Should I Rent or Sell my Primary Residence?

[Steven Ruiz]

Good Afternoon All! Please bear with me as this is my first post. I’ve enjoyed reading through these forums and am learning a lot about the world of real estate investing. I applaud all those on here helping us newbies out! I have a scenario I’d like to run by you all to see if my thinking makes financial sense.

My overall goal is to have several streams of income come retirement (still over 20 years to go). I currently max out my retirement accounts and am looking include real estate in my portfolio.

I've always wanted to keep our current residence as a rental but running the numbers with our current PITI and expected expenses I didn't believe it would make sense. Our initial plan was to sell the house and upgrade to our forever home, but due to the competitive housing market we've decided to hold to see what happens after the pandemic. With mortgage rates at record lows, I've come to revisit my vision of keeping our current home as a rental.

My 1-2 year plan would be to refinance to a 30 year Conventional at today’s rate (quoted 2.875% the other day) and hold for a year minimum due to the primary residence loan clause. Upon coming up on the 1 year, I would reevaluate the housing market to see where home prices are at. If the market turns to a buyer’s market, I would list our current residence as a rental and purchase a new primary residence.

After talking with a few lenders, our biggest hurdle would be acquiring enough cash for a down payment to stay away from a jumbo loan (anything over $765k). To avoid this hurdle, we are also considering a cash-out refi (pull out $100k) and use this money to assist with the down payment of our new home. We currently have about $200k that could be liquidated for a down payment.

Running a quick market analysis via Rentometer, market rents for our residence would be $3400. Based on my estimations both refinancing situations would cash flow (minimum of $500 a month with the cash out refi – Assuming 5% vacancy, insurance based on online quote, 10% maintenance). I do plan on utilizing an agent for tenant screening and placement, but managing the property myself. I also understand there may be some other costs that may eat into the cash flow and am hoping you all bring those up.

Thank you for your time!

Current residence

4BR/1.75bath

1,600sq. ft

Located in Orange County, CA

Approximate value $750k

Current Mortgage

$2,655 PITI

3.75% rate

Estimated loan balance $322k

Refinance (No Cash Out) at $322k

2.875%

$1,948 PITI

Approximate $2000 in fees

Refinance (Cash Out $100k) at $422k

3%

$2,392 PITI

Approximate $3000 in fees