Rent vs Sell Primary Residence

[Raghul Manoharan]

Is there a good calculator to determine whether it is financially better to rent it or sell it? I found this but I can't understand what the other costs are https://www.narpm.org/members/resources/rent-vs-sell-calculator/

SFH current value: $441,000

Bought for (2020 new construction): $362,000 (primary residence till Nov 2023)

Mortgage balance: $218,000

Interest rate: 2.375% for 15-year loan (12 years left)

Annual Tax, insurance and HOA: $7,000

Current rent: $2950

Appreciation: Reached $441K in March 2022 and has stagnated since. To be conservative, assume 0 or 1%

Property manager: 9% plus other one-time cost. I am willing to manage it on my own.

If I sell, I can put it in an index fund or towards my current primary residence mortgage with an interest rate of 6.125%. Both husband and wife are w2 income earners. Let me know if any other info is needed to guide me. Thanks.

[Mike Fingleton]

Hey Raghul,

This is a classic debate every investor faces at some point. I've seen it plenty of times over the years, and I'd say you're already ahead of the game for thinking through this strategically. I once had a client in a similar position, and we broke it down together to see what made the most sense for him;l especially considering his W2 income and the current interest rate environment. The fact that your mortgage balance is relatively low with a 2.375% interest rate is a solid advantage here. Locking in such a low rate means more cash flow if you rent it out, even with your HOA and property management costs factored in.

Let’s tackle this using your numbers:

• Current Rent: $2,950/month
• Annual Tax, Insurance, HOA: $7,000
• Mortgage (principal + interest): Roughly $20,832/year

Without even factoring in maintenance or vacancy costs, you’re likely cash flow positive. But we don’t want to be too rosy about it. A key thing is what happens if the market stays flat or dips slightly over the next few years. Selling and dropping the equity into an index fund is a lower-maintenance option, but you’d be locking in your gains at a relatively stagnant point in the market.

Given your low interest rate and the potential for rents to inch up, renting could be a reasonable play. A client of mine faced this with his primary residence a couple of years back. He ended up keeping it as a rental, but what tipped the scales for him was the rent appreciation potential in his specific neighborhood and the tax benefits of holding onto a property with a great interest rate. If your area has a good long-term rental outlook and you have the patience to deal with tenant issues, this could be a smart move.

I’d lean slightly toward renting unless you’re getting strong signals that property values won’t appreciate or rents may decline. Ultimately, it depends on what’s going on in your local market and how involved you want to be in managing it.

A firend of mine who was managing a similar property in Scottsdale ran into some issues during a vacancy period. He ended up needing a couple of months to fill the unit, which made him conside selling. But after holding it through, rents picked up, and he ended up in a much stronger position than if he had sold early.

• Pat