Looking for best options: sell my house or rent it out?

Question

5 years ago, I purchased a 3 bedroom single family home in a highly desired neighborhood in Las Vegas to use as my primary residence. I did some rehab during that time and decided to put it on the market, with the house almost doubling in value, the 250K+ jump in equity seemed like the best option for me. This would allow me to clear all my debt, increase my credit score and have money for down payments to invest in some off-market properties to BRRRR, fix and flip, or fix and stay for 2 years. I'm looking at moving to Northern NV to be closer to Lake Tahoe, with ultimate goal of adding some Air BNBs there.

The challenge is the market slowed down to almost a screeching halt. If I decide to rent it out, then I will have maybe $500-600 of cash flow coming in, but that won't increase my credit score or get me out of debt any time soon. Plus, what if I end up with bad tenants or the house needs major repairs? I'm not in a position to add any more debt. I don't want to refinance to get $ out, my current rate is 3.37% . The new payment with a higher interest rate may not make sense for turning into a rental. A Heloc sounds risky and you need a really good credit score. It doesn't make sense for me to throw away $ on renting a place for myself if I don't sell the house, and I won't qualify for a loan with the best rates unless my credit score is higher.

My whole goal is to build a portfolio of rental properties, and I have a good start with this property, but I need the equity.

If you were in this situation, what would you do? Any suggestions would be appreciated.

Michael Robbins · Answer

@Lisa A. I would not lease your home unless you are planning to keep the home as investment property for many years. There will be vacancy and maintenance expenses that will eat into your monthly cash-flow. If you do decide to rent your home have plenty of reserves for when the AC or Heater goes down.

Lisa A. · Answer

Thank you all for your feedback. The property is currently listed, just weighing my options if it doesn't sell within the listing period. I don't want to drop the price too much. I'm in no rush to move, and leaning towards renting it out, but would like to lower some debt and improve my credit from 675 to back in the 700's and be in a better position for funding my next property.

Phillip Dwyer · Answer

I'll take a contrary view on this one. If you're asking the types of questions you're asking, I don't believe piling on more debt is a good idea. Staying put or selling might sound may sound conservative, but that's considerably safer in a shifting market with limited resources. If you had great credit and better savings, that would be different.

Brett Voorhees · Answer

Hey @Lisa A., I get where you are coming from with those market conditions. Sometimes it is tight making those numbers work. However there are many options when looking to get into another property especially things like owner financing, and other property performance based loans. I think an agent with the right connections there can really point you in the right direction, let me know if you want me to shoot their contact info over to you.

Hope this helps, best of luck!

Jordan Murrell · Answer

Hi Lisa,

I agree with Jason. I would look at a cash out refinance. There is also HELOC & HELOAN opportunities for you to use that equity you have built up. It would be a shame to lose that equity you have worked hard for over the years for it to be taken away. A HELOC, is like a credit card. You only pay interest on the amount that you use. I would consider having that equity in your back pocket for uses that seem right for you, paying down debt, down payments for rentals etc etc... Being here in Nevada, things are different here in comparison to the other markets. Our market tends to be hit harder than others, so staying in front of trends is important. Let me know how I can help!

Lisa A. · Answer

Thank you Jason! I'll definitely look into that!

Jason Wray · Answer

Lisa,

I would for sure take out some cash because you are in a "equitable" position where it makes sense to take cash out of the home and buy more REI. You fall into the same group of people who have been super comfortable in the previous "Low Rate" environment that was not going to last. It will not be back for a while so it might help to look at what rates were historically so you can see that 2's and 3's are not realistic and were not going to last. Not to be negative but rather stimulate the investors on the fence to not wait and sit on the side line and lose opportunities.

Time keeps on trucking and if you buy now sometime in the near future you can lower any rate by doing a few simple things. One improve your credit with the help of experts, pay down your mortgage balance offering a lower LTV in order to get a lower rate, when buying or refinancing elect to do a rate buy down to get back down to a lower cash flow payment even after taking cash out.

If you are refinancing for cash out on a primary you can get pretty close to your rate with a simple buy down and the equity can cover that in order to get the lower payment

Looking for best options: sell my house or rent it out?

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