Sell or rent out primary residence?

Question

First time poster. Background, serving in the military, spouse, kids, pets, etc. “Overcorrected” from being stationed overseas in small home for 3 years and bought the big house with a pool in Southeastern US 2 years ago (I just started listening/reading about FIRE and real estate investing ~6 months ago…wish I had done that sooner). We’ve laid down some roots with my spouse’s business, but it is likely I/we will have to move one more time in 2-3 years, prior to fully retiring in 2027 (if I have to move, family will stay here or we’ll leave and spouse will return ~once per month for a week at a time to maintain business). This may be our “forever” area depending on success of wife’s business. I also have a goal of starting small multifamily investing within the next 6 months. For my question regarding our home and whether to sell or rent out…it’s too much house to clean, way more square footage than we need and too much in utilities. We aren’t struggling to pay our bills, it just seems wasteful at this point after discovering the concept of FI. For the details…

Owe $378,712 (just refinanced to 3.25% 30/yr fixed VA); need to put $5,000 into house = $383,712

Updates needed: pool liner $3,000; re-paint kitchen cabinets $2,000 (bad DIY “update”)

Likely sell price $410,000 (up to $430,000…but staying conservative)

$410K: $385,400 (after 6% realtor commission); $382,000 ( after $3,400 towards closing)

$383,712 - $382,000 = $1,712 out of pocket to sell

Rent = break even with mortgage, insurance & property tax

Maintenance, capital expenditures, vacancy = $4,000 annually ($333/month negative cash flow)

$625/month going into equity from rent - $333 expenses = $292/month overall “benefit” of renting out towards mortgage principal

-House is at/above average for the area, so rehabbing/improving not beneficial

-“Gaining” $4,000 in equity per year, not taking into account appreciation/depreciation

-Selling doesn’t really free up any capital

-Selling would allow for regaining VA loan benefit

-If we sell/rent, we’ll likely buy a home for half of the cost of this one, which will be more profitable to sell/rent when we leave

Frank Procopio · Answer

I have over 50 units now and I can tell you the most difficult one to ever rent out was my first personal residence when I upgraded. I had such emotional ties to it that it became a problem for me personally. I ended up selling it and cashing out. Just couldn't watch tenants do damage to it. Plus if your goal is to invest further that will free up alotnof your dti so that you can invest in properties that will cash flow more

Wes Waggoner · Answer

@Mikael Winkler

Thanks for the insight. I was kind of thinking that as well since it’d be nice to have a relatively safe way to get into my first rental property. That may create some momentum for me and shake off the newbie jitters. If I decide to go the rental route, this would likely be the first property I’d sell after acquiring a few more rentals to free up the DTI. Thanks again!

Mikael Winkler · Answer

@Wes Waggoner DTI that @Frank Procopio mentioned is a great point. That's a lot of debt coming off the books, in addition to freeing up your VA loan.

Something else to possibly consider, though. Renting it out will also give you experience in managing a rental property ahead of beginning your investing journey into multi family. If you planned on self managing in the future, renting out your primary now could give you valuable insight into what to expect.

Justin V. · Answer

@Wes Waggoner

So it will rent for how much and cash flow how much? How much for a pm?

Is there something you would you rather use your va benefit for? I’m not familiar on if they can be used for 4 plexes.

With the wasted space and “fire”, is there wasted space you could rent out for additional income should you continue to occupy it yourself?

I’m assuming you planned to keep it a bit when you refied. If it doesn’t/can’t fuel your dreams as well as other properties can  and you aren’t attached to it, by all means dump it. If you aren’t sure, I’m assuming you could wait to decide (homeowner exemption/capital gains)

Mikael Winkler · Answer

@Wes Waggoner that may be a great way to go about it. If you hold it as a rental for a few years, as you build your portfolio, you get the experience, but also the mortgage is being paid down still by the tenant, along with appreciation. When you sell, you'll clear that DTI and also maybe walk away with a bit of cash!

Wes Waggoner · Answer

@Justin Voegele

Thanks for the comment. I’d manage it myself for now as I’ll be in the local area for another 2 years or so. Cash flow would be about $0. With the small kiddos in the house, wouldn’t go the rent a room out route. Renting it would simply “break the seal” for me as a rental property owner. Thanks again for your thoughts!

Wes Waggoner · Answer

Frank, thanks for your consultation. We make a decent income, but didn't really consider DTI (just had to Google it actually). Given that I am in the military, I'm not really emotionally attached to material stuff since I move so much, but I hope to eventually be attached to a property or a business as that'd mean I'd finally commit to some sort of permanency. Appreciate your insights,

Sell or rent out primary residence?

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