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Updated about 1 year ago on . Most recent reply
Sell or Keep & Rent
Good night everyone.
A little late to be posting but wanted to get some of those mid-night thoughts flowing. My wife and I currently have a great house that has the almighty low interest rate of 3.5%. Now the house is older, late 1940's but was remolded before we purchased it. Our family is starting to grow and my wife is wanting to get into something a little bigger and I want a bigger garage or shop.
After discussing with her, due to the age of the house she is wanting to get out from under it as there are some cosmetic issues about the house that would just take the time and funds to do (like replacing some of the laminate wood slats, harder to find an exact match than anything). But my thought is to turn the house into a rental. With slapping a fresh coat of paint of the decks I think it could be a very marketable rental. The only road block I have with convincing the wife, how do we come up with the 20% down for the next house? If we were to keep the current house we wouldn't have those funds. Which is my dilemma of selling or keeping. And based off of the price and interest rate we have, I don't really want to let if go.
Any input is appreciated.
Best Regards
Most Popular Reply
Theresa,
Thank you for your quick response.
We've lived in the house for close to 5 years now. Based off an estimate a realtor did for us, we could make at least 50k on it, if we sold out right it instead of rent. Down side is we couldn't really get into a house we want with just that, and keeping a low mortgage payment. If we rented it out and kept it as generational wealth would you have to pay capital gains on it? The hope on this is to eventually use the income made off of the first rental to acquire another one, and so on.
Based off of the rental calculator BP has the rent $ looks good but has a low confidence level. I'd be willing to review the numbers with anyone in a private discussion as well.
Isn't there another calculator that breaks down all of the added cost to fund the rental property?
#2 Managing Your Property Contributor
If you've lived in the house for more than a year, you don't need 20% down to buy a new house as your primary. You can rent this one. How much has the value of the house gone up since you bought it? If it has gone up a lot, consider selling it to avoid capital gains. If you rent it out for more than 2 or 3 years and then sell it, you have to pay cap gains on the profits.
I'd also run the numbers on the house to see what you'd get for rent and what all of the costs are associated with the house (property taxes, insurance, repairs, vacancy as well as mortgage payment). Not all houses make good rentals.
Theresa,
Thank you for your quick response.
We've lived in the house for close to 5 years now. Based off an estimate a realtor did for us, we could make at least 50k on it, if we sold out right it instead of rent. Down side is we couldn't really get into a house we want with just that, and keeping a low mortgage payment. If we rented it out and kept it as generational wealth would you have to pay capital gains on it? The hope on this is to eventually use the income made off of the first rental to acquire another one, and so on.
Based off of the rental calculator BP has the rent $ looks good but has a low confidence level. I'd be willing to review the numbers with anyone in a private discussion as well.
Isn't there another calculator that breaks down all of the added cost to fund the rental property?
- Real Estate Agent
- Denver | Colorado Springs | Mountains
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Like @Theresa Harris said, you don't need 20% for the next one if it will be your primary residence. You can put down as little as 5% for a conventional loan or 3.5% for FHA.
And if where you live is anything like Colorado, you might have a down payment assistance program. We have something called CHFA that will gift you 3-5% for a down payment for a slightly higher interest rate.
And definitely keep the first place. That's how 90% of us got started with investments was simply by turning our first primary into a rental.
- James Carlson
- james@jamescarlsonRE.com
- 720-460-1770
Hi Logan,
As others mentioned, there are options out there to put way less than 20% down. As long as you have good credit and the DTI is low, you should be able to get a conventional with as little as 5% down.
Alternatively, you could add value to this house, increase equity, then pursue a cash out refinance and roll the cash into the next primary property. The downside would be that you wouldn't keep the 3.5% rate, but it could still make sense if it cash flows. Have you looked into business credit cards or HELOCs to do the cosmetic rehab?
I have regretted every house I have sold. I recommend working hard to find a way to turn that one into a rental.
Sit down and work out the numbers with your wife, talk through what things will look like 5-10 years out as the house appreciates, rent increases and your job pays more. Think about your future, not just the immediate wants.
- Real Estate Broker
- Cody, WY
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Most people regret selling property. It is rare for someone to regret holding onto one.
Market prices and rates are crazy right now. If you don't need to move, wait for things to balance out. It may take a year or two, but you can use that time to really dial in what you want while saving more money. Maybe you'll be positioned to buy a new home and another investment.
- Nathan Gesner
Hey Logan, building on your thoughts, it might be helpful to have an open and honest conversation with your wife about this. Together, you can carefully consider the financial aspects by comparing the potential income from renting to the costs of selling, including any repairs needed to make it more marketable.
You may qualify for a conventional loan with a down payment as low as 3% to buy a new one. However, lower down payments typically result in higher monthly payments and PMI, so it's best to explore various options and consider all associated costs.
If you decide to rent out your current home, consider whether self-managing the property or using a service would be the best fit for you both. Hope this helps.
Thank you all for your input definitely looks like there is more than one to skin this cat. Is there an article or form that explains the different low down payment options and or the HELOC methods?