Sell or rent??

Question

I'm getting ready to move out of state for work and trying to decide between selling or renting out my house. I'm hoping for some sage wisdom from the BiggerPockets group. The house is only two years old, so I'm hoping maintenance and repairs will be minimal, and I'm in a great rental market so I'm planning for low (~2%) vacancy. If I sell the home, I'd be looking to pocket around $10k, which is good but not life changing. If I keep it to rent out, and manage it myself, I'd cash flow little better than $100/month, even with my conservative estimates. I think the area is going to continue to be a strong market in the future, and my thought is that even conservative appreciation could help me acquire better rental investments in about 5 years when I plan to move back. Is keeping this property a bad idea? Thanks in advance for any insights.

Jim Adrian · Answer

If you decide to rent it out, you may want to consider a 2yr lease term not a 1yr lease term. This will limit turnover and pm cost.

Fred Heller · Answer

I run into this question a lot with potential property management clients who are moving out of town for a job. My answer is almost always you should sell if you're going to break even or make little money by renting it out.BUT, in your case, if you're planning to move back in five years, I would hold onto it, even if you just break even or possibly lose a little money. Five years from now homes in the Austin area will be even more expensive than they are now. I vote to hold on to what you have, because you'll pay a lot more for a house when you move back in five years.

Travis Sperr · Answer

Vote for sell - take the money and look at investing in your new market. This house will likley be more hassle than it is worth. At $100 per month positive, using numbers that look to be a little low, a refrigerator will ruin your year. Also keep in mind that there is a tax advantage to selling your primary vs an investment down the road, assuming you meet the requirements.

Joel Kadlec · Answer

I just had a similar situation when I moved out of state last August. I was living in south Denver which is a crazy hot market, but I decided to sell and reinvest the profit of that in OK where I now live. I would recommend selling based on my personal experience. I think managing or having property out of state can be a lot more difficult than anticipated.

Jim Adrian · Answer

You cant self manage from out of state. You will need a pm locally which will cost you 10% of rent each month plus 50% of first month rent. This will eat up your profit if your rent is over $1000/per month. Make sure you are accounting for maintenance and repairs. Look at the 50% rule to run your numbers. In best case scenario, you want this property to fund its self and not cost you out of pocket. If you cant put away $200 - $300 each month it may be time to sell and walk away. Do you know of any big replacement items needed in the few years, like a roof? You may save some money on house insurance. Can you refinance to lower your mortgage payment? Will you loose your PMI? Define what your bottom dollar is and what reserve cash you need to operate (fund its self). Reserve cash is about 5% - 10% of property value. Based on the little info on numbers I would sale.

Dan Bosak · Answer

My only concern is how you will handle the management from out of state? Do you have friends/family nearby who will be able to help with showing the property and/or coordinating maintenance. Even new homes have some minor maintenance items from time to time, so you will need someone you trust to handle that. Likewise, you will probably have some turnover during those 5 years so will need to be able to show the property to prospective tenants. Just based on numbers, it's probably better to keep and rent it but also consider the hassle with managing from out of state.

Sam Trevino · Answer

@Richard Mahn Since you live in Williamson County you may have just been sticker shocked (I know I was when I saw my nearly $22k tax hike) with the recent property tax increases from Williamson Central Appraisal District (WCAD). While I concur with @Carrie Hiner that predicting the financial future is difficult I'm not certain the population pressure will subside substantially within 5 years time. Georgetown Planning Department has some published statistics that predict within the city limits population will grow 23.28% from 2015 to 2020. When including the ETJ that population growth is slightly less at 21.28%.For the Austin area hiring looks to slow, but remains "healthy"going into 2016, according to a report from Berkadia. Population data supports that over 150 people per day are moving to the Austin-Round Rock area (read Culture Map Austin's recent post).KVUE covered the WCAD property tax increase in this report. KVUE reported that the Chief Appraiser of WCAD said, "builders have not kept up with the amount of population growth causing demand on housing we're unable to satiate." My point is that you will likely continue to see high property tax increases in Williamson County with population increases and employment holding steady. However higher property taxes when combined with a possible loss of homestead exemption will increase your monthly carrying costs on the property.If your plan is to return in 5 years then you may want to run some calculations on the carrying cost of the property versus what you think a similar (or same) property might be worth in 5 years. Basically you're trying to determine if some future potential appreciation and growth in equity (which can't be guaranteed so there's risk) is a better bet than taking $10k now (and whatever you could do with that $10k). @Travis Sperr raises a valid concern to consider and that's the tax issue on selling investment property (I'm not a tax professional so be sure to talk to one of those). However, based on the information provided I'm deducing your plan is to move back in 5 years and live in the house and extract that appreciation/equity by means of a loan or refinance (which has it's own risks; cause in the future interest rates could be higher). One way to look at this might be: Overall conservative estimated equity/appreciation gains (including loss to carrying costs) have to exceed taking the $10k (and whatever gains it could derive as an investment). @Carrie Hiner could likely help you with getting MLS data: both lease rates and sales comps. With past sales comps you could try to figure out past appreciation for similar properties, so you can develop a best guess projection (keep in mind no one can guarantee future appreciation). While this is a challenging decision for you as it really depends on your personal and financial goals. If it were me I'd concur with @Fred Heller's perspective on holding the property despite the overall carrying costs (provided it's not a significant financial burden and holding makes sense for my personal life circumstance, e.g. hassle benefit ratio). @Dan Bosak and @Jim Adrian make a good point on managing from out of state; you may want to look into hiring a local property management company. If it were me why would I hold the property despite carrying costs? I'd be betting on decent appreciation based housing demand due to population projections indicating continued population increase, and employment seems to be doing well in the Greater Austin area (at least for now). Hope this extra information helps, and I wasn't too verbose. Good luck on your decision, and the out of state work opportunity!

Michael Lee · Answer

Hello and welcome to BP! I would like to see you get closer to $200 per month in positive cash flow. It is a tough decision to make depending on your financing on your new place. It is easier to take advantage of the lower interest rate today which might make selling your existing house easier and higher. You did not state whether you were thinking about buying or renting your new place which kind of makes your decision tougher. But if you are moving back to your area it might be better just to rent it out if the price and rates were lower. it is kind of hard to tell you what to do because it is hard to say what might change in the future. I am kind of facing the same issue. I would try to talk to a local Agent and see what they say. Good luck!

Carrie Hiner · Answer

Hi Richard, I'm local to the Central Texas market. I'd be happy to provide MLS lease and sales comps. Do you mind sharing the address of the property? It's a tough decision because we can't perdict what the Austin market (or national economy) will do in the next few years.