Sell house or rent it out?

[Account Closed]

In 2011, I bought a house for my father to live in. He died last month and I’m trying to decide if I should sell the house or rent it. I have no real estate investment experience.

2 BR, 2 BA, single story, 1500 sq ft in the San Francisco East Bay (Eastern Contra Costa) in a nice, safe neighborhood.

There’s no mortgage. It needs $20,000 in cosmetic repairs.

If I sell …

Paid = $250,000 in 2011

Current value = $485,000 (this is once repairs are done – paint, flooring, windows, etc.)

Net proceeds to me = $ 385,000. ($485,000 – 5% commission - closing costs – repairs - taxes on capital gain = $485,000 - $24,250 - $3,000 - $20,000 – $52,750)

If I rent it out…

For cost, I’m presuming I hypothetically just sold the house and now, looking at the house as a new purchase, it costs me my proceeds of $385,000 plus the $20,000 I need to make in repairs.

Cost = $405,000

Anticipated rent = $2,500/month = $30,000 per year.

Annual expenses are 52% gross rent (including property manager):

Net Income = $30,000 - $15,600 = $14,400

Cap Rate = 3.56%

2% expected appreciation = $405,000 x 2% = $8,100

Total return = ($14,400 + $8,100) / $405,000 = 5.56%

How does this compare to other Northern California real estate deals? If I take the sale and put the $385k in a stock mutual fund, the return seems like it would be equivalent. Diversification would be a pro for renting it; more work and liability the con.

I’m kind of on the fence.

Am I missing anything? Is there anything else I should be thinking about?  

Any opinions?  Thank you so much for your advice!