Should I Sell or Rent Out?

Question

I am considering moving out of state in the next year or so, and wanted to get some opinions on either selling my current house, or turning it into a long term rental. I don't own any rental property so this is all new. If I rent it out, I'll be hiring a property manager because I don't want to deal with trying to manage it from out of state.

Some numbers:

Purchased with 0% down VA loan

Purchase Price: 189K

Mortgage: 172K

Rate: 2.25%

4 Bed / 2.5 Bath

~2400sq/ft

Built in 1992

Zillow Sales Estimate: 280K

Zillow Rent Estimate: 2,100/mo

Roof and AC are less than 10 years old. Solar panels and backup battery system installed in 2022, I have a loan for the system so that would eat into any sales.

I'm in San Antonio, Tx. Lots of military bases around, that's actually how I ended up here. The house will need a new fence soon, so I'll have to factor that into the scenario.

I'm not sure which choice is the best option for me. I feel like having such a low payment and rate make it stupid to choose selling the house, but since I haven't been in this position before, I thought I'd ask here.

Nathan Gesner · Answer

Yes, this should make a good rental.

Here's a guide that describes what good cash flow looks like and how to analyze a property.https://www.biggerpockets.com/blog/rental-property-cash-flow...

Adam Bartomeo · Answer

Based on the info you provided, it seems like a no brainer to make it a rental. It should cash flow $500 - $700 per month. If you have lived in it for 2 yrs I would suggest renting it for 2 - 3 years and then selling it to avoid capital gains taxes.

Theresa Harris · Answer

A few things to think about-what are all of your monthly costs and look at the rent including vacancy and management fees.  Tenants tend to be harder on the home than owners. Do you have a good local property manager to rent it?

If you rent it for 2 years and then sell it, you shouldn't need to pay taxes on the capital gains.

Matthew Becker · Answer

Even 10,000 units seems like a lot.  That seems like a lower demand area than any place I would ever invest.   I invest in college towns and resort towns mostly with a summer lake warm lakes and ski hill within 30 min with little to no vacancy.  Some people think these places are to expensive but it does not matter what something cost it matters what he ratio is.  A house that you buy for 1M is a good deal if you can get 10K a month in rent.  I think that is a much better deal than a 100K house that you get $1000/mo in the midwest that won't appreciate.

So to me 10,000 seems like a crazy amount.  But I have run zero vacancy for the last 25 years as of Aug 1 unless I build something then I have lease up in the off season.

Morgan Tondre · Answer

I agree with this thought, @Adam Bartomeo. I sent you a PM and connection, @Chris Menne!

Justin Brickman · Answer

Just because it doesn't cash flow in the first year or two, it doesn't mean it won't be an awesome rental for you down the line. If you believe it will continue to appreciate (like most of San Antonio), I would hold on to it even if there's a bit of negative cashflow for the first year or two.

Rene Hosman · Answer

Have you looked at Scott Trench's Rent or Sell calculator? The episode that this is discussed is linked here and the worksheet to help you decide is linked in the show notes!

Matthew Becker · Answer

How is there 10K of properties for rent in San Antonio.  Everything I read says we have a housing shortage.  I live in North Idaho and we do have a shortage.  If that is true I would probably sell and buy in a place where there is less competition.   I always try to find better markets to buy in but once I dive in I can't find a better place than where I am at.

Mike Hansen · Answer

Hey Chris,

first, I would never take into account what Zillow is estimating to be the rent. If you want a more accurate estimate for rent, use any platform and zoom into your local neighborhood and see what similar properties are advertised for rent. Notice I say advertised and not going for because next, you will want to see how long these properties have been on the market and if they have decreased their rental asking amount. I have property here in San Antonio as an active duty member as well and there are over 10k properties listed for rent in the city. What makes your property standout from the one that is listed down the street for $200-$400 less? If there isn’t anything that you can think of, most likely your property will sit on the market as well. Not sure if you’re closer to Randolph, Lackland or Ft Sam Houston but this also plays into account on what rental amount you should look to achieve. Lastly, if you’re currently taking a homestead exemption on property taxes, once that drops off (if you’re currently taking chose to transfer the exemption to your new home) your property taxes will likely increase $1k-$2k thus increasing your monthly mortgage. Hope this is helpful as Texas markets are sometimes not that easy to navigate when it comes to long term rental due to high property taxes and an overwhelming amount of supply on the market. Feel free to reach out any time