Should I sell my home or rent it out?

Question

Hi,

I’m starting my Real Estate Journey where I’m currently reading books, watching webinars, and reading forums to increase my knowledge, and I’m trying to decide whether it’s better to sell my home or keep it as a rental. Here’s the info on home:

We purchased a new home for 700k about 5 years ago. The value is a little below 800k now. It’s 3bd 3ba, with ability to convert loft into a 4th bd rm. mortgage and taxes will be about $3050. Hoa is $100/mo.

The avg rental for similar properties is ~$3000, so without expenses, it doesn’t look like we’ll cash flow if any. Wanted to see if you guys think it would be better to sell, or rent.

Account Closed · Answer

@Matt Bucklaew closing cost is paid by buyer. he’s lived there for 5 years, no capital gains tax... no 1031 exchange needed.

Dave Foster · Answer

@Jimmy Hung You cannot use the 1031 exchange because it is not investment property.  But because it is your primary residence and you have lived in it now for at least 2 years you have the opportunity to sell and take the profit tax free.

You could rent it out for up to three years and still get that benefit.  But at the current appreciation and given the low cash flow I wouldn't recommend it.  In addition you need to assume that tenants will not take as good a care as you would.  And there will be costs to make it ready for sale.

If your'e inexperienced and not adding bathrooms or kitchens you will probably lose money on a loft conversion as an increase in value.  There's a steep rookie tax for those things.  And going from 3-4- bedrooms just doesn't add value (especially if the space is already there just not finished).

Sell and take the money tax free.  Don't create a marginal investment with more debt.

Abel Curiel · Answer

Hey Jimmy,

I think this all depends on your goals. Assuming it is now worth $775K and you have some more equity from paying down the mortgage over the last 5 years, what would you do if you sold the property?

If you're looking to move into another single-family property, would it be worth it to have another mortgage while having to put more $ in your rental property each month?

Your property has been appreciating about 2-3%/year, the rental income would just break even or leave you at a loss and that may not be enough to bank on moving forward.

That being said, it seems as though selling makes the most sense here.

Best of luck to you on your next move!

Abel

Theresa Harris · Answer

Unless you have reason to believe the market is going to increase, I would sell.  You are barely covering your mortgage and you will have insurance, maintenance and repairs on top of that along with vacancies.  If you want to get into rentals, I'd buy a home for the purposes to renting it.  You will look at it differently than your home.  Perhaps you can find a duplex?

Account Closed · Answer

@Jimmy Hung no... how much will it cost you to convert the loft into 4th bed? I still think you can get a better cash flowing property with the profits...  100-200 cash flow on an 800k property doesn’t sit well with me. Just my opinion.

Account Closed · Answer

@Jimmy Hung SELL! Why would you want to lose money every month? Use the profit to invest in something that PUTS money in your pocket every month.

Calvin Ozanick · Answer

I lean on the side of keeping real estate unless you need the money. Here is how I look at it. You are currently owning and enjoying the property while losing all of that money each month. If you can afford to move somewhere else, while also adding $3,000 per month to your income, then it seems like it makes sense to keep it. If you need the money to dive into something else, then I would say you should sell and find your next endeavor.

Zoé Effa · Answer

It sounds smart the advice of @Jenny Sayavong. Think deeply about this option @Jimmy Hung 'cause you are here to make money to lose, to build asset, not liability. Good Luck!

Andy Freeman · Answer

@Jimmy Hung

I was in a similar situation. I kept my primary and rented it out for basically breakeven. The principal pay down is around $900 per month but definitely no cash flow. I used a HELOC to tap into $100k of equity to help with down payments on rentals, but now I want access to more of the equity to continue buying deals, so I’m wanting to sell it once my tenants lease is done. There’s really no right or wrong answer.

Steve Dillner · Answer

Hi @ Jonathan Watt, have you considered selling on a rent-with-option to purchase? I sold a home this past June and got higher than market rent for the area, plus my contract was written so the tenant pays for all repairs. I give a $300/mo rent credit to apply towards the renters future down payment and I was paid “option consideration” funds of $10k that are non refundable if they do not purchase the home within the next two years. You could sell your home and get some experience as a real estate investor using this method and earn a cash flow (maybe charge $3500/mo).

Good luck on whatever path you choose.

Steve

Should I sell my home or rent it out?

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