Should I rent my current place? For reasons other than cash-flow

Question

Hello everyone,

I currently live in a 2bd 1ba condo ~950 sq ft., which I’ve owned for the past 2.5 years, in Orange County California. My wife and I are looking to purchase our next home, planning on it being our “forever” home.

We are hesitant on what to do with our current place. My dream would be to rent it out. We have a good chunk for a down payment on the next place so the equity from my current place (only about 40k) won't make or break our next purchase. Every one of my friends and family that has sold their first home have all wished they kept it back then and that having any kind of property in Orange County is worth holding onto.

Reasons I’m hesitant...

Our total mortgage (P&I, Taxes, Ins, HOA) is roughly $2150. Open rentals in that area I have seen range from $1900-2200 (According to Rentometer, the average is $2040, within a 1.5 miles). I won't be cash flowing, but someone will be paying my mortgage and overtime hopefully rent is raised, maybe a refi is thrown in, which can both increase that cushion. Our place is fairly remodeled so I'd say it is on the nicer end of what's in the area. With the HOA, I would think that takes care of most of my CapEx and I'll have a chunk of change for a few months of reserves.

According to a quick rental search, there are 3000+ open rentals in Orange County, within a 5 mile radius of me there are about 200.. (Although within that 200 it ranges from million-dollar homes to very low income, etc.) and within my same exact community there is 1 open for rent that’s been on Zillow for 90+ days (assuming Covid has a big reason for that), marketed right about $2000. So, I see that one struggling and I assume mine won’t have much luck?

What are some of your thoughts? Has anyone held onto property that wasn’t cash flowing for other reasons?

Any feedback is appreciated.

Thanks!

Alex K. · Answer

@Anna SagatelovaI didn’t know that... thanks!!

Anna Sagatelova · Answer

@Alex K.If those other condos in your complex were listed for lease on the MLS, you can find that info. It might not be a bad idea to get in touch with an agent in your area.

Alex K. · Answer

Thank you all for your input!The other stale unit is in the same complex and is the same layout at mine, 2bd 1ba similar sq ft. Although mine is more updated. New floors, doors, trim,paint, kitchen, etc. The other one is fairly outdated so I am hopefully that is why it's stale. I know there are a bunch of renters in the community.. I wish there was a way to see how much they pay to get more realistic numbers. I just refi'd in Feb, @ 3.6% (supposedly condo's are harder to get a lower rate than sfd) but I will open to refi'ing again in August once I hit the 6 month mark. I am all about having multiple plans, so if the rental aspect doesn't work out and i have to sell, I could use the 40k equity to jump start my long term goal of out of state multifamily rental properties. So there are definitely options.

Anna Sagatelova · Answer

I will just add that rentometer is generally not a good tool to gauge market rent on its own. It can be useful when used in combination with other comp techniques and tools.The other listing in your community that's stale - is it the same size as your unit? How do the finishes and upgrades compare? Is it outdated? Do they have quality pictures or so-so? How about the description?A property listing can get stale for many reasons, including poor leasing/marketing processes. It's not always strictly due to being overpriced, though it's good that you are managing your expectations. Is refi an option for you?

Percy Matsunaga · Answer

@Alex K.In my opinion I would keep the property. Your in CA and properties in that area will appreciate in value over time. if you can get a tenant in so you can come close to breaking even for the 1st 2 years and then evaluate.

Vee Vu · Answer

Why don't you try to contact lenders about refinance? So you will know the exact positive cash flow you can get, after maintenance and property management cost. Otherwise, I think selling will be better.

Sarah Brown · Answer

There is more cost to maintaining a rental than just the mortgage. Unless you make enough money that you need a tax write off, I would sell. If you can refi it and make more than $200/mo cash flow, then maybe worth it. The only reason I wish I still had my first purchase is because I bought it for $105,500, and it's not valued at over $300k. Otherwise, there is no love lost.

Bjorn Ahlblad · Answer

@Alex K. From what you have described I would definitely sell. There is no reason to believe the next ten years are going to be like the last 10. People are moving away from buildings with lots of people and elevators, instead moving to green space and suburbs. In retrospect it is easy to say "I should have kept it" especially how the prices soared. I vote sell, and quickly while you can.