Advise whether to rent out or sell my property

[Scott Kelly]

Hey everyone, 

I'm new to BP. I recently bought a new house and have listed new old property for rent but I'm having trouble deciding if its my best option. I bought the house 2.5 years ago for 195k. I put 30k into remodel. I had it appraised 3 months ago to drop my PMI. It appraised for 255k. I have it listed to rent for 2100. My mortgage is just shy of 1500. From my understanding in Texas you can't take a heloc out on an investment property so I don't see a way to take my equity out to reinvest in a future property. So I tempted to just sell it and get the equity out to invest into a different property. I appreciate any feedback, thanks in advance!

Scott Kelly

[Michael Pearse]

@Scott Kelly After doing a very rough calculation on how much money is in the deal, the projected ROI is around 18% (not including taxes, insurance, interest rate, points, ect). This was done by making a few assumptions.

1. Paid 5% down on 195K = $9,750 into the house

2. Used 30K to rehab = $30,000 into the house

3. Cash flow = Rent-Mortgage (simplification here), $2,100-$1,500 x 12 months = $7,200 yearly cash flow

4. ROI = $7,200/($9,750 + $30,000) = 18%

If you sold the house at the projected appraisal value, you would make ~$60,000 (not including taxes, realtor fees, ect)

The question is, how long would it take to make $60,000 through the projected cash flow. 

$60,000 from selling / $7200 yearly cash flow = ~8.33 years 

Now, this does not account for any tax benefits from passive income. This situation really depends on whether you want to keep the house for cash flow or sell to purchase more homes.

If you really want to hold onto the property, I would highly recommend refinancing the property to get the equity out. This will be an option if you are unable to use a HELOC. If you are eager to sell, consider finding another property you want to invest in and use a 1031 tax exchange.

Best of luck!