Keep house on the market, or rent it out?

Question

I currently own a house I purchased in Jan of 2018, for 92,000 when I got it; it needed serious work and so over the course of the last two years has been completely remodeled and now has a value of around 230k. I moved and listed the house at the end of March, had a contract almost immediately but it ended up falling through due to the buyer not selling their house. Anyway, I haven’t had any offers since then and showings are few and far between due to COVID. My question is this; I’ve had interest from a couple wanting to rent it for a year long lease due to them having just sold their house and needing somewhere to live while they build. I priced the rent at 1200 a month, and they jumped at it. My mortgage payment is 730 so it would definitely be profitable, especially since I could refinance for a lower rate once it isn’t on the market. I know the couple and they are extremely trustworthy, so worrying about good renters isn’t even a concern.

Mainly looking for opinions here. I REALLY want to sell the house since it was a flip and I hope to make a decent profit, I just don’t want to continue to pay for a house that’s empty, but I’m also concerned I will miss out on a lot of opportunity if I decide to rent it and take it off the market.

Jenni Utz · Answer

If I have an investor looking to sell, but not getting many bites, we put the property on the market for sale and for lease at the same time. It gives more flexibility on options for our client. If a lease comes through and the client likes that option, we remove the "for sale" listing, and rent it out for a year. The client has the option in a year to try selling again, or renting it out. But as @Joe Homs mentioned, you could refinance the property, after renting it out, get the cash out, and use that money to purchase your next property! Best of luck!

Joe Homs · Answer

@Savannah Watkins sounds like you have a perfect BRRR (Buy, Rehab, Refi, Repeat) going there. Keep it and go find another.Good Investing...

Joe Homs · Answer

@Savannah Watkins hold the horses. I thought this was a rental for two years, but I see that it was your primary. I change my opinion and suggest that you sell it now. Since its your principal residence there will be no capital gains taxes on the sale. Sell it, then go out and find something else.Good Investing...

Whitney Hutten · Answer

@Savannah Watkins This is a tough one. I vote sell. Why? I bet your return on your equity has plummeted with the force appreciation. You can take that equity and spread it across multiple properties now, repeating the process. Now, you mentioned that things aren't selling due to COVID. I agree things might be harder, but there is a fundamental reason it's not selling. Is it priced too high? Is there an issue with the layout? Get to the bottom of this and understand how you can move the property. And, if you can't sell, then leasing is a great fall back to hold for a year or so to cover expenses :)

Josiah Patrick Zebarth · Answer

@Savannah WatkinsHey, SavannahIf I were in your shoes I would want to rent it out. Collecting on that passive income and gaining by making the gain more tax savvy. Make sure the numbers work and go break some eggs. :)Best, Josiah

Barb Asay · Answer

@Savannah WatkinsMake sure you're "definitely profitable" after you account for debt service, taxes, insurance, maintenance and something for either a management company or your own time... Not just the mortgage. After renting it out for awhile you'll most likely have some touch ups, at minimum, before you list for sale again which I would also consider. But its possible your paint, flooring etc could get tore up. Appliances break. Etc. Getting it back on the market after a tenant can be a costly pain. Just make sure to account for reasonable unknowns.

Savannah Watkins · Answer

@Marci Stein that’s definitely my top choice! I’m just wondering if it will sell because of the virus and people not really buying in my area right now

Marci Stein · Answer

You answered your own question when you said you really want to sell - why not do that?

Joe Homs · Answer

@Savannah Watkins the rules are that you must have lived in the property for 2 of the last 5 years, so you can rent it out for the year and still be in the rules to declare it as your principal residence.

Pat L. · Answer

One of my biggest regrets was selling when I thought I had to, but these days it's a tougher market. We rarely sell anymore.We gutted a ranch & after the work we had a friend drop by to look at it & she offered to rent it for way more than we though it was worth. She also offered to paint it as we only had primer on all the walls & then she upgraded all our basic HD light fixtures, faucets, then had her own 'better' kitchen backsplash installed. She stayed 5 years, moved south & left all her appliances, patio furniture, BBQ etc so it rented again quickly. That was 10 years ago & now we have a young Veterinarian renting from us. I think we only just replaced the washing machine & just replaced the original 25yr old a/c condenser. No other expenses since the rehab.