Renting Out Rooms or Sell?

[Nathan Thompson]

Hi,

I bought a house with my ex and I'm trying to decide what to do with it now. We owe $244k, payments total to $1355 PITI + $270 HOA (includes water and all exterior maintenance, some insurance). I live right outside of Denver and comps in the last few months have been around $290 - $295k (in the same complex, exact same layout, ours should go for a few k higher).

Details: 

PITI: $1355

HOA: $270 (has increased approximately $20 per year since I bought 2.5 years ago). How do you think about HOA when you consider risk for a rental?

Top Two Floors Rent: $850 per room, including utilities.  I could possibly get $900 - $950, but that was the rate I had it at when I just had one roommate and I think $850 is a good, conservative estimate in the market, considering the number of responses I get at that amount.

Basement Rent: I could get an additional $850, conservatively, but could go up to $1000, possibly higher, if I installed a bathroom. 

Utilities: Electric is $100 per month on the highest months, so I just assume $100.  Internet is about $100 per month also, but could lower to $60 if I weren't living here.

Total Expenses: $1820

Rental Income: $1700

I'm considering a few options:

Stay here, buy-out: Continue to live here in the basement room while renting the top two bedrooms. I'm going to install a temporary shower (quoted around $700) and am considering installing a full bathroom down here ($6k for rough in and I'd do the rest). I'd buy her out for approximately $15k (we discussed buyout) and I'd have to refinance at a higher rate (4.5% instead of 3.75%), but I'd have to refi VA possibly which would cost an additional $8k. Additionally, we talked about me just staying here until next summer. In that case, I'd benefit from the low monthly expense, she would get half of any appreciation and isn't responsible for lost rent due to tenants not paying. This would allow me to save an additional $20k through the year. And I wouldn't need to refinance. We have a good relationship and trust each other.

Move, but keep as rental: Buy another house and rent out rooms separately. I think I'd get around $2550, which comes in at slightly lower than the 50% rule after utilities. I would either refinance this house into a conventional or keep the VA loan. Refinancing seems like it would make sense if I could hit 20% equity to avoid Mortgage Insurance, or is it different if it's considered a rental property now?

Rent to one party: I could probably only get $2k which makes it not worth it, because of the low cash flow. 

Sell and buy elsewhere, rent out rooms: Profit about $50k - $18k (6% or less if I negotiate a lower rate because I'm buying) split two ways, so about $16k, and use a VA mortgage again.

I'm leaning towards staying until next spring, then selling.  Any thoughts?  Mostly, to anyone that has rented out rooms separately, was it worth the extra cash flow if you weren't living there?

Thanks in advance!