Converting Primary Residence into Rental Property (Houston)

[Eric Risi]

Hi everyone. I have done my background research on this topic in general, but I would love some specific feedback as to my particular situation so we don't screw this up. If it wasn't already clear, this would be our first foray into the rental market.

We plan on moving from Houston back to Denver. We currently have a 3-story townhome with about 2400sqft (3bed, 3.5bath) that is our primary residence in the Montrose/River Oaks area. We paid 392, owe 364, and pay 3000 per month in mortgage (including tax and insurance). Based on very good comps I think we'd come in at 425 and know with 100% certainty that we could get 3k/month in rent. We would consider selling, but after commissions and fees we'd basically just break even and get our paid-in equity back; as a result, we're thinking of hanging onto the property as a rental when we move in the next several months. Given vacancy and repair estimates, we will be operating at a net loss for at least a couple of years, which we would have no trouble absorbing. This would be purely an appreciation bet that would eventually run at a break-even with normal rises in rental rates over time. I know that cash flow is king and that real estate appreciation is speculative, but also am aware of the fact that, after a sale, even at 425, we would merely get out what we paid and the $35k in equity that we pull out would not go anywhere near the 20-25% down we'd need to purchase a better cash-flowing property in the very expensive cities in which we live. 

So, do we hold or sell?

All comments, thoughts and advice would be greatly appreciated.

Eric