Should I rent out my existing house?

Question

Hello, I'm new to the forum. I am fixing up my house to either sell it or rent it out. I am very new to real estate and have only read two books (Investing in real estate and Managing Rental properties) and have listened to many hours of bigger pockets podcast. If anyone has some advice I would greatly appreciate it.

I bought my house in 2017 using a VA loan with no money down for $122,500. I owe $116,00 on the house. I'm located in northwest Indiana (15min from Chicago). I am putting about $8k into the kitchen and I have already remodeled the bathroom and put a new roof about 2 years ago (insurance claim). All windows were replaced before I bought the house. My mortgage company gives an estimated value of the house at $139k. I do have around $10k of credit card debt and have a credit score of roughly 750. Should I rent out my house or should I sell, pay some debt off and invest in a better deal later. Thank you again in advance.

Jonathan Hernandez · Answer

@Nelson Sandidge thank you for the advice, I have a a few months to finish the house to be rent or sell ready. I believe by then I would know what to do. I don't have confidence because of how little I know about rental property,  but I'm going to man up and continue studying to be as ready as possible. Thanks again for the advice sir.

Jonathan Hernandez · Answer

@Jennifer Lyles awesome, thank you for the great tip.

Jonathan Hernandez · Answer

@David Pere rent in my area for 3 bed, 1 bath and garage is around $1,300. That's what I have been seeing on zillow. I appreciate the advice brother.

Nicholas Smith · Answer

@Jonathan Hernandez My pleasure sir!  I sent you a message.  Let's connect soon.

Jonathan Hernandez · Answer

@Jane S. Thank you very much for that advice. I'm definitely going to get someone else to look at everything and see whats the rental price I can get from my house.

Nelson Sandidge · Answer

@Jonathan Hernandez

I would rent it out if I can afford to. The house already has some equity, and you're going, or at least trying to, force the appreciation of your house another $10k or so. It's a piggy bank, but if you sell and cash out, you'll be having to pay a much higher tax for it than you would if you rent it out.

If you sell it, you'll receive a nice check worth 5 or 6 months or maybe even a year worth of active income, but you could end up paying half as much in taxes. If you rent it out you have all that money in your house and nobody else has a claim to it. You could refinance if you need some cash to go do something, but if you leave it rented out. Your equity would still be growing, and  you even get some monthly cash flow which is better than equity.

Do you proper screening and don't leave in your house somebody you wouldn't trust to take care of your baby. And maybe even check on base for real estate agents and property managers (those who are local to that place) so you have another set of eyes protecting your asset (screen those twice as hard haha). With the VA entitlement being up in the $400,000 , you can even buy another house like you did the first time with a VA loan and $0 down.

At the end of the day Jonathan, it's your decision and either one will bring you profits. I guess the reason why passive income is tax lower is because it's earned slower.

I think of rental property like if each was a stock. It's a stock that I get paid to keep and own, but if I sell that stock I have to pay taxes, and if I don't own it, I don't make passive income.

Jane S. · Answer

Maybe hire a home inspector to give you some input about the rental world near your house and what impact your updates will have. If you tell the person its not to make a sale but help with setting prices maybe you can get a discount for a little simpler no-report inspection. Also look at all the houses on the MLS in your price range to see how they were updated (esp. bathrooms, floors, paint colors).

Jennifer Lyles · Answer

@Jonathan Hernandez I recommend contacting a local property management company and have them run some comps for you. You may not need to put money into the house to get the rental rate you need/desire. Or you many only need to do a few things to get it rent ready and still be profitable every month. A PM company may be willing to take a look at your home and tell you what they would recommend. We offer this as a free service so ask around! Good luck!

Jonathan Hernandez · Answer

@Josh Smith thank you for the advice sir. I will definitely do more research.

Josh Smith · Answer

@Jonathan Hernandez

Definitely understand! Can be a bit daunting at first. Check local rents across a few platforms for houses that are similar to yours as well you could definitely reach out to some investors/property managers in your market and they may be willing to offer some advice. Expenses are the part that will vary. Obviously want to account for the mortgage itself as well as the property taxes and insurance. In addition, common to compute anywhere from 5-10% or above for your repairs, CapEx, (large ticket items like roof, appliances, etc.) Vacancy, and property management if you will not self manage.

Good chance you might be able to lower the amount of CapEx you need to set aside due to having a newer roof and redoing the kitchen.

If all those thing are less than the income from rent you cash flow positive all should be good! Hope that makes sense.

Should I rent out my existing house?

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