk using a management company.
pretty simple question. do you want to be a landlord or not?
Sell it for a $300k windfall and make some down-to-earth family’s entire year.
The house will continue to appreciate in value at the same time that you have an income off it. I would rent, save the rental income, then buy another rental with that income. And repeat. Check out Biggerpockets for real estate investing info. There are many wealthy real estate investors that started out with one rental that they got a loan on. You are already 100% cash flowing.
It rather depends on your own situation. If you currently own your own home (paid off or with an outstanding loan) then I’d say definitely sell it because there are so many hassles that come with being a landlord that the rent you’d get from it probably wouldn’t be worth it for your time and effort.
If you don’t have your own home and possibly could see yourself living in this house someday then I’d rent it out but it would probably be easier for you to pay an agent/company to manage the property for you. You’d still get some money from it but much less of the hassle.
Rental houses are a serious PITA.
No mutual fund is going to do some of the things I’ve seen renters do.
Unless you want to be a landlord, sell it.
You can get good returns without the hassle
Sell to a nice family and invest the money. You’ll have a better retirement
Keep it as a rental but hire a management company to find tenants and deal with them. You’ll still make a profit each month. Take that and just keep saving the income each month so you can cover repairs and taxes when necessary.
After a few years you’ll end up with a stack of cash and a house you can sell for more
Definitely sell. Being a landlord sucks plus you’ll make more in the market without the stress.
Don’t sell it. Rent it for the passive income. Use thst as you see fit. Remmeber to keep a % for upkeep of rental
There’s no right answer. Are you willing to be a landlord? Will you hire a property manager? Could you live in that house for 5K a year instead of paying rent or another mortgage?
Many options at play here depending on you preferences.