Considering renting out current house

[Ashley Collins]

Hi everybody,

My husband is military and we currently own our home in Knoxville (purchased for $450k, we owe about $300,000 with 2.6% interest on 15 year loan). The market in Knoxville seems to be pretty strong and my husband saw an estimate that in ten years our home could be worth around $900k. I’m not sure where he got that. He wants to rent it because of  that estimate even though we would be losing money every month because our mortgage payment is $2700. Based on what I’m reading (2% rule, 50% rule), and the cost of property management companies; it seems better to just sell it for its current value of $550k and invest the equity. We need to make a decision soon because we move in June. Some important information:

-A large bank is planning to open 10 locations here in Knoxville 

-Buying at our next location is not an option due to high prices.

-I should add that his military BAH would cover the cost of whatever we rent at our next location and I can cover our current mortgage with my monthly income. 

Any experienced investors have thoughts on this? Should we risk renting or just sell?

Thanks so much, Ashley 

[Victor Jernigan]

Quote from @Ashley Collins:

@Victor Jernigan it's a 4 bedroom 3 full baths--one bedroom is on the main floor.  2489 sq ft. Fenced in yard, covered patio as well as uncovered patio.  It's in West Knoxville--close to where Westland and 140 meet.  

Ashley,

There are about 1,500 new class A apartments opening this year along the Pellissippi Pkwy from Hardin Valley to Topside. The average monthly rent for a 3 bedroom 2 bath will be about $2,500. This will cause some downward pressure on single family rentals. Your 4th bedroom is a plus but the 3rd bath is the real bonus. The fenced yard is a positive for small children (no added value) and dog owners ($50 month added value). You can anticipate a long term rental will be in the range of $2,700-$3,200. An equal or better option is for furnished mid-term rental which should be closer to $4,200 per month. Typical management fees in Knoxville are about 8%-12% monthly with some variable fee for leasing. Expect to pay about 20% for mid-term rentals.

Since you made the wise decision to get a 15 year mortgage, ignore any "rule of thumb" you may read on BP or any where else. You are simply paying down debt significantly faster than those who use those calculation.

Also, if possible do not sell. The market in Knoxville is increasing at an increasing rate. The for sale market may not get as high as your husband thinks, but the rental demand will be consistent to increasing for the next 5-7 years. 

Good Fortune,