Sell or rent home in low rent/high cost market?

[Phil Jones]

Hi BP! 

I have a home in Austin that I've been house hacking for a while. My tenants moved out and I am likely not going to be staying there. I figured at first I would rent it out, but once I ran the numbers I wasn't so sure.

The house has appreciated a lot (it's worth about 325K and I owe less than 60 on it) but my research suggests it would only rent for about 1800 a month.

While it would cashflow fine since I owe so little on it and my mortgage is low, it doesn't seem like a good return on equity. 

I'm not sure I'm looking at this in the right way, and I'm curious what others think.

Does it make sense to get such a low return on equity in hopes of more appreciation, or should I cash out and invest in properties with a better rent/price ratio?

Thanks in advance! 

[Will Pritchett]

@Phil Jones this is a great question and a great problem to have!  I think a lot of this comes back to what your overall goals are.  I think if you just want one rental and want to pay it off, you are very close.  However if you want to grow your portfolio and scale (and don't abhor debt) you have some great seed money there.  If you've lived there for two years, a sale should bring you tax free gains which are pretty hard to find anywhere.

We are in San Antonio and although not far geographically, our market is very different from yours. We have been repositioning our portfolio a bit and have sold some houses that had appreciated and were not cash-flowing as well as some lower priced rentals we had. We had too much "dead equity" and decided to buy more 100-160K ARV houses that would cash flow much better. We know that we may not see the same appreciation on these but we are focused primarily on cash flow at this point in our business. These lower priced houses rent very quickly and we have had great luck finding quality tenants for them. So for my strategy, I'd sell and redeploy the equity. But that may not be the move for you. Just my two cents. I just posted a blog on BP about how I am leaning towards either maximum leverage or paying off properties but avoiding that place where I am in the middle with "dead equity". I'd love to get your thoughts on the blog if you're interested. It may spark some ideas regarding your awesome dilemma. Congratulations on finding yourself in this predicament of having "too much equity".

Best of luck