Renting a 3200 sq ft home

[Jesse Vermillion]

In March 2018, my wife and I bought a 3200 sq ft, 6 bed, 4 full bath single family house in Springdale, Arkansas. We originally purchased the property for myself, my wife, my two daughters, my sister, and two nephews to live in indefinitely. Due to parenting differences, we helped my sister and nephews find a house close-by, but now the residence is a bit big for our smaller crew and we plan to find another house to move into soon. 

We have started investing in rental properties and currently have a single family in Fayetteville, AR and a duplex in Springdale and were thinking of renting this one as well. I was wondering if anyone on BP had experience in renting larger properties who might be willing to offer advice on the matter. 

A little more information about the house and area: I have listed the home on Zillow and Craigslist as a 5 bed 4 bath with office/workout room, as one of the rooms is smaller with a lower ceiling than the others and I thought that number might elicit more interest. It was built in 2006 and is mostly stone siding with a relatively small backyard, but a very large covered patio, big enough to watch football outside while it rains. The property is in a good location central to all of Northwest Arkansas, across from a bike trail extending from Fayetteville to Bentonville, within walking distance from a desirable elementary school, close to a large and very nice park, about 3 minutes from the highway, and about 20 minutes from Walmart home office. Comparing other rents in the area, I believe $2400-$2600 ($0.75-$0.80) is a fair asking price. 

Thanks in advance for any insight!

[Mark Haney]

Hi Jesse! There are three challenges I see with renting a house that big--1) the pool of renters looking to spend $2k+ is relatively small in our area, which means that you could be waiting a while (1-3 months) looking for the perfect tenant willing to spend that much. I don't think the price is unfair, it sounds like a beautiful home, but most people willing to spend that much on rent would just buy their own home in NWA. 2) Even if you did find someone willing to rent it, there is a higher likelihood that they are in a transition of some kind (recently relocated to NWA, recently sold home etc) which means you might have to repeat the process of listing again sooner than you would probably want to. 3) If you are thinking of this home now from an investment perspective, consider the returns you are getting based on your cash/equity in the project--if you could sell the home and reinvest that equity in a smaller SFH or duplex at a higher cash-on-cash return, that would probably be the smarter move and give you fewer headaches over time. If you go down that route, you could save on taxes if you wait to sell or rent until Mar 2020 when you hit 2 years of residence, that would allow you to sell it as a personal residence and pay no capital gains tax. You could even rent it for a while from Mar 2020 onward if you wanted, and you would still have the option to sell without capital gains tax as long as you did it before Mar 2023.

My gut says your could get a better cash-on-cash return and take on less long-term risk by selling the home and reinvesting in another SFH or small multifamily. Whatever you decide, good luck! It's a unique and challenging market we live in!