Rent or Sell? Does 2% or 50% rule matter in all markets?

[Jerry Gates]

Our property does not fit into 50% or the 2% rules; but I am still in a dilemma of weather to rent it out or sell the home. Any wisdom in the matter is really appreciated.

Here are the details:

• Market: Seattle area
• Mortgage is at 62% LTV @ 3.25/30 years and in year two.
• Rent: 0.6% Purchase price
• If we sell it now, we would make about 30K on top of down payment amount after covering the mortgage, commissions, closing.

Our home is in a very good rental market and I expect minimal vacancy rate for several years. Its a newer home (Built in 2009-2010), so I do not expect big maintenance expenses for some years either. We are currently managing the property ourselves. Rent leaves us with about 400/month after covering mortgage, taxes, insurance and HOA. Should we continue renting it and consider the equity+appreciation in cash flow?

Does the 50% or 2% rule matter in high priced markets like Seattle/SFO?

Thanks,

Jerry

[Kevin Young]

Hi @Jerry Gates your post caught my eye b/c of your reference to SFO…one of my keywords.

in the bay area, unless you come across a complete fluke of a deal, you're not going to get 2%. the best i've gotten is 1.6% and for bay area standards, that's darn good. the 50% rule is just that: a rule of thumb vs gospel, but will keep you out of trouble most of the time … so a safe starting place. i've invested in markets where 50% wasn't enough and others where 50% was overstated. key is to know your market and understanding your true expenses.

in terms determining whether your home is a good investment ... that's hard to say. one would need to know what your down payment was and when it was made, all of your operating expenses, income, how long you want to hold it, projected sales price, etc. to compare two different investments apples to apples, i evaluate based on internal rate of return (IRR), which is the most comprehensive way of evaluating two dissimilar investments. it takes into account all factors, including the time value of money.

i'd suggest considering how you would reinvest your money if you sold by running an IRR analysis to see which path would create a greater return on your money … in the end, the numbers will speak. it doesn't sound like you have to sell, so i'd take time to look at other options and if you find something that would bring a bigger IRR, then sell and move your capital into that higher yield investment.