Should I sell or rent my current house!!

Question

Hi Bigger Pockets Community,

I am new to the real estate game and by new, I mean I haven't done a single thing yet besides reading some books. I'm trying to figure out what I should do with my current house before that time comes. Bought in a semi-bad area of Indianapolis because I got a killer deal (fully rehabbed home for $82k). Deal with the city also meant that I had to live here for 5 years and this month I reach 5 years. Ultimately I want to go out and buy a home in a nicer area to live with my lady and start to get into real estate via rentals. I owe $60k (15-year mortgage that I refinanced last year) on the house and I believe it to be worth right around $200k in today's crazy market.

Scenario 1 - Sell the house and profit roughly $120k. Put some of that into my next home and some of that can be used to find a rental property down the road. (I also have about $40k that I was saving for the downpayment of my next home).

Scenario 2 - Keep my current house and rent it out. Mortgage taxes and insurance are $680. It is the nicest house in the area, everything was updated 5 years ago. I think I can rent it out for roughly $1,400 a month. The area is getting nicer every year and eventually, I believe it will be a great place to live so I imagine that it will still appreciate from here on out pretty well. At the same time, I will be going to buy another house to live in, in a nicer area.

Really been going back and forth on the idea and I am needing to come to some conclusion soon. I had told myself if I could get over $150k profit that I should take it and run but I don't think we are quite there yet. Love the idea of having rentals and ultimately that's what I would like to try out down the road. Any guidance is appreciated here! Thanks

Tyler Lingle · Answer

Hey! As an agent who works with a decent amount of investors in Indy, it's VERY difficult to cash flow right now, even in B- / C neighborhoods. I would absolutely keep it as a rental and leverage the equity through a HELOC like some others are saying. Keep in mind that the interest rate can fluctuate on those.

For your next I'd consider going with a multifamily. The numbers are a lot stronger cash flow wise with those right now in Indy.

Eliott Elias · Answer

build wealth! Rent!

Brandon Beardt · Answer

Hi Trevor,

Happy Friday! From reading your post, it sounds like you think your options are 1) Sell the house, profit $120K, and use that with the $40K you already have for the down payment of your next primary residence. Or 2) Keep the house, rent it out, cashflow about $700 a month, and only be able to use the $40K you have now as the down payment. Your options depend on what you're willing and able to put down towards your next primary residence. Will the $40K be enough of a down payment for your area? Or do you need quite a bit more? If you owe $60K on a house that's worth $200K, you have about 70% equity. Any chance you've shopped around your local area for a HELOC? Doing so will give you access to the funds you potentially need to utilize for a down payment on another house. Getting a HELOC will also lower your monthly cash flow on the property (depending on how much you take out), so you'll have to take that into consideration. Reading through your post also made me consider a cashout refi, but given the amount of equity you have and how rates have increased this year, plus considering you'll be moving out of the property, a HELOC may be a better fit for you. All in all, it sounds like your goal is to have rental properties right? If that's the case, don't sell! You'll already be starting with 1 that's cashflowing! I hope this helps out in someway shape or form. Best of luck to you!

Conner Olsen · Answer

@Trevor Riley If you like the house, keep it and refi or get a HELOC. If you don't like it then sell.

Clayton Mitchell · Answer

@Trevor Riley any particular reason why you are wanting to put 20% down on your next house?  In the grand scheme of things interest rates are still relatively low.  You could possibly do a 5% down conventional loan (depending on your DTI) or go 3.5% with FHA and get more house for the same down payment.  Always going to be a fan of house hacking, buying small multi-fam, or a duplex, but why put 20% down if you don't need to.  Could you possibly use your savings for the down payment on your new primary, then HELOC or cash out refi and get another property as well?  You may also be able to get in contact with an investor friendly lender, and use a DSCR loan to purchase a new/another investment property. Taking you from 1 property to 3 or more depending on if you go for MF as a primary.  You can use an 3.5% down FHA loan for up to a fourplex technically.

Josh Myrick · Answer

Unfortunately I think cash flow is shrinking in many areas. Mortgage rates increasing and prices still going up. Even with how high rents went up recently cash flow is still low.

I definitely agree with the multi family. There is seems to be better cash flow in those deals. That is why I also recommended house hacking a duplex. But I understand that everyone has different strategies.

Reggie Powell · Answer

@Trevor Riley

There are so many ways to invest in real estate to pick the “best” option. I’m a buy and hold guy. What are your goals? What do you want to achieve? Can you get a deal better than your first rental at a better interest rate in todays market? I think you should hold onto it, buy more rentals, and build up your portfolio. You already bought it. It’s already fixed up. The work is done. Keep it. Get a HELOC On it and buy another.

Personally I would not buy a dream home. Honestly, I don’t think I’ll ever own a dream home. My main focus is on acquisition of more rentals while living below my means. Again, you need to figure out what you want.

I also financed my rentals on 15 year loans. Many would say that’s not smart. But, now I have rentals that are going to be paid off in 3 years. It really all comes down to what makes you happy and what you’re comfortable with.

You got it right. This is a slow game. Real estate is the best way to build wealth in my opinion aside from creating a business. Take your time and keep buying houses.

Danny Webber · Answer

easy, sell if you do not have seed money for your next purchases. cap gains free right now.

Dave Skow · Answer

@Trevor Riley- how about  puuling some   cash out of the  property  while you still live in it  ...use this  cash as the seed for a new  purchase  and  turn the present home into a rental .....make sure that the new loan amount / payment  can  be  covered  by  the  possible  rent you could receive  renting it  ...if you want to  keep  things  simplified  - I would vote for  selling /  keeping some  of the proceeds for rental  down payment and  using the  other  potion for a down payment on new  primary home

Josh Myrick · Answer

Do a mortgage calculator and just increase the rate by increments of .5-1% up to about 7% and see what your affordable mortgage rate goes to. And then increase the price of the home by the 7-15%. You will be stuck with a much higher payment.

Should I sell or rent my current house!!

Most Popular Reply