Newbie in Hudson Valley NY - Sell current home or rent it out?

[Jared Romaine]

Hi all,

I'm a true newbie from Orange County, New York.  My path here seems quite similar to many - stumbling upon and reading Rich Dad, Poor Dad and I've been a regular viewer of Dave Ramsey's YouTube channel.  As a result, I've decided I need to eliminate consumer debt and start investing in real estate.

I currently own and live in a 3 BR, 1.5 BA home that has become a bit too small for our family of 4.  We now have an accepted offer on a larger home and we have the option to either sell our current home or rent it out.  Here are the financial details:

Current home value ~$200k

Current loan payoff amount ~$170k

Current mortgage (prinicipal, interest, taxes, insurance) $1,550/mo

Estimated rent $1,700/mo (tenants pay for all utilities)

So here's my question:  Do I try to sell my current home and get a modest amount of cash or do I hold the property and rent it?  Once I factor in vacancies, repairs, capex, etc. I expect I would actually have a small negative cash flow.  Obviously that's not attractive, but it would give me the opportunity to learn what it's like to be a landlord, with the hope that in a few years I could sell for a higher price with a lower loan payoff amount.

If it were you, would you take the modest cash-out now and use it to kickstart your savings to target a first rental property that will cash flow on day 1?  Or would you hold the property for 2-3 years, learn "the ropes" of being a landlord, and hope to sell with more cash in your pocket?

If I'm missing anything obvious feel free to point that out as well.  Thank you all in advance for even reading the post.  If you have some wisdom to share please feel free.  :)

-- Jared

[Allyssa Compton]

Hi @Jared Romaine 

I ran a quick CMA for your area so that I can hopefully help you with this decision! I'd be happy to send it over to you as well so that you can see what I'm looking at. (I am assuming the house is in Walden!)

First and foremost, I think your numbers may be off just slightly which will definitely impact your bottom line. In the Walden area, the average actual rental (what the tenant actually ended up paying) for a 3 bedroom is $1200-1300 which is quite a bit lower than what you were thinking. Now, there are obviously a number of factors and I don't have access to even close to all the information, so if you know that it would go for $1700, go with that! But I also think you may have a more difficult time renting that you anticipate. The average time on the market for rentals in your area was 44 days. So that's a vacancy rate closer to 8%. Again, you may have more information specific to your market that I don't, so if you know this to be untrue, go with what you know!

As a Realtor, I would suggest you list it for rent and for sale simultaneously and see what happens. If the house sits on the market for months and months before selling, you will be glad you had someone in there in the meantime to bring you in a little bit of cash. 

As an investor, though, I would suggest you examine your goals for the long-term and evaluate the house as if it were something you were thinking of buying. If your goal is to learn as much as possible with a low barrier to entry, this could be a great opportunity for you. And, at the end of the day if you have negative cash flow, you can always view it as owning a second home for only $X per month. If your goal, on the other hand, is to get a certain dollar amount per unit, you may be better off selling and putting that money towards a deal that gives you a better return. 

I hope this helps! Please feel free to reach out to me if you need anything. I primarily work in Rockland County but would be happy to help with the research side or refer you to an investor-friendly agent in Orange.