Should I Sell or Rent Out My Home? Weighing Investment vs. Cash Flow Concerns

[Kyle Reynolds]

Hi BP Community,

I'm looking for advice on whether I should rent out or sell my home in Sacramento, CA. I’m moving out of the house soon and will be living rent-free with my wife at my parents' place in the Bay Area due to some recent life changes.

Here’s a breakdown of my situation:

• Location: Sacramento, CA (4 bed, 2 bath, recently renovated)
• Current mortgage payment: $3,940/month (including escrow)
• Mortgage balance: $475,000
• Current home value: $515,000 - $535,000 (based on comps)
• Rental estimate: Property management companies are quoting $2,600/month (with fridge/washer/dryer included), but some websites suggest it could go for up to $3,000/month.
• Planned budget:
  • $540/month for capital expenditures and maintenance
  • $100/month for lawn care
  • Tenant to cover utilities (gas, electricity, water)
  • 7.5% vacancy rate

We bought the house thinking it would be our forever home, but with our current situation, I’m trying to figure out the best long-term plan. Here are my main concerns:

1. Cash flow concerns: Based on my current mortgage and projected rent, I'd be looking at negative cash flow unless I refinance in a few years. But we won’t qualify for a primary residence refi anymore, and I’ll need more equity to refinance as an investment property.
2. Future investment goals: I want to own rental properties in the future, but I’m not sure if holding on to this one (which we already have) is the right move, or if it makes more sense to sell and build up savings for a better investment down the line.

I’d really appreciate any advice on what I might be overlooking here. Should I hold on to the house, despite the potential negative cash flow, with the hope of refinancing and future appreciation? Or should I cut my losses, sell it now, and look to invest in something else later?

Thanks in advance for any insights or perspectives!