Sell the house or keep it as a rental?

Austin, Texas
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Sell the house or keep it as a rental?

David Kimball
Member since 2022 · 14 posts · 4 votes

Sell the house or keep it as a rental?

Curious to get the group's thoughts.

We are moving and have already got another house. We were going to sell our current primary residence, but are having a hard time doing it with interest rates in the 6%+ range, so we decided to give rental a shot.

Last it was appraised at 460k, our mortgage is on a 15-year fixed with 2.75% interest.

Monthly payments (incl. escrow for tax and insurance): 1830/mo

Property insurance will go up $500/mo as soon as we don't have the homestead exemption.

In my estimation, we can rent it out for $2100/mo and will have to put in new carpets and a fresh coat of paint.

We tried listing the house for $450k - no interest. Offered special financing with seller rate buydown - no interest.
I'm curious how to think through whether we should keep the house as a rental, or try to sell it by lowering the price.

Our remaining balance is 135k on the mortgage.

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Robin SimonBusiness Member
Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
4y
Quote from @David Kimball:
Quote from @Jeremy Nault:

Hi David, 

The Numbers seem a little tight to work as a rental.  You mentioned that the insurance would just to 500 a month after you move, would that increase the 1830 or is that number already taking the increase into account.  

The biggest question that you need to ask yourself is if you didn't already own it, would your purchase this house to use as a rental property? If the answer is no I would sell, if the answer is yes I may hold onto it.  

I hope this helps! Good luck with your decision!


 Yes for sure. I would sell it, I think my main question is... how low to go to sell it now vs., keep it afloat for a year or two until valuations are back up (if).


 Is the property in Austin?  If so, I'd think about keeping it even with mediocre cash flow considering you've got a good rate/mortgage

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  • Jeremy Horton
    Rental Property Investor · Somewhere over the Rainbow · Member since 2021 · 1k+ posts · 1k+ votes
    4y
    Quote from @David Kimball:
    Quote from @Cameron Moore:

    Insurance SHOULD usually go down when it changes from Homeowners to Landlord. I would shop this with a broker before making your decision as it could affect cash flow greatly. 


     property tax , not insurance


     Neither your property tax or insurance will go down if it's a rental 

    Property tax will go up (assuming the assessed value is the same) because you cannot legally take a homestead exemption (assuming you can in your state)

    Insurance will always go up as well - Ins companies feel that an owner occupant is less of a hazard than a tenant 

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  • Jason V.
    MS · Member since 2015 · 56 posts · 20 votes
    4y

    The proper answer is that you should sell your house *and* mortgage with the assumption of said mortgage & pre-2022 interest rates..

    Make a deal @ whatever home value makes sense.  If your mortgage allows someone to assume the existing terms, then the home value IS likely what you are asking, but not at the otherwise currently available rates, nearly DOUBLE the interest rate.  You follow?

    Perhaps this person would need a large discouragement to pay you off before assuming the pre-existing mortgage.  Not really sure any other way to do it.... But that pre-existing mortgage has some value in itself to people that are being priced out of similar properties.  Leverage your unique selling points!

    Also, I'm not 100% sure on YOUR specifics, but if that was your primary residence for 2 years, that makes it tax exempt from capital gains.  See IRS "Section 121"-- 

    https://www.law.cornell.edu/us...

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  • Daniel Bertozzi
    Investor · Alexandria/Arlington/Northern Virginia · Member since 2020 · 15 posts · 9 votes
    4y
    Quote from @Peter Albanese:

    I’m going to offer another option. Refinance the house 135k at new rates and push loan out to 20-25 year amortization, albeit higher than your current rate. This would lower your payments and probably allow this to cash flow. This would mostly solve the issue with carrying the house and turn it into cash flow generator, although I don’t feel like it would be a great return on investment. Generally speaking a house should be able to get 1% of cost via rent in order to work out, so if you paid 400k for this house, you’d want to collect 4k/month in rent, but I don’t know your cost basis. It’s up to you to choose the option that works best for you. 

    Shoutout @Peter Albanese. I’m really surprised no one else said refinance. I obviously don’t have all your numbers but have you thought about refinancing to a 30 year loan, taking a higher interest rate, pulling 100k+ In a cash out refinance (which you could use to buy more properties), and then you wouldn’t have to sell your house.

    I’m not sure what your situation is but this is where my head goes. With this option, it might be able to cash flow because you can definitely lower your mortgage payment, you’ll have a bunch of cash to invest, and you won’t have to sell for less than it’s worth. 
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  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    4y

    @David Kimball insurance going up $500/month? Shop that!

    If the market will only pay $2100/month for rent on a $450k property, then this is not a good investment.

    Drop your price and sell it, so you can invest the capital in something with a better rate of return.

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  • Eliott Elias
    Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
    3y

    Really bad time to sell. Rent it 

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