Sell It or Rent it- HELOC Short Term Safety Net for Rentals

[Anthony Parsons]

Hello.  Your advice is greatly appreciated!!  I'm trying to determine if I should rent my current home or sell it.  What I'd prefer to do is rent it out for long-term purposes as I am 43 and this will pay my future home off when I retire.  If I sell I can make about 50-60k after fees.  Scenario upfront, questions at the end of the post. 

I don't have any debt and have good credit (low-mid 700's) but limited savings after recently paying off a card. I make a good salary (160k) and my current mortgage is $1900 at 2.25%, I believe I can rent it for $2400-2500. In 3 years I will have over $2500 additional monthly due to child support ending, and I am curious in the interim if a HELOC is a good backup plan should renters default or the market crash and I have trouble renting. Once I initially move this summer I will have enough to cover both properties monthly should I have to, but it would be tight. I'm trying to figure out a safety net.

 So A) Sell it and make 50-60k or rent it and B) Is Heloc a good safety net?  

Again, thank you for the feedback. 

[Tim Polk]

If you rent your cash flow will be almost zero once you factor in cap x, vacancy rate, maintenance etc.  If your looking to just hold it for appreciation than sure, 2.25% is a great rate.  If you're going to sell though I would do before you get outside of the 5/2 rule.  ie your primary residence for two of the last five years to avoid any capital gains.  

HELOC's are great, especially if it's your primary because sometimes you can get 90%-95% LTV and use it same as cash, write of the interest. However, they can be called back. So if you take out $100k HELOC and leverage it all, economy tanks, someone at the bank has a bad day, the world freezes over, all dramatic but you get the point they can call the loan due leaving you with a $100k bill you need to figure out how to pay off.

Could cash of refi but your monthly is going to go up and their is a cost to it.  Hope any of that was helpful