Rent or sell my home?

Question

I want to become and grow as a buy-and-hold real estate investor until I have replaced my current income.  The path I like is buy-and-hold, however, I expect to pursue flips on occasion to boost cash for buying rentals.

In May this year my current home will no longer be my primary residence.  I am not purchasing another home but will take up residence with my soon-to-be spouse.  I can sell or rent my home.  Selling has the upside of no capital gains tax as I've been in the home for more than two years.  Selling would give some cash to buy possibly two rentals or a multi-family.  If I lay out some data, can you help me make a decision toward my long-term goal of replacing my income through buy-and-hold?

• Single family ranch, 3/4 acre lot, septic, 8 year old 3 tab shingle roof
• Purchased: 2006 for $140k
• Owe: $100k
• Mortgage: $543
• Taxes and Insurance: $205
• Expected rent: $1200-$1350
• Tenant would cover utilities
• There are no association fees
• I will have a property manager
• I am guessing 3-5 years before predictable large capital expenses arise.  The first being air conditioning unit.
• Comparable area sales indicate a sale price in this range: $165-$185k

Thank you,

Dave

Dave Largent · Answer

I have much more confidence and numbers to work with that show that selling is the best option toward the goal.

Thomas S. · Answer

You need to sell to access the equity. Even at $1350 if you refinance you will not have positive cash flow. If you keep it and rent for $1350 you would likely have about $150/month positive cash flow but after deducting the return on your equity (10% on $75K) you would have $475/ month in negative cash flow.

Rent to value is too low and the equity is killing your cash flow. Sell and reinvest in purpose built multi unit rentals.

Dave Largent · Answer

Thank you for your recommendation.  I don't have a water well.  I could tie into the city sewage for an unknown amount ($5k I believe).

Dave Chapa · Answer

If I was you I would sell.

A septic tank can become a PITA and costly because a tenant does not care what they flush.... Do you have a water well also?

Too much equity sitting. You could take the equity and buy 2 to 3 rent houses.  Or a small 5 unit.

I try to stick around 70k to 150k max for rental. That's the sweet spot in my neck of the woods.