Should I Sell or Rent Out?

[Chris Menne]

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.

[Theresa Harris]

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.

[JooYung Choi]

I would consider selling if you have lived in the home the past 2 / 5 years since you have a decent amount of tax free equity in there but as long as you have a plan to reinvest those funds.

By your numbers, since you have an amazing rate and high rents, I would consider renting it out if you believe your area will continue to grow in value. Sell it later for more money. True wealth is in the equity!

[Nathan Gesner]

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]

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. 

[Jay Hurst]

Quote from @Chris Menne:

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. to d

The other consideration you would want to consider is your VA entitlement if you are hoping to buy the next house with a VA loan. You can have two VA loans at one time as long as you have entitlement to do. Take a look here to calculate what you might have available if you do not sell OR refi out of your current VA (and with that rate you do not want to have to refi) : https://lgy.va.gov/lgyhub/guaranty-calculator

[Matthew Becker]

If you want to take advantage of selling it and take advantage of a great interest rate you can do both. Sell it into an S Corp at market rate, that you are the owner of, taking the tax free gains because you owner occupied it. You don't need to use a title company and pay fees, you just need to proper paper work and quit claim deed. This is very simple. Then you can depreciate the property and rent it off setting a good chunk of your income with depreciation. You could also bring in a partner to buy out 1/2 of your equity position. Then you own 1/2 and they would own 1/2. If you need cash to buy your next house get a HELOC in place before you move out while it is owner occupied. Ignore Dave Ramsey he made millions telling people how not to be stupid like he was. Do not pay down aggressively with cash flow, reinvest. At your equity position and rate of 2.5% you should crush it for a long term investment. Rent will go up and you payment will be the same. Even if rent does not go up you will still be able to cash flow well. With one property you can self manage even from a distance.

[Chris Menne]

There are a lot of great replies from you all, so thank you. I’ve had a few thoughts but need some time before I put it all here. 

Something I forgot to mention is I've been in the house since 2017, so the 2/5 year rule shouldn't matter. And my PITI is only $1360/mo.

I tried using the biggerpockets rental calculator this morning and the cashflow was negative, but I may have been too conservative with the numbers. I’ll share those here when I get a chance. 

[Mark Cruse]

This is a forum of investors. What you described would be a very good rental property. Unless you need those funds right now, with a property manager you have what I describe as a win win. You can rent to primarily military. You allow other people to create your equity. You get your tax benefits. You get appreciation. For the most part all you do is monitor your bank account.  Most military are in somewhat decent communities so I cannot see to many reasons not to. At the very least, let it run for a year or two and see how it goes. If it sucks for you, you can sell and be further ahead than you already are today. Depends on the person, but as a professional real estate investor it would be a no brainer for me. Im former military myself. 

[Jay Hurst]

Quote from @Chris Menne:

There are a lot of great replies from you all, so thank you. I’ve had a few thoughts but need some time before I put it all here. 

Something I forgot to mention is I've been in the house since 2017, so the 2/5 year rule shouldn't matter. And my PITI is only $1360/mo.

I tried using the biggerpockets rental calculator this morning and the cashflow was negative, but I may have been too conservative with the numbers. I’ll share those here when I get a chance. 

 The 2/5 year still applies no matter how long you have owned the house. For you since you have lived in the  property for at least 2 years you would need to sell the house before the 5th year to avoid capital gains (up to your max either 250k or 500k). https://www.irs.gov/taxtopics/tc701

[Kevin Hintz]

Seems to be defined by the learner goal and the market. I’m thinking with a 2.25% rate, that’s a good mortgage to hang on to if it performs well as a rental. If the local market is healthy and rental income will be adequately managed by a property manager, then a long term residence could be used to build equity.

But, if you don’t want to go through all the trouble – and your manager does not want it too – then selling is probably the better option, all the more so if you are witness to a good market, and you stand to make some ok profit here. You should run the computational both ways and think about its purpose according to the schedule for the further.

[Julia Lyrberg]

Hi Chris!

With your low mortgage rate and payment, keeping the house as a rental could be a great way to build long-term wealth. A $2,100 rent estimate looks promising, but be sure to account for property management fees, maintenance, and your solar loan when calculating cash flow. Selling might make sense if you'd rather free up equity for a down payment or other investments, but that 2.25% rate is hard to walk away from. Running a detailed cost analysis for both options will help clarify which aligns better with your goals.

[Mike Hansen]

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

[Matthew Becker]

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]

Quote from @Matthew Becker:

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.  

A property is not just SFH or multi, it includes apartments. Bundle all options that a renter would consider and you simply have what I stated above

[Matthew Becker]

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.   

[Rene Hosman]

Quote from @Chris Menne:

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.

 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!

;t=0s

[Justin Brickman]

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. 

[Morgan Tondre]

Quote from @Adam Bartomeo:

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. 

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