To rent out or sell?

Question

What are the opinions on renting out a home from out of state? My husband and I currently own our home in Missouri, but will be moving to Colorado in three months. We are very new to real estate investing and rentals, but know we need to start somewhere. The home could most likely rent out for $1,400 a month. Our fear is with our inexperience, we could run into some issues that would be better dealt with if we were living close to the rental. Should we sell and look for our first rental property in Colorado or hold onto the house in Missouri for the cash flow with the help of a property manager?

Maggie L. · Answer

Full disclosure - I'm a buy and hold investor so I'm terribly biased. There are risks, but if the numbers look good (remaining monthly mortgage, systems in good shape and no differed maintenance) a good management company might be just the thing.

A few general questions I would ask to start.

1) What does you ROI/cap rate look like on this property? How does it compare with the local market where you are moving?

2) Will keeping this home make it harder (mortgage payment potentially making it difficult to get loans in CO) or easier (monthly income and ability to pull out equity for a downpayment) for you to make future investments?

Since I work a lot with other investors (investor-friendly agent) how you answer these questions would lead to a half dozen others, but hopefully these two will steer you in the right direction.

Let me know if there's anything I can do to help.

Fred Heller · Answer

@Ashley Ruh If you own the home free and clear then it's a no-brainer. Rent that baby out. The biggest problem I run into with people in your situation is that they have PITI payment of say, $1100, and the place will rent for $1400. Between the PITI, management fees, and other expenses, it just doesn't make sense to hold on to it, in my opinion.

I would find a good property management company, and take your first step into RE investing.

Good luck!

Michael Boyer · Answer

how is the Missouri market Ashley ? I like the buy and hold rental (and congrats on getting it paid for!) but I also love a tax free sale of your home (check those rules). So if the market is a strong one in your area, I might sell and try an investment property near where I lived (as I also lean towards self management whenever possible).. But I also see how it could be a profitable rental with a good property manager. So I think this is a "good problem" if that makes sense .. You have two strong options and your personal preferences may prevail (for example, if you know you don't want to be distant owner, I would look at selling).,,best of luck

Melissa Gittens · Answer

@Ashley Ruh I would suggest using a realtor to help you with the rental process and they maybe to suggest a reputable local property management .

Wendy Black · Answer

Our first two rentals were in a neighboring state.  We want to move there at some point--and we're familiar with the areas--so it's almost been like an extension of our neighborhood.

Our most important issue has been the quality of the PMs, and by extension, the vendors.  I had to fire the first one on our initial purchase after a year.  I was doing some of their work from afar, and clearly they thought we were made of money.  We're much happier with her replacement.  On the second rental, we've never changed PMs.

If it were me, and the numbers worked, I'd say go for it.  But before you leave, interview potential PMs.  They've got  to be your eyes and ears on the ground.

Good luck.

Bryan Erlanger · Answer

Michael that is a really good point. If the house has appreciated much at all since purchase than selling it has some serious tax advantages assuming you have lived there more than a year. It is defiantly worth a discussion with your accountant.

Maggie L. · Answer

@Ashley Ruh I think @Michael Boyer is on the right track.  It sounds like you've got a few good options, and personally I'm all about house hacking :).  This also seems to bring up another important question to ask yourself - do you want to manage your rental properties?There are tradeoffs here; I manage mine now but that may change at some point. Below are some of my personal experiences; you results may vary.

Managing my own properties

Positives: I'm not paying someone to manage my properties, and I get to feel like I'm more engaged in my community.  I know my tenants and have some basic knowledge of what's going on (I have duplexes and am by every month to pick up rent).  I also have some medical issues so I do my own landscaping - it's a form of physical therapy for me and my tenants like the new flowers that sporadically show up.  Advertising things like a butterfly garden can help attract tenants.

Negatives: Time commitment.  Potential conflicts with tenants (passive aggressive emails or phone calls at unknown hours), needing to drop everything if an emergency comes up e.g. 8am garage door won't open and you need to flip the circuit breaker so your tenant can get their car out, washer overflowing because of a clog in the stack that you (or someone you call and pay) needs to clear.  Never feeling like I'm "off" and having to find someone to keep keys and be on call if something happens while I'm out of town.

A Good Property Manager

Positives: My work is minimal.  Approving needed work, checking that rent was deposited.

Negatives:  Time and energy interviewing property managers to find the right fit.  Paying a manager. Risk of the manager making a mistake.

I wouldn't treat you like some of my "purely" out of state investors since you've lived here, so you have a lot of first hand knowledge about the area already.  Not knowing your situation, you may also be back in Missouri regularly and presumably you know some neighbors who can give you updates if there are issues.  But, it won't be easy for you to drive by and check in on your property.

So, another thing you need to ask yourself is how much control you're willing to hand over to another person? Some people get involved in RE because they want more control over their future.  Others are more interested in passive income and not having to worry about details.  If you haven't already asked yourself these questions like this I think now is a good time.  Hopefully it will provide some clarity in the direction you should go.

One of the biggest struggles I think new(er) investors experience is too many options.  Picking something that isn't too far outside your comfort zone, a strategy that plays to your personal strengths, seems like a much easier starting point than whatever the current GURU method may be.

Ashley Ruh · Answer

@Travis Sperr We are moving to Lakewood, but are not quite sure where we will be looking for investments. - and yes, I've heard about the same from everyone, unfortunately. I appreciate your twisting of the question and think it's a great way to look at it. Definitely more food for thought.

@Maggie Lalor I think you pose some great questions and appreciate your thoughts. I will be doing more research. Thank you!

Thank you everyone else for your input.

J.A. Downing · Answer

Having both some RE dealings in MO, and being a CO resident, I think that Maggie Lalor makes a really strong point about how your rental will affect your entry into the CO. RE along the Front Range is pricey.

Steve B. · Answer

You cant begin to answer this question without an estimate of the home value

To rent out or sell?

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