Good morning! would you sell or rent this place?

Question

Good morning all, hoping to get some advice and learn some new things!

Moved to NE Houston a couple years back from Buffalo NY and this area has really seen a jump in home prices. My parents had rental properties so I know a little bit about REI but not sure about my own situation now.

Bought our house a couple years ago for $90k, realtor mentioned when we outgrow it that it would be a great house to rent. Its low maintenance, nice area/schools and HOA takes care of the lawn. Would get $130k if we sold it, or about $1400/mo rent. We would be looking to move in a couple years, needing a bigger house for our growing family, but I am thinking its a better decision long term financially to rent this house than to sell and take the gains for a down payment on the next home?  Would you agree? And would you focus on paying down the mortgage over the next few years (we owe 85k) or do something else with extra money?  Appreciate it!

Mark Bookhagen · Answer

@Jennifer Henning  Another thing to consider - You won't have to pay capital gains on the sale if you have lived there for 2 of the past 5 years.

Joseph Chen · Answer

I would prefer to rent it than sell it and take the gains. Your goal is to find a house/home where you and your family can live for good. Selling it out and looking for another home is not a good option. Later on, you will realize that you've never stayed in one place. Given the house's accessibility to various establishments is already a good reason for you to keep it.

Michael Ran · Answer

hi Jen and Welcome!

I agree with @Sonny Ngo on this. If you need the down payment sell.

But a 30 year long term loan is better then what I get. I would pay market price for that kind of assumed loan! Most investors have a 5 year balloon( meaning the bank can change rates or even call the note!) which is not like your 30 year loan. You make far more cash flow with your loan for the long term.

Plus Humble(assuming The northern part) prices are really going to jump when the grand parkway gets to 59. So the best option is hold! Only if I really needed the money would i sell that house over rent it!

Now the next part of your question: (paying down the loan)

It depends on what you want. Are going into RE or is this just a one time kind of thing?

Paying down the note, would you use the extra rent to do that?

IMO- ( my math could be off)

A bank makes money when they write a loan because there are things like early pay penalties and other things to stop you from getting out of paying interest. 4% over 30 years is120% interest. That means you will pay 220% or 198k to the bank. Why give them the money?

So here would be my thoughts. You have 4 options. Pay down the loan or:

RE- I would just plow it back in to more deals as I could. It would be a great starting point.

One off- with a family, bills are always rolling in. This does not always make it easy to save. If you and/or your husband have a job with a 401k stock match.... 400 a month doubled(by company stock match make $800/mo) over 20-30 years compounded is a lot of money for retirement! You could just use your 400 for your utility bills and save in your 401k. And as rents increase, increase your 401k savings. That's better then paying it down in my opinion.

Or- 400 x12 = 4800 x18yr = 86,400 + Sales price - what you owe & fees = college fund. (I know there will be repair etc but this is just rough to give the idea) And as rents increase so does college fund. Or you could pay down the loan totaling 198k with the 400.

(Sorry for being long winded but I like these kind of questions)

That's my 2 cents! @Jennifer Henning

Sonny Ngo · Answer

@Jennifer Henning

Hi Jen,

It all depends on your current situation.  I'd say sell it if you need the money for down payment for the next house.  If you don't need the money and you have enough in your bank account then i'd hold on to it as a rental.  Good luck.

Nate Paoinchantara · Answer

@Jennifer Henning

Property as described seems to provide great cash flow. Not sure how much for the HOA but you might be looking at $400+ a month if you can rent out at $1400. (don’t forget to check the current market to see whether $1400 is still realistic)

The question back to you would be if you plan to rent it out, where would the down payment for your next house come from? What area and what budget are in your mind? If you already have some saving, that’s great. If not, renting the current house might not be an option. Also, lenders will look at your debt ration when you try to get a new loan. If you plan to rent the current one out and purchase a new one, make sure with your bank that your debt/ income will qualify you for the new loan.

Regard to the question of paying of your current loan, I would see what can I do with the money to give me a better return than the mortgage interest I have to pay. Since you mentioned you bought it couple years ago, I assumed the interest rate should be at or close to all time low. I would save the money for my next down payment or invest in something else. And that’s just me. :)

Elizabeth Colegrove · Answer

Welcome to Biggerpocket!

It really depends on what your desires are long term. We are buy and hold investors. We have bought 5 houses and all are 50-60k under market. For us taking the 10-30k profit after expenses does us no good as that is not our model. We are in it for the long term growth and cash flow. Other people would tell you to sell it and take the profit for your down payment. At the end of the day the question is do you want to be a landlord. Do you want to deal with another house. While it is work and certainly has had its moments. IT has been an amazing financial blessing for us.

Definitely check out the blogs, podcast and forums. Another great source of information is individual blogs found in peoples signatures. Many of us including myself write about our niche. The only thing we all agree about is investing in Real Estate. Beyond that there are many different style and types of investing. My blog/website is about long distance self management, landlording, investing in class A investments, investing in a transient lifestyle, etc. This would be a great resource for you if you want some incite into land lording.

Look forward to seeing you around!

P.S. This forum is more for introducing yourself. If you put your question in the buying analyst you will probably get more responses.

Jassem A. · Answer

I would rent it out rather than selling it