What would you do?

Question

Hey BP Community,

My wife and I bought at the peak of the housing boom in 2022 in Austin and likely overpaid, but it didn't bother us at the time as we really just wanted to win our first home after 10 previous offers not succeeding. Anyways, interest rate is decent but not under 5%. We'd really like to move back to downtown and our house is about 15 minutes away in a good neighborhood. We're considering renting it and paying that amount in rent downtown to equal the mortgage payment. This way we are still paying the same amount, but renting the house while we live downtown. We could sell and maybe take a loss or break even, based on other listings nearby. Although our home is renovated and was appraised much higher than our purchase price.

Any advice? What would you do? Sell, Rent, or is there another strategy worth looking into?

Nicholas L. · Answer

@Brandon Rizzo

sell vs. rent: too personal a question for me to advise on.  i am just meeting you.  (nice to meet you.)

what i can help with is determining how your property might perform as a rental. so let's do that.

as you probably know, you need to factor in much more than mortgage / PITI. so:

will you self-manage, or hire a PM?  what do PMs charge in your area?  will you allow pets and charge pet rent?  can the renter pay all utilities?  what kind of shape are the big and medium-ticket items in - roof, mechanicals, appliances?  what to properties rent for in your area?  how will turning it into a rental affect your W2 income - are you under the threshold in which you might be able to benefit from passive losses?

so - some homework to do there.

T. Alan Ceshker · Answer

You have 4 choices:

1. See if it cash flows renting it

2. See if you can make dollars via conventional sale

3. See if it cash flows via seller finance wrap

4, Stay in it until 1 of the above works

Adam Bartomeo · Answer

The numbers will tell you what to do. Run the comps to see if you would profit from the sale, keeping in mind that you should qualify for nontaxable capital gains. Then run the numbers for renting to see if it will cash flow, keeping in mind that you will have 3 years to sell without paying capital gains.

Connor Hibbs · Answer

Hi Brandon,

At the end of the day it is going to be up to you for what you'd like to do.

On one hand you could sell the property and use the funds from the sale to go and look for a new investment property as you move into your spot downtown.

On the other hand, by holding the property you are building equity and the property itself has likely increased in value over time and will continue to. The, around 5%, rate is currently lower than what you'd likely find now (rates are just starting to dip back into the 5's for investment properties), but I don't think that keeping your rate here should impact your decision.

I would recommend holding and renting to build a portfolio, but I don't have all of the details and at the end of the day you should do what's best for you.

Danny Gonzalez · Answer

It depends on how badly you want to move.  Renting out the house doesn't sound like it will make money or break even every month, once you account for vacancies, maintenance, increases in tax/insurance, and turnover costs... unless I'm wrong there?  So if you're going to lose money every month by keeping the house and moving, I would say just take the hit and sell it.  It's better than spending money every month on the mortgage.  Plus it will help you avoid unneeded stress when inevitably something big breaks e.g the HVAC or turnover that's $5, $10k+.Primary homes are not the best investment, especially with the last cycle that we had.  It's an expensive lesson, but you'll be a better investor in the future because of this experience.

Brandon Rizzo · Answer

Thanks so much to all for the input! Appreciate it, you have given me much to think about.

Michael Smythe · Answer

STR or MTR?

Natalie Bender · Answer

@Brandon Rizzo

I own in Leander, and have a fantastic Property Manager. If you end up renting and want a Property Manager rec shoot me a DM.

David Krulac · Answer

@Brandon Rizzo

If the property is a good property in a good neighborhood, I think that its going to be worth more in the years to come than it is today.  If that's the case I would be inclined to keep the house.  But I am biased, I'm a big buyer and a big proponent of keeping good property.  There are some properties that I sold that were and are good properties that I regret selling.  but in general I like to keep good properties.  The very first property that I bought I house hacked, then rented entire house then sold 24 years later.  The second property that I bought, the seller had owned for 37 years and was only selling because the owner passed away.  I bought and rented out for 37 more years, and then sold.  The third property that I bought rented part, lived in part, then rented the entire property, then subdivided the property to build 17 new houses, then sold after owning 22 years.  The fourth house, I rented out then sold 17 years later.  The fifth property rented then sold 17 years later.  The sixth property rented for 31 years, then sold. The seventh house I rented out and owned for 24 years and the eight house I owned for 36 years.  So I'm biased!

David Krulac

Bigger Pockets Podcast #82

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