Advice - Long Term Rental in Tough HOA or Sell

[Vanessa Pierson]

Hello everyone,

My husband and I are working to build a rental portfolio. We recently relocated from our primary residence to a rental property ourselves (we recently welcomed a baby, and our house no longer accommodated our evolving needs). We made the decision to rent and prepare our house for long-term rental. Our plan is to purchase again with a better mindset of turning that into a profitable rental.

We have diligently completed all the necessary steps and are on the verge of signing a management agreement with a property manager.

However, we are experiencing some doubts.

1. When we purchased our home in 2020, we never envisioned using it as a rental property. Our HOA is quite stringent. We had hoped to rent our house for short-term or mid-term stays. Unfortunately, the HOA prohibits leasing for less than six months.

2. As first-time landlords, we considered self-management, but as new parents who work full-time, we decided that hiring a property manager would be the best option for long-term rentals.

3. If the stars align, we estimate that we could potentially earn $1,000 to $1,500 per year from the property. Additionally, we have equity of approximately $145,000.

Now, we are faced with a dilemma: should we sell our current property and purchase in a more favorable neighborhood, or should we rent the house and let it pay for itself.

We would greatly appreciate any advice you may have. Thank you!

[Nathan Gesner]

Your cash flow is positive on paper, but how will that look in reality? On average, you will spend 10% of your income on maintenance per year. You can expect turnover costs, losses due to vacancies, and other expenses. You can also expect increasing HOA fees, and there may be some problems renting a property inside a difficult.

You don't have any experience, prices are at an all-time high, and rates are also high. 

"But rates have been at 7% or higher in the past, and investors still did well!"

True, but (a) they were typically experienced investors, and (b) today's market includes record prices and high mortgage rates, which is a double whammy. 

You need a place to live. Why not consider selling your property and investing in a duplex or triplex? Live in one space and rent the other space out. Because you live on the property, management will be easier. Build equity while gaining experience as landlords.