We owe $397,000 on our house that is worth $490000.
We are possibly moving in a few months a couple hours away for a better job and we will be buying a house somewhere in the $500,000 range.
We gross $225,000 with zero debt beside the house and have $200,000 in savings.
Should we rent out house that we have now, probably would be at $3000 a month or just sell it?
Our debt to income with both houses would be around 35% of our gross income per month
Only reason we are considering this is the help with our long term retirement goals as we are 40 and just now are maxing out all of out retirement investing. We have 50k in total right now.
I realize I'm not considering how much it will cost for potential repairs every year as I'm unsure of how to predict that budget.
The house in question to rent out is only 4 years old with lots of new infrastructure being built as we speak with in walking distance. Chick-Fil-A, Starbucks, food city, a private school, a nature center, and a strip mall, so it makes me think the home value will go up over the coming years
Sell house or rent it?
byu/TrickyDiscussion9853 inpersonalfinance
Posted by TrickyDiscussion9853
23 Comments
Do you want to be a landlord?
What’s your monthly mortgage? Is 3000/month going to net you a positive return?
If you don’t have a lot of extra time, don’t rent. Being a landlord is not passive income. You’re better off selling and saving yourself a headache.
How long have you owned the house? There’s Cap Gains if you’ve owned it < 5 years
We’re in the same position now, but moving closer. We decided to list on the higher end for rent, and if it doesn’t rent for that much by Spring we’ll list it (since selling now is not likely to happen).
The biggest factor is how comfortable you’d be with having a potentially needy/troublesome renter, or if you want to shell out the money for a property management company to handle it.
Considering it’s only 4 years old you likely won’t need to make any major repairs, so honestly I’d try to rent it out and cover all the costs. Then once it becomes a sellers market again see if it makes sense to sell.
I make a lot less than you and 100% am not trying to give you advice, just personal experience.
I got stuck owning a house in a part of the country I no longer live in. Even though I bought it in 2016 for 198k, somehow, someway, I’m one of the unlucky bastards that can’t sell the house enough to break even. Trust me I’ve tried. That micro area has just cratered. I know people don’t believe that could be possible because I myself didn’t believe it but here we are.
So I rent it out. There are articles on people like me. “Reluctant landlords”. I got a prop management company etc. Well what no one tells you is that house very very much factors in to your DTI when you’re trying to buy a new house. And if you’re stupid like I am, you assume it’s actually a good thing bc you’re renting it out at more than PITI. Wrong. Lenders only count about 60-70% of that rental income as income, so unless you can rent the house out at around double what it costs all in (property management costs included to), you’re at a huge disadvantage trying to get approved for a mortgage.
If I could go back I would have done it completely different. I know you and I are in different tax brackets, but I see so much “just rent the house out and buy another!” Advice on here and when i tried to do that? Realized I am a huge risk to a lender. If I didn’t have that house I’d qualify to buy a house for roughly 400k. With that house rented out at profit I qualify for about 240k. Maybe I’m missing something but I don’t think I am.
I was considering moving away and hiring a property manager and making my house a rental. I asked about it on a property manager sub, and several of them advised to just sell, as the tenant protections in my state could make it a nightmare for me.
landlord is a full time job or you pay a management company a lot of your profits to manage for you. Are you willing to drive back to that house on the drop of a dime to fix some issue with it? or pay the premium to hire a trustworthy handyman? or vet potential tenants? everyone thinks rental properties are passive incomes but they really aren’t. You need like a multifamily building (4+) that can hedge bad renters and repairs and in reality your biggest payoff is when you sell the house. It’s a long term investment and you will be working for any “passive” income. It’s NOT a rent and forget it kind of deal.
On the flipside it is potentially a great investment, 10-15yrs or 30yrs later when you sell it is when you reap the rewards of potential market increase and someone else had paid down your mortgage.
PS I know nothing about your house but it being a new build means nothing nowadays, a lot of new builds are cookie cutters that has a lot of lipstick on it and the bones are bare minimum, corner cutting crap. Again this is just my experience in general and may not even apply to your house but I know nothing about where your house is who built it what condition etc etc. i’m generalizing it a lot.
Rent it if you can. Even if it’s vacant for a few months, you seem to be able to carry the cost of both mortgages at 35%.
Find a reliable rental agent, or even a house manager, who can deal with all the tenant hassles, repairs, etc. The peace of mind is well worth the fees they charge.
Set up a new bank account and keep that money separate to save for costly maintenance, property taxes etc. If you find that you keep having to top it up, and y’re running at a constant loss, then consider selling.
Basically, run the rental as a business not a hobby.
I wish I had held onto one of the earlier houses I owned, I think it is a great long term way to build wealth.
You might consider a management company to act as the local contact. That might cost you 10% of the rental income.
If you can still cover the mortgage, it might make sense. If not, don’t feed the shark.
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I dont want to be a landlord so when I move I am selling.
Why are you buying so soon? If you rent for a year you can get a better sense of what its like to live in that area generally and buy later.
Realtors and banks love people who are constantly buying and selling because they make their money on the transaction happening, but thats not to your benefit.
I have a few rental properties but I manage them myself. Few things I learned was get home warranty. I pay for each house about 1k a year, but all year long they fix things, sprinklers, dishwasher, etc.
I also pay a service for HVAC, 35 dollars a month and they come service it twice a year and if anything breaks they are around 24/7. A property company is, property companies take 10% of the rent so if you are charging 3k they are going to charge you 300. Also you still have to pay for any fixes and they typically use low-quality handymen.
If you have a handyman, I recommend keeping them on standby or their number available. But you can avoid a lot of this if you use home warranty. If you have them pay you, you can use different websites and use websites like turbotenant.
Sell. You don’t want to be managing maintenance on two residences. Remember this is additional work. You either pay someone to do it or you do it.
I feel like this question all depends on the tenants you get. If you win the tenant lottery then great!
You said the house is only 4 years old so that at least eliminates issues from arising anytime soon, again pending the tenant though. Anything that would need your immediate attention would be a hassle given the driving distance.
Personally I would say go for it. Put it up for rent
0.5%/mo is ~2500 and that will trend towards 0%/mo as more housing is developed
Unless you want to be a landlord, just sell. You *could* use a property management company to run it for you, but they take the lions share of profits.
Being a landlord can be stressful, especially if you get a bad tenant and have to go through an eviction process, which can take months, or if they cause damage on the way out. A single bad tenant who causes damage can eat away *YEARS* of rent revenue. Especially if you end up with mold/bugs/vermin. And remember that even if the tenant is non-paying you are legally required to maintain the space in livable condition, you can’t ignore repairs or you’ll be in legal trouble.
>But security deposit!
Doesn’t cover major damage.
>Sue them!
Can’t squeeze blood from a stone.
I think a lot of people would be happier just selling the property, and investing the proceeds in a diversified index fund, and not having to deal with the stress of being a landlord.
IMO…SELL…we rented our first house for 6 years. When we moved to the second house the market dropped and we would have either broken even or been in the red a little. The market recovered and we sold for about an 80% gain. So did we benefit from renting? Yes. Was it worth the hastle of dealing with tenants that dont pay on time, cant be reached, destroy your house (kids drawing on the walls with crayons, stains on carpets, etc), finding replacement tenants, evicting tenants that stop paying, etc. Not worth the hastle. You can hire a management company to help with finding tenants and taking calls from the renters so they dont contact you directly but when there is an issue that needs fixed you still have to deal with it. What if a tenant falls and breaks a hip and sues you? Insurance may cover but how much will your insurance rates go up? Rentals can be as much of a liability as an asset if not managed well. For peace of mind and preservation of your sanity, SELL IMO.
What’s the interest rate on the house?
Id say if you can rent it, go for it. I personally would rather operate with 1 tenant (1 family) rathe than multiple units and multiple people/families. Chances are youll get established people as your renters and *wont* cause a fuss. Also, if you really love that home, you can keep it to rent and know other families are under the same roof as your family and you can lean on how you lived in it as a way to prove your landlordship. Ill never know money like that but sounds like a great spot to be in!
your retirement accounts are pretty light with only $50k with your income. did you just recently start maxing it?
i would sell and pair that equity with $150k and buy your next house. keep back $50k as an emergency fund. focus on beefing up your retirement accounts for now and consider buying a rental later on.
We ended up selling our home this past year because we did not want to be landlords. Not to mention we did not have a COVID interest rate on our home, so renting wasn’t going to be some cash cow like others can experience.
We still ended up making money off the house since it was brand new, and we lived there for only two years. We don’t regret selling one bit!
I was in the same dilema and so glad I sold. I had only “owned” the old house for a few years so selling it meant I’d lose all the equity and barely break even. But at this time I’m so happy I don’t have to be a landlord. That house was on the Bayou and the maintainence on the front and backyard alone was insane for it to look good, and having regular gardeners was not going to be worth the cost.
My parents on the other hand rented their old house. It was a overall low maintenance home and it worked out very well for them