Should I sell my first home or rent it?

Question

Hi all! First time homeowner here (since 2020)…I really want to move out of my current home because it is too large for me and my two dogs and I hate cleaning so much space (refuse to pay someone to do it haha)

it's a 3BR/2.5BA, two stories, 2565 sq ft on a 7000 lot with a huge pool in the backyard. I got a 2.8% 30 year mortgage (main reason why I haven't sold it yet, even though I have a bit in equity now, thanks to appreciation- I think it could sell for about $380k today, but still owe $246k out of the $271k I originally borrowed ). I'm torn between selling it and pocketing that equity, invest it in index funds, my Roth IRA, and keeping some in my HYSA, etc. BUT I also know that I probably won't get such a low interest rate again in a very long time 😅 so I don't know what to do. To sell it or rent it? I think I could probably rent it for $2500? I live in Spring TX

for reference my mortgage, taxes, and insurance are $1840 each month, $385 per year in HOA fees

V.G Jason · Answer

You're asking a question about what to do, but you really haven't mentioned what you want to do with it?

I get the downsize option, but have you looked around and seen the pricing for that? Does it make sense? It's likely you'll pay more in PITI to downsize, is that worth it to you? Is this an emotional and preference thing or a true need?

Look at the end goal, work backwards. One option may just be renting a room or two out, if it's too big and you got a great solution. But again, I got no idea what the purpose of this is beyond downsizing.

Ke Nan Wang · Answer

I don't know your personal situation, goals and motivation.

Personally, if I were single with no kids just by myself and my dogs, I would rent out the rooms and live in this house since you said it's too much space for you and it's a two story house.

You are in a great financial situation now so you can be very picky. Figure out your boundaries and look for the best candidates who can be your roommates. You aren't subject to fair housing if you are house hacking.

I would use the rental income to hire a maid service to do weekly cleaning for me.

Alacia Mahnken · Answer

I think to better answer this question for your specific situation, I would like to know where you'd plan to live and the cost you'd acquire monthly for your new living expenses. Are you going to rent or do you have enough money saved up for DP and closing cost to buy a new property?

Mason Vitalis · Answer

A lot of people chase cash flow, but the reality is that even if you just break even while renting it, you'll still be making money through appreciation, depreciation, and loan paydown. If your goal is to become financially free quickly, your best bet might be to sell and buy something you can house hack but if that isn't an option, keeping this house rented for the next 10 or 15 years could essentially retire you so long as you can find a way to avoid losing half of it to taxes.

Gustavo Delgado · Answer

keep it and rent it.

Chris Kersey · Answer

@Jessica Perez Velazquez I love the Spring Market and used to live up there for 4 years. I still have one rental near 2920 and 45 that does well. My vote is to keep the house and rent it out. Spring has continued to appreciate nicely.  The problem is getting ahold of the trapped equity you have in the home. Have you thought about getting a HELOC on the house while you are still living there to utilize some of your equity?  This won't allow you to access much (roughly $30-45K depending on lender, I use CUTX) but it's still good to have that option available if a great deal comes up.

The other option of selling the house and investing the tax free gains is also on the table. You just have to factor in the returns from what your invest the money into this was VS how the rental house would perform.

I'm a Realtor and manage my own properties so feel free to reach out if you have any specific questions about your market or need a CMA run to see what your home could sell for or current market rent is.

Will Braden · Answer

You should definitely NOT sell. The most valuable part is your interest rate and in 10 years you’ll be so happy that you didn’t take the short term quick cash. This one house could propel you to wealth so please think this through. If you have any questions on the calculations or a strategy, please ask me. I’m an investor in The Woodlands and a mortgage broker.

Whatever you decide, great job securing a house with such a low interest rate and good luck!

David M. · Answer

@Jessica Perez Velazquez

Are you still local to the property?

What was the purchase price of the property?  You have less than $100k of appreciation it looks like...

$275/mo net isn't too bad...

If you really think that it will appreciate, then it is worth it rent out.  Of course, you'll just deal with the taxes (including on depreciation) when that times come.  It doesn't look like you would be getting much from the sec121 exclusion.

Not sure how selling this property would get your more funds into your Roth IRA, unless it just because it frees up money to make the contribution..

If you need funds to build up a reserve / rain day fund / etc., this might be a way to go...  You will need, or should have, an existing reserve of funds to service this potential rental. So...

My pet peeve is comparing a single rental property with either index funds and/or a HYSA...  Not because they are different investment classes, they are an apples to oranges comparison.  They are basically opposites.

While I am guessing the pool is common in TX, just remember that its another significant liability when having a rental.

I guess the other aspect is to you really want to be a landlord?  If you don't, no reason to make this property rental just because of the low rate.

Think about this transaction as a matter of opportunity cost.  Where do you want to take the risk?  And where do you think you can make a better return?

There is a bunch of stuff to muddle through.  Hope this helps, and happy to chat.  Good luck.

Theresa Harris · Answer

You do have a good rate, but as the house has also gone up $100K, you need to think about tax implications as well.  I'd sell it especially as it has a large lot and a pool (while some tenants love the space and pool, many are not prepared to take care of it).  Put the profit from the home into a low risk investment or use it to decrease the amount of the mortgage on your next home.