Is Renting right for our situation or should we sell?

Question

Hey All!

New to bigger pockets, but looking to get the communities input. A friend suggested I ask the community. We have a 5 bedroom, 3 bathroom house in the Arden Hills area with a garage that can fit 4 cars! We're potentially thinking of renting out our current house worth 400k and could rent out for 2.8k, with 160k left on the mort. and have a property manager [interest rate of 3.875%]. Our current house is picture perfect, we put 60K into the house over the 7 years have lived there and fixed everything (If we sell we could get top dollar right now). We just bought another house for 540k and currently have enough to put down 35%, however, the monthly payment is still 2.8k on the new house (ouch). I'm the main breadwinner making 70% of the 9k income. Our monthly expenses are roughly 5.5k not including the mortgage payment of our current house $1,450. We also have a second kid coming later this year. Are we potentially taking on too much risk if we rent? Are we overthinking it? I really appreciate the communities input.

Denver McClure · Answer

Hi @Scott Hawkins, I'd need more data to give you a better recommendation, but from what I can tell I would probably offload your Arden Hills house as it may not be a strong enough rental to hold during a time that your budget may be crunched with a second child. Just because the expected rent is higher than the current mortgage doesn't necessarily mean you won't have negative cash flow each year after factoring in vacancy, PM fees, maintenance, and capex. I would run a report on that house as if you just bought it today and evaluate it as a new rental opportunity. Feel free to reach out if you need any help!

Jeff Nash · Answer

@Denver McClure would be a good resource for analysis.

Scott Hawkins · Answer

@Denver McClure and @Jaron Walling I appreciate both of your insights on this. After posting and thinking about it more this past weekend we are moving forward with selling. Getting the equity out and sleeping well is going to be big this year with a second kid later this year.

I really appreciate it.

Scott

Jaron Walling · Answer

@Scott Hawkins "we put 60K into the house over the 7 years have lived there and fixed everything" - We need more information here but your statement is a classic sign of over renovation. Owning rentals sounds great and sometimes looks great on paper but once you get tenants in there and the place gets damaged come back and tell us your experience. My wife and I are in the same situation. We already purchased another primary and plan to list our current one asap. The potential damage to the kitchen and bathroom as a rental is scary. We added a dang coffee bar. Other aspects of the renovations we completed don't even boost rent. The cash-flow simply isn't worth it.

You made the choice to buy another more expensive house (as did we). Unless the cash-flow is fantastic I'm selling, taking my equity (Uncle Sam free), and sleeping good at night. You can always find/buy/create the next opportunity once the baby and family are settled at the new house. Holding that rate shouldn't be the main deciding factor here.

Is Renting right for our situation or should we sell?

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