Sell it or Rent it? Newbie moving out of state.

[Timothy Boyd]

Hi BP family!  I wanted to get some opinions from you more seasoned investors on what you think I should do.  I am a total real estate investing newbie.  I'm about 100 episodes deep on the podcast, but have not jumped in yet.  Thank you in advance for your time and advice!  Details below.

-Current Residence = 4 bed, 2 bath, 1300 sqft, built 2003.

-Owe ~238K on it, refinanced recently and it appraised for 290K.  Monthly mortgage/tax/insurance payment is $1334.

-I think I could rent it for ~$1500-$1600 based on other similar properties in the area on CL.  Not 100% sure.

My wife and I are looking to move back to the midwest here in the next six months.  So my question is, do I sell it and take the upside to invest in something when we get there, or do I have my first rental as an out of state landlord?

I know the cashflow would be thin and doesn't really leave room to save for CapEx. I imagine I would need to hire a property manager, but I might be able to get a friend to handle it for a price.

Let me know if you need more info in order for you to give me some wisdom!  Thanks again!

[Robert Smith]

Hey @Timothy Boyd. 

This is an interesting question and it actually gets posted quite a bit here on BP (or variations of it). It basically comes down to "Is the appreciation and loan pay down worth zero or slightly negative cashflow?" Most people here will tell you to sell it if it doesn't cash flow and I tend to agree. However, I was actually in a somewhat similar position a few years back and did actually sell, but it ended up being the wrong decision.

I was living in Ft Wayne, IN in a SFH I had purchased in 2006. You know, when prices were really high. A job opportunity came up for me in 2012 and I had to move suddenly. You know, when prices were really low. What I SHOULD have done is held on to this as a rental, taken the minimal or slightly negative cash flow and then sold it when the market turned around. What I ACTUALLY did was sell this at a $10k loss. I suppose it could have been worse though. I've stories of other people losing way more. The point is that today this property is worth about 25% more than when I sold it. If I had held on to it, today I would be better off by 7 more years of equity that a tenant would have paid for as well as the appreciated value. Today, it's easy to see why this was such a bad decision. But at the time, no one knew where the bottom was (at least I didn't).

If you sold this house today, it looks like you could walk away with $35k or so after paying your agent. If you decide to hold on to it and the market turns against you, you will either have to accept the loss in equity or be tied to this property for however long it takes for the market to recover. When you hold on to a cash flow neutral property, your betting on appreciation. I suppose this is fine as long as you recognize that it's a bet, not an investment. 

For me, I would take the money and run. $35k is a nice chunk of money to put toward a cash flowing investment.