Starter home to second home, do we rent or sell?

Question

Hey, we purchased a fixer upper as our primary in 2017 & have renovated it ever since.  New HVAC, plumbing, electrical, floors, kitchen, baths & added a deck.  It's been great, but our family is growing and could use more space.  The house is a 3/2, built in 1950.  We have a 15 year mortgage with about 7 years left (throwing a bit more on principal each month).  Our payments are around $950 and the local rental rates are near $1500.  We owe around $75k on the loan, but the value is near $250k.  I'm racking my brain, would it be wiser to hold onto our first home & keep it as a rental?  Or sell & throw that money towards our next primary residence?  Ideally avoiding capital gains tax, we've owned it for more than 5 yrs & lived there the whole time.  We've captured a lot of equity over the past few years & I kinda hate to "throw it away" towards another primary residence.  Especially since the market might be turning.  So I guess i'm leaning towards keeping the first property as a rental.  Any advice is appreciated!

Jake Baxter · Answer

If you’re planning on buying your new primary nearby, it will make being a first-time landlord much less stress inducing. Nonetheless, with your current mortgage rate and solid equity position, it’s definitely worth considering getting a good, respectable tenant in there and watching your equity grow. Assuming you're in the Charlotte market, there should be plenty of room to generate cash flow and subsidize your new primary mortgage. Best of luck and welcome to BP!

Kevin Akers · Answer

Congrats on your first investment and getting ready to buy another. From a long term perspective, keeping it as a rental is definitely a great strategy. From the numbers you provide, at a glance it looks like you might be able to cover all you expenses. Make sure you have some money set aside for repairs and turnovers. As long as you don't need any immediate money from the sell of the property keep it. If it is worth 250K now it most likely will be worth more in the future. In addition, somebody else is paying off your mortgage and the property can be a good tax write-off (consult with a professional). In the future you can always look at borrowing agains the equity to fund future RE investments.

Corby Goade · Answer

Sounds like you have some great options and a jumpstart, congrats!

You get rich from keeping real estate, not selling it. I'd hold on to your home as a rental and pull a HELOC before you move out. You get the best of everything- cheap, tax free access to your equity, you get to keep your interest rate and you get the cash flow.

If you don't like it, you can always sell later, but if you sell now, you'll be dealing with double the interest rate and you can't un-sell if if you feel regret.

Steve Duran · Answer

It depends on the goal, are you trying to build wealth or cashflow. Do you want to have multiple rentals properties or just one? I rented my first home but then decided it was best to sell and use the money to buy a 4plex and I went from $300 per month cash flor to $3000 per month cash flow. Now I am doing a cashout refinance and I will still make $1800 per month and have money to buy a flip or another 4 plex. How much cash flow are you making if you rent it vs if you sell and use equity to reinvest what could you do with the equity. Run a refinance quote and a heloc quote to see how much cash flow you would make if you pull equity and keep it. For me I am working to leverage 65-75% LTV and use money to reinvest and BRRRR and flip to build up cash. I wouldnt sell it and just use the money for another primary. You could possibly use $50k for your primary and use the other $100k to buy a flip or a duplex- 4plex and build cash flow and leverage the equity. If you oull 100k heloc thats around $900 per month so you wouldnt make any cash flow but you would have equity to reinvest. Run an estimate for $175k refinance cash out on a 30 year and you may still be able to make 250 cash flow and have 100k to reinvest to buy more real estate. Best of luck! You made a good investment

Freddy Alban · Answer

If you’re comfortable being a landlord, keeping it as a rental sets you up for long-term wealth. That $950 mortgage is a goldmine for cash flow. You can even use some of the equity from this property to reduce the down payment burden on your next home without "throwing away" the value you've built.

Angie Castro · Answer

I agree with Kevin!

Andy Bahr · Answer

Hi Jake!Great question and a common one that many face! I'm a realtor in Charlotte and a former loan officer as well. If I were you, I would consider a refi. Rates are coming down, slowly, but they are coming down. You probably have a great low rate mortgage, and might not want to raise the interest rate. The thing is, is many times the equity that you will build owning 2 homes instead of 1, will be more beneficial to you. And since you really don't want to sell the property, just keep it as a rental and every 5-10 years take out the equity and buy another rental or primary. This will allow you to scale. I personally have a few rentals in Charlotte and love this strategy. Of course you want to pay attention to market cycles etc. However, in the long run, I love the "buy a house a year" strategy (as a primary, for preferred financing) and just keep moving (pending that your spouse is on board with this of course, if you have one). Additionally, as long as you put 20% down, it typically keeps you safe in terms of cash flow, and then you simply have a couple dozen houses with tenants paying off your mortgages. Of course, easier said then done, and evictions and issues/extra expenses pop up, but if you keep the long term vision, it tends to build on itself quite nicely. I'm in the beginning phase of this vision but so far so good.

Austin Hegele · Answer

Sounds like a good problem to have... Personally, if you don't need to use that equity as a down payment towards a new primary home, I'd suggest keeping it as a rental!

Once you're all moved out & settled in your new primary, you could always explore DSCR rental loan options to take capital out of the rental property if seen fit-- which would also remove the current loan from self encumbrance & free up your DTI.

It's never a bad idea to hold onto assets in an appreciating market!

Julia Lyrberg · Answer

Keeping it as a rental sounds like a solid option, especially with the low mortgage balance and high rental potential. With local rents around $1,500, you’d likely cash flow after covering expenses, and you’ll keep building equity in a property that’s already in great shape. Plus, holding onto it gives you a buffer if the market shifts.

Ryan Konen · Answer

Holding onto your home as a rental could be wise, given your low mortgage, strong equity, and rental income potential. Renting it out would let you keep the asset, earn some extra cash, and possibly benefit from tax deductions like depreciation. However, if managing a rental doesn’t appeal or if the market conditions favor selling, selling could fund a larger down payment on your next home and keep things simpler. Both options have merit, but renting allows you to keep an appreciating asset while covering costs.

Starter home to second home, do we rent or sell?

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