Sell or Rent Paid off House

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Sell or Rent Paid off House

Nathan Baker
Member since 2020 · 3 posts · 2 votes

Hi,

Bottom Line upfront: I am looking for a solution or advice on how to keep our paid-off house and rent it, but not be house poor by building/buying another house because we did not sell this house.

My situation: My family and I live in a house that we managed to pay off rather quickly. We are hoping to move or build a house in the next few years. I want to keep the house and use it to get us into the rental-property side of real-estate. My wife isn't sure but is open to it. After running the numbers, there are two things I am unsure about how to provide solutions to.

Issue 1: Building up enough money to make the 20% down on the next house as well as set aside 6 months of the new mortgage in order to qualify to keep it and get another mortgage (is this even required). Essentially, most of our money is tied up in the equity of our current house, which has also increased in value by 43% since we purchased it. So, should I sell it and buy another rental with part of the profit and use the rest for a down payment, or keep the house without a mortgage and take a separate mortgage out with little down payment on our new house?

Issue 2: Based on what we could rent our current house for, we would have more than enough to cover the budget even if we put a small down payment. That is calculating everything from a new landlord insurance policy, higher utilities for a bigger house on our new house, to budgeting for 15% vacancy as a "monthly" payment. However, if it does go vacant, it would be very tight. So again, the issue comes to the down payment and cash flow.

Any tricks to capitalize on renting a paid-off house without getting rid of it? Any advice on my current situation? Thanks in advance.

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  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    6y

    Sell the house and buy multiple houses using the proceeds from the sale as DP's.  Equity in a property is dead money.

    0Reply
  • Nathan Baker
    OP
    Member since 2020 · 3 posts · 2 votes
    6y

    Joe, Thank you. That makes sense. Any thoughts on refinancing it to pull out the money we put into it and keep it as a rental or is keeping the 43% value increase make it not worth it. It's in a good location as a rental both houses on either side of it are rented, and ours is a lot nicer than those, so it should rent easily.

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  • Gregory Saysset
    Member since 2023 · 21 posts · 19 votes
    3y

    I will have to agree with Joe Villeneuve, selling the house will give you way more leverage. Let's say you sell your house for 200k, you could save 40k as security and put 40k on 4 down payments for 4 houses (live in one and rent the other 3). Don't do that overnight, do your research, and build a team to help you, but in the end, instead of having a 200k asset with your paid-off home, you have an 800k asset with those 4 houses and a 40k security pillow.

    if you really want to keep the house you have to find a way to keep money for the next down payment.

    One thing you could do, if you go in that direction is each month save the same amount of money it will cost you to pay rent since you don't have any as your house is paid out. That might mean sitting down and restructuring your budget. But let's say renting a house costs 1500 a month, that is 18k a year that could go toward a down payment. 

    by the way, you usually don't need to set aside 6 months of the new mortgage in order to qualify. It is the smart thing to do but it is not required.

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  • David Shakhunov
    Investor · Sacramento, CA · Member since 2020 · 33 posts · 19 votes
    3y

    Here are a few things to consider: if you plan to sell the paid off property and use the money for down payments on multiple houses, make sure you can secure multiple loans, and that the combined cash flow from these properties exceeds the cash flow you would receive from renting a fully paid-off house. Additionally, keep in mind that having more properties will likely result in higher appreciation if that's your goal.

    If you need access to some cash, I would recommend opening a HELOC (Home Equity Line of Credit) or considering a cash-out refinance on your paid-off property and then using these funds for investment purposes. There are pros and cons to both options (HELOC vs. cash-out refinance) that are worth exploring with your loan officer.

    Rents go up so if you have a HELOC that can be a safety net till the rent goes up.

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