What should i do with my first home? Sell vs Rent

Question

Im 24 and looking to change my future. Im going to be moving but i cant figure out if i should sell my home (which is my first home) or rent it out. After i lose my homestead to rent it out the morgage will be about 1815.44 a month including taxes/escrow, intrest, payment.

I purchased this home at 198,500.00 it is now valued at 232,000 minimum and i owe 186,668.73 remaining on the home.

In short is it best to sell this 2 year old home thats in a developing neighborhood or should I create my first rental with this home?

Ben Bolingbroke · Answer

Hey @Alex Guerrero, I am 24 as well!  I think this depends a lot about what your goals are for the future.  For me, I am always looking to build passive income, and that means that I would keep this house as a rental.  But it would depend on how much you can get in rents for the home.  If you do sell, what would you do with the money?  Buy another house?   I think renting it out as your first investment would help you to gain a lot of experience in how to manage and run a rental, and help you to get a feel for what is needed to buy more properties.  And maybe you even rent it out for a year and then sell it, but whatever you do, you have some good options.

Joel Allen · Answer

@Alex Guerrero

A couple worthwhile things to think about as you describe your scenario:

1. About a week ago, Bexar County announced a homestead exemption to provide a $5,000 deduction from the appraised value of primary homes.  It will save homeowners $15 per year on their property tax bill, and will be layered on top of other homestead exemptions already in place for the city of San Antonio and other taxing entities’ jurisdictions.  So, not a huge impact to your numbers, but good to be aware of.  Source:  Bexar County's homestead exemption to cut $15 off property tax bill (sanantonioreport.org)

2.  When you're running your numbers to determine your sell vs. rent decision, keep in mind that if you decide to keep the home and rent it out, you'll need to switch from a homeowner's insurance policy to a landlord insurance policy.  In general, landlord policies cost about 25% more than a homeowner's policies.

Neither one of these may drastically alter your decision, but want to make sure you have accurate numbers to work with.

Collin Corrington · Answer

@Alex Guerrero

I’d say rent it out. Wealth isn’t about how much you make it’s about how much you can keep.

But it depends on what it could rent for. If it’s a loss can you absorb it?  Are you accounting for vacancy, cap ex, etc?

Emily Va · Answer

Hi Alex, I actually never lived in San Antonio, but when reading my refi docs I below the homestead exemption is only the first $7000 in San Antonio... and if that is correct, you can figure 2% tax on $7000 which is $140 per year, $12 per month.  Some people think it means you have $7000 in property taxes, but this is not the case.  It means you are not taxed on the first $7000 in value of the home.  It might also limit the percent that your taxes can increase each year depending on your subdivision. To give you an estimate, my annual property taxes in San Antonio are between $4000 and $6000.  They have increased about 10-15% per year, so that's $500 - $700, maybe $50 per month.  Additionally, if you believe that the county assessor overvalued your property, there is a process where you can challenge the value online.  There are services that will do it for you if you are a landlord (I receive solicitations for it every year) but I have been able to do it myself.  Personally, I would not let increasing taxes discourage you from keeping the property: increasing taxes means the property is appreciating which offers you way more value in the long term.  But that is just my personal opinion.

Emily Va · Answer

Hi Alex, I love the San Antonio area and have a few rentals there.  One rental that I bought 2 years ago was not cash flowing at the time, but since then I have refinanced it and now it cash flows and has appreciated quite a bit.  It seems that the market is still going up.  I would say if you are able to tolerate a small negative cash flow, then keep the property. If the cash flow is only a little negative, consider that you are paying down the principal on your mortgage as well and that gets you to a break even point. You will not get as much profit as you think after closing costs if you sell.  Another suggestion, market for tenants or a friend/family member to move in and if it doesn't work out in a certain amount of time, go ahead and sell it. But ultimately I agree with others like Ben, it depends on what you want for your future and if you need the cash or don't want to manage the property, then selling is right for you.

Danielle Jackson · Answer

It should come down to the numbers, also taking into consideration closing costs/fees when selling.

Have you done research into your local market to identify what market rents are? There are a ton of great tools here on BP to help you analyze your deal.

Is the year over year increase from property taxes?

Eliott Elias · Answer

What can you rent it out for? Look at your 10 year plan and see if this play makes sense. Do you want to own 10 million $ in RE? Maybe keeping the house and building equity in it will help you reach that goal. Maybe selling it and finding a deal that increases your net worth and cash flow is a better play

Conn G. · Answer

You're the investor do the math. With selling, you must account for closing cost, agent fees, and misc expenses. From the looks of it, you won't get enough meat off the bone when you do sell. With renting, look at in the perspective of 5 years from now. What does the rental growth and appreciation look like in your neighborhood? Do you have enough financial stability to hold on the property if it doesn't cash flow day one?

Naz Hossain · Answer

@Alex Guerrero one thing to consider - there are two ways to increase cash flow. Reduce expenses or increase income. Since your expense is pretty much fixed you can look to increase cash flow.

Since you lived in the house, i am assuming its furnished. If you are looking to move out to another home or rent another place elsewhere, can you leave the furniture in the house and rent it out as a furnished rental? You can bring in more income that way. That is what I am doing with my primary which i moved out of recently.

Hope this helps!

What should i do with my first home? Sell vs Rent

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