Keep as rental property or sell?

Question

Hello all!

I am seeing opinions on my current situation. Hopefully, it doesn’t end up being too terribly confusing.

I currently live in central Midland, TX in a 3 bed 2 bath single family home (1480 sq ft) with a value of around 305-315k and I owe 221k. I have lived in this home for 4 years now and love my 4.75% rate as well as the equity I’ve seen in those 4 years. My current mortgage payment is $2,000 per month.

My company is a great paying and flexible company that is allowing my fiance to move to the Austin area when we want to in 2025. I am currently renovating to sell (around 20k in updates). There has been some hesitation for me to sell due to the fact the rental market here is averaging $2,500 in rent for my area and property, I make great money now and have funds to cover vacancy and repairs on the home, but I would like to be able to afford a nice rental for my fiance and I to live in while we save for our primary residence.

Shoild I sell and take my profits (60-70k net) and throw into an investment closer to where I will be living or should I rent, cash flow and build equity in the property.

Thank you for the advice!

Andrew Kiel · Answer

Here's a few things to think about to help your decision.

1.  As an owner occupied home, you can sell and take the profit tax free.  This applies only if you live in the home 2 out of the last 5 years.  If you rent for 3+ years you start to phase out your tax advantage to taking the equity tax free.

2.  You're moving 5+ hours away.  It's not a lot of fun to manage a rental from that distance.

3. What is the best return on equity for your 60-70k net?  Is it buying a new home for you and your fiance?  Can you get a better return on a different investment after you move?

4. Perhaps selling with owner financing is a good way to go, that 4.75% rate is quite nice and you can likely get 7-8% with owner financing (perhaps even more).  This may be the best of both worlds scenario, some income and some recapture of equity.

Cooper Meurer · Answer

Appreciate that, Gino! I have lived in Midland my entire life and feel like I have a good understanding of the bubble this area is in with oil and gas and how it affects home prices. My experience is that it might be wise to hold. I’m definitely leaning towards holding and starting my portfolio up!

Jessica Angulo · Answer

You have to think of what position you are in and what is your main priority.

1. Could you simply look at buying in Austin with only 3.5%-5% down as a new primary residence and converting your Midland property into an investment with a monthly cashflow of $500? or2. Do you need to sell to use the funds for the move and new purchase?

I would personally do the later, keep the interest rate, and start your rental portfolio.

Mya Toohey · Answer

I think you should rent and take the tax benefits from having a rental and then buy a new home in Austin.  I am Florida and if we could have a mortgage at 4.75 I would keep it for sure. If you don't have restrictions you could try a STR or Mid term as well.  For sure, keep it in my opinion.

Cooper Meurer · Answer

Theresa,

My monthly mortgage shown above is including property taxes and insurance! I failed to mention that I will be frequently coming back to Midland for work as well as to visit family, so the distance doesn’t really bother me. If I do decide to sell the property after it becomes a rental, I believe it will happen within 24-36 months.

V.G Jason · Answer

If you're able to buy a new house without selling this one-- keep it. Demand for Midland will always be there, not sure on STR rules but if you're traveling regularly then STR it and get the tax benefits/utility from it but make sure you're not violating the occupancy stays.

Corby Goade · Answer

Some good advice above for sure.

You have a jump start on a rental portfolio, which is awesome. I look at situations like this in this way: If you saw a deal like the house you have now with the loan you have now, would you buy it? I think most people would, so I'd definitely lean towards keeping it as a rental.

Personally, I'd get a HELOC on it now while you live there and hold as a rental, hiring a solid PM to take care of it after I move. You can start depreciating, too, which will increase your net cash flow.

Best of luck!

Theresa Harris · Answer

I've not heard of mortgages including house insurance (things are different in the US).  If you have family there and may return to live there down the road (or will have a better idea after 2-3 years), then rent it.  You won't make that much from the rent (relative to what you have in the home), but the tenants will help pay down the mortgage and house prices could go up over the next few years.

Cooper Meurer · Answer

Jessica,

I believe you’re right, it would be something that weighs on me, giving up this interest rate and equity position. This is the reason for the post, we are a big budget couple and love to save money, so we could put down 5% on a primary residence in the next 6 months very easily if needed. We actually just reached a point that we have 6 months of mortgage payments set to the side and generating a little bit of interest in case of vacancy when we first move. We’re excited!

Keep as rental property or sell?

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