To sell vs keep renting (long term)

[Durga Prasad]

First post here, thanks for the wealth of knowledge, I am facing a very challenging situation, hopefully experts can weigh in…

I currently have a SFH in a great location, excellent school district, have been renting it out for the last 3 years, and have a good cash flow. I took cash out to purchase another property (land) but the mistake I made was it was a 15 year fixed at 3.5, instead of 30 year.

With recent increases in property taxes, HOA fees, interest expense, my monthly rent will be almost equal to ALL expenses EXCLUDING principal so if I keep the home I would be in NEGATIVE cash flow (If you consider principal) of around 2k/month. I am currently contemplating to SELL or KEEP RENTING.

SELL - I can free up and buy another property but with int rates are higher than what I have so not sure if that’s the right option. Another advantage would be saving on TAXES around 40K. Disadvantage would be paying a higher int rate on another property, which I am not sure about rentablity, location etc.

RENT - Keep pay principal from my pocket and consider that as savings, hope for appreciation, even 3% appreciation will be around 24K, and sell in maybe in 3-4 years. Meanwhile if int rates come down refinance it.

Location is excellent as inventory is very low, to give you a perspective, Opendoor raised an offer by 40K in 40 days.

I would appreciate any help, am I missing anything to consider? I am sure someone would have experienced these scenarios.

Cheers

Durga

[Mark Bosworth]

Durga, I don't think you'd have a problem with replacing the revenue with a STR. My rough rule of thumb is that a STR can generate about twice the top line revenue that a long term rental can. Now you have to offset that increased revenue with the increased costs (utilities, repairs, consumable supplies, cleaning) - but you can make a lot more money with an STR. However, you are correct that there is a lot of UNKNOWN. The problem with a STR is that you don't know what the demand will be like in your location until you spin it up. And even after you have it on the market it can take up to a year to get the revenue up to what it should be.