What would you do?

Question

Should I do HEL and rent out house? Or should I just sell?

My home is appraised for 242,000 and I owe 122,000. My rate is at 2.875%option one is to get a HEL for $60,000, use that as a down payment for a new personal home, and rent out my current home.

Current mortgage is $1,000

HEL would be roughly $600

Would hope to get $2,000 - $2,400 for my home for rent

That gives me $400-$800 profit

Or I could just sell my house for a profit and use some of that for a new down payment and have some money left over

James Hamling · Answer

You want "advice", here it is; None of the above.

This is all brand spankin new for you, and your struggling with committing. Your coming on here truly looking for assurance, certainty of a direction being "the" direction and truth is, there isn't any.

So, do the only smart thing, to get that certainty.

Go rent a place for yourself for a year.

Yes, rent not buy.

Than, dip the toes in and get your place rented.

Heck you could even do the whole round-trip with the same PM.

See, all you gotta do is make sure your rent for the new place for you is the same or less than what you get for rents on your place. Effectively making it kinda free.

Because the real reward here is experience without LT commitment.

1yr to test the waters. No need to HEL and take on added $-expenses. And if your serious about getting in as an investor you'll have the discipline to put buying the next place on back burner for just 1yr.

And as you go, rate it. Rate your experience of things.

Within 9mnths your heads gonna be a whole lot more clearer if being a Landlord is the right call, or the wrong one.

No, it won't be a guarantee of the future but your gonna know 10X more than you do now, personalized knowledge, how it is for you, to you, vs rando's on the internet yapping "do this" or "do that". Which yeah, guilty as charged, I'm one of those rando's too ain't I.

But my advice is actually that, advice, my only profit is an up-vote if ya find this of value.

I think this is the smartest way to go about it because reality is while anyone can Landlord, not everyone is good at it or can hack the life of it. It's not a universal fit, and there is a big difference between reading about it and actually doing and living it.

Knowledge is power, so take the path to get some, the best kind, real world.

Drew Sygit · Answer

@Stephen Fleming what city is your house in?

Since this sounds like it will be your first rental, one of your challenges will be - are rentals right for you? - You may find in a few years that you don't like dealing with tenants, nor PMCs.

Have you spoken to a tax professional about your potential Tax Exemption if you sell your primary? - Typically it's $250k individual filing, $500k joint.- How will the tax savings of a sale, compare to the low interest rate on the $122k?

You're really going basic on your "profit" calculations. What about:

1) Vacancy - 5-10% of the rental amount is typically used2) Maintenance - 10% is typically used, unless you have a Class C or D property.3) What will your nonHomestead-millage-rate property taxes increase to, once you convert to a rental?4) What will be the increased cost of a landlord property insurance policy?5) Depending on the property city, have you looked into the rental inspection requirements?- GFCI's, handrails, smoke detectors and other repairs may be required.

How equiped are you to advertise your rental, show it to prospects, find a rental application to use, do a background/credit check on applicants, figure out how to screen applicants, find a lease to use, find a handyman for maintenance or do yourself, etc...

James Hamling · Answer

No, re-read what I said.

This is NOT about getting a "free ride".

It's about getting certainty.

You currently have the mortgage and all that.

So if you rent a place for say $2k a month, and if you get $2k+ in rents for your other place, that put's you NET-0.....

Do you follow?

And by NOT taking out HEL $, you won't have any of that added cost.

So with this plan you get a year to feel things out at NET-0 or better.

ideally you rent your place for say $2,100 and you rent a place for say $1,800 making for a gross net of $300 which should be enough to also cover any PM fee's as well making it truly a NET-0 to test the waters to see IF, keyword IF you can be a Landlord BEFORE getting yourself "pot-committed".

Do you know who I most often buy my best deals from? Failed Landlords.

Do you know a common trend I often see with them? They jumped in from 0. Just like your considering doing.

Now certainly EVERYONE starts from 0 at some point, and obviously it was a great fit for several.    But you never hear about all the others who it DIDNT fit for, who failed out, who being a Landlord was hell.

Some people can do everything right and still hate it.

Some are horrible at selecting or managing PM's and on great properties bought right they still fail.

I know, because I buy em out all the time. Literally all-the-time.

Dan H. · Answer

I think your responses are mostly from people with minimal or zero LL experience.

Rent - piti does not equal profit.  Maintenance/cap ex, vacancy, pm, bookkeeping/accounting/tax prep, misc

Next your underwriting should use most conservative numbers.  This implies your rent point is $2k.

So $2000 (rent) - $1000 (piti) - $600 (HEL) is $400 before the missed items

$300 maintenance/cap ex

$200 pm (even if self managing, allocate for pm unless your time is worthless)

Vacancy at least $100 (I use 5% in my very low vacancy market but believe 10% is more appropriate ($200) in most markets and I include uncollected rent in my vacancy)

Bookkeeping & miscellaneous $50

I show you are negative at least $250/month.  Let’s say I am wrong and it is somehow positive $200 (there is no way it is positive $200 but for this purpose let’s say magically it is positive $200).

$2400/year cash flow

Appreciation at that price point is close to CPI so no real appreciation.  Equity paydown is hard to estimate because I do not have the initial loan amount or year started or alternatively years remaining so I will use rough guess of $500/month admitting this could be off in either direction. let’s call it $10k year total return. $60k equity.  Return would be 16.6% not bad but is still only $10k.   That is a lot of work/risk for $10k total return and remember the cash flow I used is not achievable)

It is rare for an OO to be an optimal rental property.

If you sell the gains are tax free (gains are less than the $250k single allotment).  Not sure of your tax situation now or later, but the tax savings can exceed multiple years of that meager return.

In addition having a single rental is inefficient.  How do you scale in this higher interest market?

Lots to ponder, but selling to get $120k (minus selling costs) seems tempting.  Apply the $60k to new home or you can choose to apply more reducing your payment.

Good luck

Ryan Rominger · Answer

Both options have merit—it depends on your long-term goals.

Renting it out: With a 2.875% mortgage, strong cash flow ($400–$800/month), and a tenant covering costs, keeping the property could be a solid long-term wealth-building move, especially if the area appreciates. Just make sure to factor in vacancy, maintenance, and management costs.

Selling: If you’d rather take the equity now, selling gives you a larger, immediate cash boost for your next home and avoids the responsibilities of being a landlord.

If the local rental market is strong and you’re comfortable managing a rental, holding might be the better long-term play. But if you prefer simplicity and liquidity, selling could make more sense.

Natalie Allie · Answer

Detroit and the surrounding areas are great places to be an investor.

Things to note: The bank may be uncomfortable with using HELOC funds for new debt depending on the lender, make sure to hire a quality property manager to thoroughly vet a tenant with systems in place to detect any fraud as unfortunately people create fake pays stubs etc..., rental registration is very simple in most cities in metro Detroit with the exception of a couple, but a professional property manager can assist with this to make sure the home is rent ready before the inspection by the city. When you own an investment property, you are benefitting from the cash flow, but also from the appreciation over time. Real estate as an asset has historically out-performed most other asset classes consistently due to it being a depleting asset. I hope this helps and good luck!! -Natalie

Antonio Martinez-Elizondo · Answer

Hey James, one of us is interpreting the numbers incorrectly. I do understand your point about a net 0 rental situation but in order to be net 0 he would need to rent a place for 1k if he was renting his current home for 2k because cashflow would be 1k assuming no hel was pulled because he still has a mortgage payment of 1k a month.

Stephen Fleming · Answer

Only problem is I doubt I will be able to rent my place out at a high enough price point to cover the mortgage AND however much my rent for my own place would be. Average rent in my area is $1700 a month.

If I moved into a rental at $1700 + $1000 a month for my mortgage.

With that logic I would have to charge at least $2700 to break even like you are saying. Which I can tell you with certainty I will not get a tenant to pay that in my area.

Stephen Morales · Answer

I really like this approach, way to think outside of the box.Much more risk adverse, especially with the current market conditions. That interest rate is incredible and probably never going to see that again, so there's no real point in selling if you plan on holding on to the home to get through another RE cycle. If I knew the rental market was strong in my area then I would end up taking the HEL. But I also really like James' idea.

Stephen Fleming · Answer

I’ve also played around with the idea of turning my current home into an Airbnb

There are about a dozen or so in my immediate area

What would you do?

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