Leasing house advice

[Jeffrey D.]

Looking for some guidance on my situation.

Currently in EaDo - 3bd, 3.5 bath, 3 story single family, built in 2014. We bought in 2016, PITI - $2350/month on a 30 year loan + HOA $110/month (gate and lawn care). Only put down 10%, currently have about 20% in equity ($75k)

We are moving and now need to decide what to do with the house - sell or rent out. I like the idea of renting out in general, having someone pay the mortgage while it appreciates. I think I could get $2600-2800, which is kind of tight for cash flow, but still positive and not something I need. My main concern is potential costs for repairs. I don't think the house is constructed that well. It was our first home and we didn't really care about who the builder was, but we have learned how important that is. We have had a crack in the stucco patched up in 2016, then major exterior work done in 2019 to our house (and our whole development due improperly installed windows, no drainage, rotting wood/stucco damage - builder fortunately paid after getting lawyers involved). Primary bath shower doesn't drain that well, and quotes to fix it are $10k. At this point, the house is in good shape (except shower), but almost feel like waiting for something else major to happen. The homes in the development have actually depreciated since they were built based on tax records and recent sales even despite the hot Houston market. $374k brand new to now $345-370k, most recent sale probably $370k, but average probably $360k over past 3 years.

Anyone have experience renting out similar homes? My impression is a lot of the new 3 story homes in the loop are not built that great and potentially a money sink. 

Would you sell and buy another investment property with better build and appreciation potential or keep and rent it out? Thanks in advance.

[Jesus Roman]

Hey @Jeffrey D. !

I want to start of by saying I am basing this off on the information you provided. There is no denying that EADO is still growing and will for sure have some great appreciation of the next few years. I would typically recommend to hold as this market shows very promising numbers over the next few years but in your scenario I might suggest other wise. If the drainage isn't fixed then that is something that the future tenant will surely point out within the first month of moving in and therefor leading to you to have to fix it. If you are saying you got a quote to repair the drainage for $10k that sounds like a issue that if it isn't fixed soon it may cost you longer down the long run. Remember as a landlord you are to provide a functional home to your tenants and in the case that it isn't you are obligated to make repairs upon tenants request. 

Now even if you were to get $2,800 in rent per month and we calculated 10% percent for Capex and 5% for vacancies that would leave you well under your monthly expense. Therefor I'm not sure if I would consider this home to technically cashflow.

So in MY opinion I would sell and reinvest.