Need ideas, Trying to decide sell or rent my resindence

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Need ideas, Trying to decide sell or rent my resindence

Maurice Mugabo
Alpharetta, GA · Member since 2015 · 15 posts · 1 vote

Hi BiggerPoketers, I am thinking of moving my family to a bigger residence, on the other hand, I have been on bigger pocket for a while and my goal is to get the knowledge and

get ready to be a landlord. I am thinking of taking this opportunity and start by renting my current home instead of selling it. Here is the situation:

- Currently owns a town home 3 bed 2.5 bath, 1,677 sqft, year built 2008.

- it is worth $245-250K.

- Mortgage balance $177K.

- FHA 30 year fixed, rate at 3.75%.

- Monthly payment $1,224: Includes Mortgage&Interest, Taxes&Insurance, and $80/month PMI that will be taken off within the next 12 months.

- Definitily A-type neibourhood with 10/10 schools all around.

- There is also a high HOA, $170/month.

If I decide to rent it out, the expected rent in the area is $1650-$1700, it is in a pretty good shape and no upgrades needed, hard wood floor, granite counter top, it's all there, I don't expect heavy maintenance in the neat future.

Let me know what you think, is renting it a good idea? With the numbers, there is nothing much left as positive cash flow, but on one side I think it might be a good idea to sell it

and in the near future start looking on the other side of town for properties that are in areas with many renters and look for better cash on cash return, on the other side, I currently have a very

young family (2 very young babies), can't really find enough time for a more aged property that will need time for maintenance/finding contractors etc... So I am considering this to be my safe/quite entry into the business.

Thank you.....

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Ross Denman
Real Estate Consultant · Whitestown, IN · Member since 2014 · 547 posts · 933 votes
9y

@Maurice Mugabo I am not familiar with the GA market, but I usually discourage my investors from investing in condo's. Rent rates in my market (Indianapolis) don't change very much year to year, but HOA's notoriously increase annually which reduces cash flow each year.

With that being said, most people who are renting out a mortgaged home are doing so with an equity based model as opposed to a cash flow based model. The benefit is having someone else pay down the principal of the home. There is also the potential that the home will be more valuable if you wait to sell it later, but that is speculative and not something to base the decision on in most cases.

I don't know if the $50k+ (after closing, commissions, etc.) or so that you would get from the sale would go very far if you want to roll it into another investment property. This will likely leave you with more headaches than you will have renting your condo. While you will only cashflow $100-200/mo on your condo, you would be building another $6k/year (or whatever) in equity in the home. If investing $50k in purchasing and renting another property, you would probably only be looking at $500-600 net cash flow or $6-7k/year with more headaches than renting your condo.

I think that renting the condo is the more profitable solution. The other option would be to sell the condo and use that money as private money loans to other local investors. If you charged 1% monthly payments, you would easily make the same kind of money or potentially more with no tenants and no property management. Money lending comes with it's own headaches and liabilities, but wouldn't be as time intensive as some other alternatives.

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  • Ross Denman
    Real Estate Consultant · Whitestown, IN · Member since 2014 · 547 posts · 933 votes
    9y

    @Maurice Mugabo I am not familiar with the GA market, but I usually discourage my investors from investing in condo's. Rent rates in my market (Indianapolis) don't change very much year to year, but HOA's notoriously increase annually which reduces cash flow each year.

    With that being said, most people who are renting out a mortgaged home are doing so with an equity based model as opposed to a cash flow based model. The benefit is having someone else pay down the principal of the home. There is also the potential that the home will be more valuable if you wait to sell it later, but that is speculative and not something to base the decision on in most cases.

    I don't know if the $50k+ (after closing, commissions, etc.) or so that you would get from the sale would go very far if you want to roll it into another investment property. This will likely leave you with more headaches than you will have renting your condo. While you will only cashflow $100-200/mo on your condo, you would be building another $6k/year (or whatever) in equity in the home. If investing $50k in purchasing and renting another property, you would probably only be looking at $500-600 net cash flow or $6-7k/year with more headaches than renting your condo.

    I think that renting the condo is the more profitable solution. The other option would be to sell the condo and use that money as private money loans to other local investors. If you charged 1% monthly payments, you would easily make the same kind of money or potentially more with no tenants and no property management. Money lending comes with it's own headaches and liabilities, but wouldn't be as time intensive as some other alternatives.

    1Reply
  • Steven Loveless
    Real Estate Investor · Sachse, TX · Member since 2016 · 69 posts · 60 votes
    9y

    @Maurice Mugabo I think @Ross Denman made some really good points, so I won't rehash anything he said. I would ask myself two questions:

    1. If you do sell the condo - are you positive that you would then buy a rental, or get into the game somehow?

    If no: keep it and rent it. Even if it is sub-optimal, if it is what will get you started down the RE path that you want to be on, just rent it and then make a decision later. (Talk to a CPA, but tax exemption should continue for a few years if you decide to sell it later).

    If yes: Proceed to #2

    2. Look at what kind of deals you have available and you could do if you sold the condo. Based on whatever metrics align with your investment philosophy (total return, CoC, $ cash flow, etc.) - including all transactional fees, interest rate differences, etc., does selling and shifting to your ideal property outperform the condo? Let your best attempt at the numbers guide your action.

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  • Maurice Mugabo
    OP
    Alpharetta, GA · Member since 2015 · 15 posts · 1 vote
    9y

    Thanks @Ross Denman for your response, helpful point of view. Yes, the appreciation, although I did not want to mention it since it is pure speculation, but yes, the area seems to be going up steadily, with a projected growth 6.2% next year, and seems to have been that way for a while (including the bounce back time or course). Thanks for the advice, private lending I haven't looked into it and I wouldn't feel comfortable as a newbie... 

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  • Maurice Mugabo
    OP
    Alpharetta, GA · Member since 2015 · 15 posts · 1 vote
    9y

    @Steven Loveless, thanks for the reply, helpful... To your question #1, not right away, currently hands are tight with the time, I would have to wait at least 2-2.5 years for my kidos to grow up a little more. Thanks.

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  • Louise A.
    Investor · Seattle, WA · Member since 2011 · 253 posts · 112 votes
    9y

    @Maurice Mugabo

    I vote to keep it.  Have you read The Millionaire Real Estate Investor by Gary Keller?  Basically all the investors he spoke to said they wished they had held on to property rather than selling it.  The more real estate you own, the bigger the bottom line on your balance sheet.  

    Just my two cents - I'm sure that others could make a great argument for selling it too! 

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  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    9y

    It is a poor choice for a rental investment property. The value is too high for the rental market and you have too much equity tied up doing nothing. The fact that someone owns a property does not make it a good investment. It's a personal home not a rental property so holding it for the sake of holding and having negative cash flow as well as tenant abuse and damage to the property does not make scenes. Sell it to someone that wants to own a personal home. 

    If you are interested in investing you should sell and put your money to better use in a purpose built rental property that will generate positive cash flow.

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  • Deanna McCormick
    Minneapolis, MN · Member since 2013 · 2k+ posts · 1k+ votes
    9y

    If the property is in Good condition now I'd see what the sellers market could hold for you.

    The expense of new carpet and a careless renter will eat up the equity you think you will gain in the next few years and who know where the market will be then. Your income property could become a money pit at the most inopportune time and unless you have reserves their is no guarantee on it's potential. 

    It might be better to hold and stay put for another year look for a property that suits you.

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  • Maurice Mugabo
    OP
    Alpharetta, GA · Member since 2015 · 15 posts · 1 vote
    9y

    Thanks everyone @Thomas S., no I haven't read that book, but I think I have it at home, it is on my read-list for sure, I am going to get on it.

    Thank you all. 

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