Should I rent my home or sell - not sure if BRRR is best

Question

I have my primary sitting unoccupied (moved in with someone) and I want to purchase another property for STR. I’m not sure if I should sell or rent the house or if there’s another possibility. I bought this house 6 months ago at 214k and I’ve had offers to sell at 254k. Rent could easily be $1600 with mortgage/insurance at $1190. I want to buy land to build on and could use the funds from sale to help with that purchase, but I’m torn bc the house seems to be a great investment and has the potential for good income (I think). I’m not sure if refinancing this early or if I’d get enough cash out is the right move or if it’s an option really. Any suggestions on what I should do ? I would love to buy something this summer/fall, but I’m not opposed to waiting. Thank you for your opinion and insight!

Colleen F. · Answer

@Buddy Platzke

Welcome to BP!

Is it a good rental?  Evaluate the  location and run the numbers including capital expenditures and property management. If so what kind LTR or STR? Is it in a neighborhood that would attract long term or short term rentals?

Financing:  Keep in mind you bought as an owner occupant and your interest rate and down payment would reflect that. If you go to refinance it would be as an investment property with 20% down and higher interest.  This does not account for the fact if you make it a short term rental that might make refinancing different down the road. For a short term rental you also have to consider an amount for furnishing and management.

Selling:   As far as selling it is about the numbers and your goal.  If your goal isn't to own a rental in this area then regardless of the numbers selling should be in the plan at some point.   The market is up so the best point might be now.\

Hope that helps!

Colleen F. · Answer

@Buddy Platzke  yes that is the owner occupant exclusion.     If you meet the criteria when you sell then you can exclude the gain. If you wait and sell you pay capital gains tax on that gain. However, I forgot you said you bought it 6 months ago so if you sell you pay 15% capitol gains regardless unless they increase it which they could do because you haven't lived in it 2 of the last 5 years.

Buddy Platzke · Answer

@Colleen F. Owner occupant exclusion?

Buddy Platzke · Answer

@Colleen F. Selling now (before two years/capital gains tax) - any way to avoid paying that? I thought if I sold and bought another property that I would avoid tax implications

Colleen F. · Answer

@Buddy Platzke so you don't need the money now but your ultimate goal is to sell?  If its basically new now , renting is going to take a toll. You will need to paint and possibly re-carpet (if you have any) on turnover. You will also account for depreciation when you sell so your gain on paper will be more (but don't forget the owner occupant taxable gain exclusion on your primary if you lived in it 2  of last 5 years before you sell) Your calculation of 1200 expenses -1600 rent  needs also needs to include  5% capex 5 -10 % property management and any other expenses, lawn care ect.  You need to get a landlord insurance policy if you rent it. The remainder is your cash flow. Look at rates of appreciation  for your area see if they justify holding  or If you maybe want to give it a year because of concern on your own situation may change you could rent it. Really though if you are selling in the next few years  I would sell now to take advantage of owner occupant exclusion. Personal situation or killer appreciation might make a difference though.

Buddy Platzke · Answer

Also worth noting that I believe the house is in a good location in which the demand for housing will continue to grow and expand to the area even more regardless of what happens to the market as a whole

Buddy Platzke · Answer

I don’t THINK I could either. So assuming that is true, my question is it best to hold onto the house and rent it (1190 for mortgage, escrow, ins) for 1600… or sell and maybe make $20k? I would like to buy another property, but we qualify for a third home at 3-350k and I have the down payment (would be comfortable with that purchase as long as my house stays rented and no major repairs) (the home really is basically new)

Holding on to it would benefit me in what way? Good appreciation sure, but renters are tough on things - is that possible repair list worth the appreciation and management duties?!

Colleen F. · Answer

@Buddy Platzke  I don't know if you can get a home equity line of credit, i would think not with such a short length of mortgage. Also they will ask you what you want to do with it.   You can not get a home equity loan if the house is for sale.  Selling is the best money out plan if you are sure you can find land.

For STR, Did you go on airbnb?  Or if it is still furnished you could do something mid term for traveling health professionals until you have decided about sale.  Renting out part of the house to traveling health professionals, interns etc. It may not cash flow well if you do this but it would cover expenses without a big commitment. Just throwing out ideas if you aren't sure about sale.

Buddy Platzke · Answer

It’s a great long term rental area. Great appreciation too. I’m hoping to buy land within the year so renting long term is tough bc I think selling in high demand is a plus right now, but who knows next year and I’ll want to have the funds to help before then. I’m wondering if there’s a way to get cash out of it before selling

Should I rent my home or sell - not sure if BRRR is best

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