Should I sell or rent out my current primary large luxury home?

Question

Looking for feedback on here on whether to sell my current primary house or turn it into a rental. I have recently just renovated the kitchen with high end appliances and high end upgrades. I have also put in brand new carpet on stairs and all of the upstairs.

Here are the numbers from what I bought it for and if I were to sell and what it would get for rent:

Sell Scenario:

Purchased for $830K in June 2017

Put $60k into it, to include:

-2 New AC units

-2 New Furnaces

-Completely new kitchen/high end appliances/countertops

-New carpet throughout upstairs

-Light guest bathroom remodel(new tile floors/countertop/Painted cabinets)

Estimated sales price: $950-$975K

Estimated closing costs if sold for $965K: 2.5% commission to buyers agent/closing costs=$35k

Outcome If sold for $965k minus closing costs/commissions(only have to pay buyers commission) I would be left with a $40K profit from what I purchased it for and what I put into the house. I also put a large down payment on this house and would be left with around $338K in cash after loan payoff.

Rent Scenario:

-Estimated monthly rent:$4,500-$4,900

-Total mortgage/landscaper/pool man=$4,100

-Potential to cash flow between $400-$800 a month

-Principle monthly pay down of mortgage is $980 a month

Also since this house was built in 1989 a lot of the big ticket items are coming to the end of the lifespan, such as:

-New Roof Estimated cost: $25-$30K

-Pool/Hot tub Resurfacing/new tiles: Estimated cost of $25K

-New Fence: $7K

-New Windows: $25K

Total Estimated upcoming expenses in the next 5 years=$85K

With all of that being said looking for input on whether to hold or just sell and move on.

Here are some pictures of how it looks now

Nick Kravchuk · Answer

@Jay Hinrichs  great points to consider, thanks. Not 2 pools one large L shaped pool and a hot tub.

@Gina DiMasi Thank you! yes I have thought about the STR, but it is quite the leap of faith to spend all of the money upfront with all of the required furnishings with no guarantees of bookings and then also I don't know if I would be able to devote the required amount of time that is needed for that. If I went the Property Management route they typically charge 20-25% which would eat all of the profits.

@Theresa Harris good points to consider, however I have found in San Diego that tenants here will pay a premium for a nicely upgraded rental home, but the cost of the roof and other expensive items worry me that it will take me years to recoup that investment.

Jay Hinrichs · Answer

2 pools ?

most will tell you that you have 350k locked up to generate maybe 6 to 10k in cash flow. So most would say sell and buy better cash flow.. Flip side is you have good paydown at 1k a month and tenant does that.. also is there some upside maybe the home is worth 1.32 to 1.4 in 5 to 7 years.

Ease of tenant most likely 5k a month tenant is not having a gaggle of 700 a month tenants..

so some thoughts.

Theresa Harris · Answer

@Nick Kravchuk  Using your numbers and the $85K in upcoming repairs over the next 5 years ($17K/yr), your 'cash flow' excluding property taxes and insurance are closer to $50-450

rent: 4500-4900

mortgage/pool maintenance/landscaper -$4100

property taxes -$XXX

insurance -$100  (guessing it is more than $1200 per year for that size home with a pool)

repairs over 5 years ($85K) -$590 per month

Theresa Harris · Answer

A tenant won't appreciate all the nice upgrades and if you factor in repairs,management fees (if you aren't doing it yourself) and property taxes and insurance, your cash flow disappears.  You've put a lot of work into.  I'd sell it to someone who will appreciate, and pay, for the upgrades.  In a few years, how much will you have to put into those items nearing the end of their life?

You can always use some of the cash from the sale to buy a purpose bought rental property.  By that I mean run the numbers before you purchase it.  When buying a home for ourselves vs a rental, we uses different criteria.

Gina DiMasi · Answer

Hi @Nick Kravchuk,

Your house is absolutely stunning! I think it really depends on your real estate strategy & whether or not you are OK dealing with tenants.

In my experience, especially in a luxury home like yours, the tenants really wouldn't be causing you any headaches. They would probably be the most ideal tenants, paying on time and not destroying anything.

I would try to rent it first, unless you are second-guessing becoming a landlord.

My last question is - have you considered short-term rentals? This place would literally be perfect for it, you could easily make the monthly mortgage payment in less than half a month of it being rented in SD's market. This would allow you to pay your monthly mortgage and cash flow more than enough (even put some aside for the future expenditures coming up). If you're interested in this option, I am more than happy to give you all of my resources/contacts- I have had great experience doing STR in highly sought after areas like SD.

Should I sell or rent out my current primary large luxury home?

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