Moving, should I sell or keep and rent out my home?

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Moving, should I sell or keep and rent out my home?

Christian D.
New to Real Estate · Metro Detroit · Member since 2018 · 26 posts · 7 votes

Hi All,

Quick backstory: I'm currently in the process of learning/preparing to be a buy and hold rental property investor. I've been reading, saving money to invest, etc, and had the goal of obtaining my first investment property in 2021. However, personal circumstances are requiring my family to move from our current home sooner than expected. Now, I'm wondering whether it would be "a good deal" to keep my current home and rent it out, or if it would be smarter to sell it.

Here are some details on our current home / things to consider:

  • Purchase price: $106k
  • Current value (approx): $180k
  • Current mortgage: $65k, 10 years left, 15 yr fixed @ 2.875% ($599/m PI)
  • Home is updated/remodeled throughout, with good bones, and some robust materials used (hardwood floors, porcelain tile, etc). Need to do a more detailed analysis here but I would expect relatively low cap-ex in the next 10 years.
  • Home is in a good area (on a quiet street but still walkable to restaurants/bars/parks, schools are average to above average)
  • Expected rent would be about $1500/m based on quick analysis of current listings
  • Our new location we're moving to will be about 10-15 mins away
  • I would like to manage this property myself but budget for property mgmt anyway
  • If I get into this and HATE being a landlord, or decide owning rentals isn't right for me, I have 2 years to figure that out and at that time could still sell the home and not pay any LTCG tax on the proceeds

Short term goal: Since my personal situation will inhibit my time and ability to pursue scaling a rental property business in the short term (say 5-10 years), the goal of renting this property out will be to pay it off as quickly as possible and let it sit there providing good monthly cash flow, or possibly refi to lower monthly payment and increase cash flow if the payoff timetable isn't short enough.

Long term goal: I would tentatively like to scale into owning maybe 10 or so rental properties at my time of retirement (say 20 years from now) to provide good cash flow in early retirement, and to keep me busy. I rather enjoy owning/running a business.

Can anyone advise on whether making the move to convert our home into a rental makes sense?

Thanks all in advance for the help!

      1Reply
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      Jaysen Medhurst
      Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
      6y

      @Christian D. a few things to think about here.

      • Be very sure about your rent expectations. Homes with values above ~$150k rarely make good rentals because the rents don't keep up with values. Why? Anyone who can afford $1500/month rent can easily afford a $150-180k home.
      • What are your taxes and insurance? My math shows you with $450/month BEFORE those bills are paid.
      • The biggest issue is going to be your Return on Equity (ROE). Even if your house cash flows $250/month, which would be solid, your ROE on $115k of equity is 2.6%. That stinks.

      Personally, I'd capture that equity now, while you can avoid the CG tax, and redeploy into a cash-flowing MFR.

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      • Theresa HarrisPro Member
        Member since 2019 · 15k+ posts · 11k+ votes
        6y

        @Christian D.  Sometimes houses that are bought as a primary residence don't make good rentals as you evaluate them differently when buying.  In your case you have a lot of equity in the home and if you can rent it for $1500, do a quick 1% rule, you should cash flow.  I would suggest renting it, even if you do it for 2 years (at which time, based on what you wrote, there would be tax implications) you can sell it in 2 years and move that equity into one or two new rentals.

        1Reply
      • Jacob Sampson
        Investor · Topeka, KS · Member since 2015 · 1k+ posts · 1k+ votes
        6y

        Sell.  There is too much value in the equity.  Plus people rarely purchase their personal residence for a price that makes it a good buy and hold, although in this case yours is pretty close.  Still, even if this thing cash flowes $200/month vs selling and clearing $100k you are getting nearly 42 years of cash flow up front.  Sell.

        2Reply
      • Jaysen Medhurst
        Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
        6y

        @Christian D. a few things to think about here.

        • Be very sure about your rent expectations. Homes with values above ~$150k rarely make good rentals because the rents don't keep up with values. Why? Anyone who can afford $1500/month rent can easily afford a $150-180k home.
        • What are your taxes and insurance? My math shows you with $450/month BEFORE those bills are paid.
        • The biggest issue is going to be your Return on Equity (ROE). Even if your house cash flows $250/month, which would be solid, your ROE on $115k of equity is 2.6%. That stinks.

        Personally, I'd capture that equity now, while you can avoid the CG tax, and redeploy into a cash-flowing MFR.

        3Reply
      • Christian D.
        OP
        New to Real Estate · Metro Detroit · Member since 2018 · 26 posts · 7 votes
        6y
        Originally posted by @Jacob Sampson:

        Sell.  There is too much value in the equity.  Plus people rarely purchase their personal residence for a price that makes it a good buy and hold, although in this case yours is pretty close.  Still, even if this thing cash flowes $200/month vs selling and clearing $100k you are getting nearly 42 years of cash flow up front.  Sell.

        Thanks for the input!

        However, at the current mortgage terms, the house will be paid off after 8-9 years (or before), and then (using a quick 50% rule) I should see $750/m in cash flow? Shouldn't that be considered?

        I know this is against the math in many ways...not utilizing leverage is very conservative and doesn't coincide with the math here any in many schools of thought. However...the cash flow would equalize MUCH sooner than 42 years with this approach.

        Also a side thought - I could always do a cash out refi on this and utilize the equity to purchase another property down the line, when my personal time allows for scaling of my rental business. Is this a good/bad idea?

        0Reply
      • Christian D.
        OP
        New to Real Estate · Metro Detroit · Member since 2018 · 26 posts · 7 votes
        6y
        Originally posted by @Jaysen Medhurst:

        @Christian D. a few things to think about here.

        • Be very sure about your rent expectations. Homes with values above ~$150k rarely make good rentals because the rents don't keep up with values. Why? Anyone who can afford $1500/month rent can easily afford a $150-180k home.
        • What are your taxes and insurance? My math shows you with $450/month BEFORE those bills are paid.
        • The biggest issue is going to be your Return on Equity (ROE). Even if your house cash flows $250/month, which would be solid, your ROE on $115k of equity is 2.6%. That stinks.

        Personally, I'd capture that equity now, while you can avoid the CG tax, and redeploy into a cash-flowing MFR.

        Thanks for your input!

        My current T&I are $262/m. I expect this would increase slightly with the homestead exemption going away.

        I realize this would only be call it $100/m cash flow for a few years, but then when it's paid off (or refi'd) the cash flow could be substantially higher. Is that a bad school of thought?

        0Reply
      • Jaysen Medhurst
        Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
        6y

        @Christian D., if you hold until it's paid off and cash flow $750/month you'll have a property worth nearly $220k (assuming 2.5% appreciation) with a 4% ROE. Still not great.

        If you cash out refi, it's very unlikely you'll cash flow with your new ~$670 monthly P&I payment (30-year). Go with another 15-year mortgage and you'll definitely be in the red. Plus you will have to leave 20% equity in the property, leaving nearly $40k off the table.

        What's your real hesitation to selling?

        0Reply
      • Jacob Sampson
        Investor · Topeka, KS · Member since 2015 · 1k+ posts · 1k+ votes
        6y
        Originally posted by @Christian D.:
        Originally posted by @Jacob Sampson:

        Sell.  There is too much value in the equity.  Plus people rarely purchase their personal residence for a price that makes it a good buy and hold, although in this case yours is pretty close.  Still, even if this thing cash flowes $200/month vs selling and clearing $100k you are getting nearly 42 years of cash flow up front.  Sell.

        Thanks for the input!

        However, at the current mortgage terms, the house will be paid off after 8-9 years (or before), and then (using a quick 50% rule) I should see $750/m in cash flow? Shouldn't that be considered?

        I know this is against the math in many ways...not utilizing leverage is very conservative and doesn't coincide with the math here any in many schools of thought. However...the cash flow would equalize MUCH sooner than 42 years with this approach.

        Also a side thought - I could always do a cash out refi on this and utilize the equity to purchase another property down the line, when my personal time allows for scaling of my rental business. Is this a good/bad idea?

        Absolutely, you should take into account all data points.  It is a critical to good decision making.  I think you are in the enviable position of having many reasonable positive options.  

        Another, item to look at is that, yes, in 8 years you now have greater cash flow.  The question is can you take the 100k and deploy it now and generate even more than $750 in cash flow 8 years from now?  Plus, as was mentioned above, your current return on equity is sh!t.

        Additionally, even at $750 in cash flow 100k is 11 years of that cash flow all up front.  Which still makes it a sell to me.

        Yes you could get the cash out via HELOC, another reasonable idea. But at that point your property is probably in negative cash flow territory.

        Just random thoughts.

        0Reply
      • Christian D.
        OP
        New to Real Estate · Metro Detroit · Member since 2018 · 26 posts · 7 votes
        6y
        Originally posted by @Jaysen Medhurst:

        @Christian D., if you hold until it's paid off and cash flow $750/month you'll have a property worth nearly $220k (assuming 2.5% appreciation) with a 4% ROE. Still not great.

        If you cash out refi, it's very unlikely you'll cash flow with your new ~$670 monthly P&I payment (30-year). Go with another 15-year mortgage and you'll definitely be in the red. Plus you will have to leave 20% equity in the property, leaving nearly $40k off the table.

        What's your real hesitation to selling?

        I guess my hesitation is a few things:

        1. I feel like the house is a great candidate for a rental (math aside for right now) based on location, high demand and low supply of rental homes in the area, etc. It's "ready-made" in my mind, as it's already renovated and basically ready to go.
        2. Bringing the math back into the picture, I think it would benefit me to hold a rental property NOW, even if it hovers around zero cash flow. More details here...the reason we need to move is actually that we'll be taking in my ailing mother (devastatingly, she was diagnosed with ALS recently). She'll be paying us rent in the new house to take her in and help with her care, so I will have rental income to declare, and keeping the current home that should net a loss on paper for the next several years w/ depreciation and stuff, will allow me to offset the rental income I'll be getting on the new house. Of course if the rent stays below the gift tax threshold, we could also maybe go that route and it could fly under the radar. I need to talk to a CPA on all of this for sure.
        3. I was thinking leveraging only *part* of the equity could be beneficial too...for down the road when I'm ready to scale. This house could be a tap for me. For example, pulling $100k of equity out would still allow for good cash flow, and could give me funds to buy another property, or 2-3 depending on how the financing is structured, while still keeping cash flow in the green.
          As a worst case if I decide I never want to scale...a paid off rental provides good steady cash flow. This is only a small blip in my investment portfolio...so maybe I'll only ever want the one. Who knows! lol. I know the ROI is smaller, but so is the risk there, right?
        0Reply
      • Christian D.
        OP
        New to Real Estate · Metro Detroit · Member since 2018 · 26 posts · 7 votes
        6y
        Originally posted by @Jacob Sampson:
        Originally posted by @Christian D.:
        Originally posted by @Jacob Sampson:

        Sell.  There is too much value in the equity.  Plus people rarely purchase their personal residence for a price that makes it a good buy and hold, although in this case yours is pretty close.  Still, even if this thing cash flowes $200/month vs selling and clearing $100k you are getting nearly 42 years of cash flow up front.  Sell.

        Thanks for the input!

        However, at the current mortgage terms, the house will be paid off after 8-9 years (or before), and then (using a quick 50% rule) I should see $750/m in cash flow? Shouldn't that be considered?

        I know this is against the math in many ways...not utilizing leverage is very conservative and doesn't coincide with the math here any in many schools of thought. However...the cash flow would equalize MUCH sooner than 42 years with this approach.

        Also a side thought - I could always do a cash out refi on this and utilize the equity to purchase another property down the line, when my personal time allows for scaling of my rental business. Is this a good/bad idea?

        Absolutely, you should take into account all data points.  It is a critical to good decision making.  I think you are in the enviable position of having many reasonable positive options.  

        Another, item to look at is that, yes, in 8 years you now have greater cash flow.  The question is can you take the 100k and deploy it now and generate even more than $750 in cash flow 8 years from now?  Plus, as was mentioned above, your current return on equity is sh!t.

        Additionally, even at $750 in cash flow 100k is 11 years of that cash flow all up front.  Which still makes it a sell to me.

        Yes you could get the cash out via HELOC, another reasonable idea. But at that point your property is probably in negative cash flow territory.

        Just random thoughts.

        Appreciate the thoughts man!

        See my last post above in regards to the move and taking in my ailing mother...

        Right now, I definitely don't have the time to scout out and analyze properties, and dive into making a purchase, renovation, and all of that. So selling this property would undoubtedly lead to a pile of money sitting and earning nothing in the next several years, and not being redeployed until I'm ready and have the time and energy to devote to starting a real business out of this. 

         Additionally there's another factor...the bank of mom is going to be loaning (gifting, essentially, as an early portion of our inheritance because more than likely she'll be fortunate enough to leave my brothers and I money when she passes way too soon due to this horrific disease) us money for the down payment on the new house. This is taking place because we haven't saved up enough yet for our next down payment, and our whole family agrees we shouldn't be *forced* into selling our home before we're ready to, just so we can take on this impossible task of caring for her. Granted my family will be all hands on deck to help, but being the ones taking her in and uprooting our lives, we will likely be bearing the biggest brunt of it all. 

        0Reply
      • Jacob Sampson
        Investor · Topeka, KS · Member since 2015 · 1k+ posts · 1k+ votes
        6y
        Originally posted by @Christian D.:
        Originally posted by @Jacob Sampson:
        Originally posted by @Christian D.:
        Originally posted by @Jacob Sampson:

        Sell.  There is too much value in the equity.  Plus people rarely purchase their personal residence for a price that makes it a good buy and hold, although in this case yours is pretty close.  Still, even if this thing cash flowes $200/month vs selling and clearing $100k you are getting nearly 42 years of cash flow up front.  Sell.

        Thanks for the input!

        However, at the current mortgage terms, the house will be paid off after 8-9 years (or before), and then (using a quick 50% rule) I should see $750/m in cash flow? Shouldn't that be considered?

        I know this is against the math in many ways...not utilizing leverage is very conservative and doesn't coincide with the math here any in many schools of thought. However...the cash flow would equalize MUCH sooner than 42 years with this approach.

        Also a side thought - I could always do a cash out refi on this and utilize the equity to purchase another property down the line, when my personal time allows for scaling of my rental business. Is this a good/bad idea?

        Absolutely, you should take into account all data points.  It is a critical to good decision making.  I think you are in the enviable position of having many reasonable positive options.  

        Another, item to look at is that, yes, in 8 years you now have greater cash flow.  The question is can you take the 100k and deploy it now and generate even more than $750 in cash flow 8 years from now?  Plus, as was mentioned above, your current return on equity is sh!t.

        Additionally, even at $750 in cash flow 100k is 11 years of that cash flow all up front.  Which still makes it a sell to me.

        Yes you could get the cash out via HELOC, another reasonable idea. But at that point your property is probably in negative cash flow territory.

        Just random thoughts.

        Appreciate the thoughts man!

        See my last post above in regards to the move and taking in my ailing mother...

        Right now, I definitely don't have the time to scout out and analyze properties, and dive into making a purchase, renovation, and all of that. So selling this property would undoubtedly lead to a pile of money sitting and earning nothing in the next several years, and not being redeployed until I'm ready and have the time and energy to devote to starting a real business out of this. 

         Additionally there's another factor...the bank of mom is going to be loaning (gifting, essentially, as an early portion of our inheritance because more than likely she'll be fortunate enough to leave my brothers and I money when she passes way too soon due to this horrific disease) us money for the down payment on the new house. This is taking place because we haven't saved up enough yet for our next down payment, and our whole family agrees we shouldn't be *forced* into selling our home before we're ready to, just so we can take on this impossible task of caring for her. Granted my family will be all hands on deck to help, but being the ones taking her in and uprooting our lives, we will likely be bearing the biggest brunt of it all. 

        I am sorry to hear about your mother, that is heartbreaking.  Aside from that, like I said, you are in an enviable position.  A whole bunch of reasonably positive options for you to choose between.

        0Reply
      • William Walker
        Investor · Wilmington, NC · Member since 2016 · 211 posts · 262 votes
        6y

        i would keep it. 
        for me it’s hard to find good rentals right now. Everyone is acting like you can find a great rental at the drop of a hat. If you sell it you’re going to have to pay realtor fees, spend time finding a new place (sounds like you don’t have time), pay closing costs, etc. yes you’ll have to keep 20% if you refi...guess what...if you buy a rental you’ll have to put 20% down. 
        you know the current capex expectations and the area, sounds close enough to manage yourself. I’d keep it and keep the cash coming in. If you find another rental take the equity out of this thing 

        0Reply
      • Christian D.
        OP
        New to Real Estate · Metro Detroit · Member since 2018 · 26 posts · 7 votes
        6y
        Originally posted by @Jacob Sampson:
        Originally posted by @Christian D.:
        Originally posted by @Jacob Sampson:
        Originally posted by @Christian D.:
        Originally posted by @Jacob Sampson:

        Sell.  There is too much value in the equity.  Plus people rarely purchase their personal residence for a price that makes it a good buy and hold, although in this case yours is pretty close.  Still, even if this thing cash flowes $200/month vs selling and clearing $100k you are getting nearly 42 years of cash flow up front.  Sell.

        Thanks for the input!

        However, at the current mortgage terms, the house will be paid off after 8-9 years (or before), and then (using a quick 50% rule) I should see $750/m in cash flow? Shouldn't that be considered?

        I know this is against the math in many ways...not utilizing leverage is very conservative and doesn't coincide with the math here any in many schools of thought. However...the cash flow would equalize MUCH sooner than 42 years with this approach.

        Also a side thought - I could always do a cash out refi on this and utilize the equity to purchase another property down the line, when my personal time allows for scaling of my rental business. Is this a good/bad idea?

        Absolutely, you should take into account all data points.  It is a critical to good decision making.  I think you are in the enviable position of having many reasonable positive options.  

        Another, item to look at is that, yes, in 8 years you now have greater cash flow.  The question is can you take the 100k and deploy it now and generate even more than $750 in cash flow 8 years from now?  Plus, as was mentioned above, your current return on equity is sh!t.

        Additionally, even at $750 in cash flow 100k is 11 years of that cash flow all up front.  Which still makes it a sell to me.

        Yes you could get the cash out via HELOC, another reasonable idea. But at that point your property is probably in negative cash flow territory.

        Just random thoughts.

        Appreciate the thoughts man!

        See my last post above in regards to the move and taking in my ailing mother...

        Right now, I definitely don't have the time to scout out and analyze properties, and dive into making a purchase, renovation, and all of that. So selling this property would undoubtedly lead to a pile of money sitting and earning nothing in the next several years, and not being redeployed until I'm ready and have the time and energy to devote to starting a real business out of this. 

         Additionally there's another factor...the bank of mom is going to be loaning (gifting, essentially, as an early portion of our inheritance because more than likely she'll be fortunate enough to leave my brothers and I money when she passes way too soon due to this horrific disease) us money for the down payment on the new house. This is taking place because we haven't saved up enough yet for our next down payment, and our whole family agrees we shouldn't be *forced* into selling our home before we're ready to, just so we can take on this impossible task of caring for her. Granted my family will be all hands on deck to help, but being the ones taking her in and uprooting our lives, we will likely be bearing the biggest brunt of it all. 

        I am sorry to hear about your mother, that is heartbreaking.  Aside from that, like I said, you are in an enviable position.  A whole bunch of reasonably positive options for you to choose between.


        Thank you for the kind words. Definitely has been a hard hit to the family.

        And - yes - we are definitely aware that we're in a fortunate position. We got lucky and bought the house cheap...granted prices fell further in 2009 after we bought, but we were still in a good spot having bought after the collapse was already underway.

        I guess having looked at this...I had already formed the opinion that it's not 100% the best business move when you look strictly at the math. You guys are right...that would be selling and using all the tax free liquidity to purchase a 2-3 other properties with a lot of leverage to maximize ROI.

        But the problem is with a sick parent I don't have the time to devote to that...finding those deals, renovating, etc...that's going to take a lot of time. Someday I'll be ready for this, and I can cut my teeth learning to be a landlord in the meantime.

        I suppose I was looking for validation that it isn't an idiotic move to keep the house and just rent it until I'm ready to deploy that equity and scale. The ROI isn't great I know, but it's better than basically nothing. And knowing that the money would just sit if I sold it because of my time constraints, it seems like a viable option to bide my time and deploy it when I'm ready.

        0Reply
      • Christian D.
        OP
        New to Real Estate · Metro Detroit · Member since 2018 · 26 posts · 7 votes
        6y
        Originally posted by @William Walker:

        i would keep it. 
        for me it’s hard to find good rentals right now. Everyone is acting like you can find a great rental at the drop of a hat. If you sell it you’re going to have to pay realtor fees, spend time finding a new place (sounds like you don’t have time), pay closing costs, etc. yes you’ll have to keep 20% if you refi...guess what...if you buy a rental you’ll have to put 20% down. 
        you know the current capex expectations and the area, sounds close enough to manage yourself. I’d keep it and keep the cash coming in. If you find another rental take the equity out of this thing 

        Thanks for your input!

        Yes - this is my thought process...we've lived in the house for 12 years, have remodeled the entire thing top to bottom, so I know what's coming in the near future. Granted smaller things break and so forth, but I have a great picture of the cap ex. 

        0Reply
      • Nik Moushon
        Architect · Wenatchee, WA · Member since 2018 · 843 posts · 907 votes
        6y

        My opinion is it refi into a 30 yr fixed, while rates are still super low, and rent it out. This would bring in more cash flow that could help with any unexpected expenses with your mother. With your unfortunate family situation you have no idea what your short term future will hold. By the time you are ready to move again you would at least have a good place to fall back to or a steady source of income. If you dont refi you could potentially have a free and clear house to move back to as another option. I have a feeling a lot of people dont understand that you are not doing this to get into the rental business. You are doing this to bc of your moms medical situation and are trying to set yourself up for the best start in the future. Whether you refi or not, when you are at the point of being able to jump into the rental business full force I think you will be better off keeping this house. Ya selling it would be better if you were ready to start full time investing NOW but you arent. 

        1Reply
      • Jaysen Medhurst
        Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
        6y

        @Christian D., I'm very sorry to hear about your mom. I just lost one of my oldest friends to ALS three weeks ago.

        As far as what to do with your house:

        1. There is no "math aside" when it comes to rentals. That is the first, second, and only point of holding an investment property.
        2. Your mom's illness is even more reason for you to make a move sooner rather than latter and redeploy your capital. A) You're going to want a steady income stream, B) Over the next 1-2 years you're going to have less and less time and energy to make any moves. Make the effort now to get yourself in a good position for when things start to get hard.
        3. Pulling out part of your equity through a refi probably isn't the best move since A) you will kill most (all) cash flow you have now B) The ~$40k of equity you leave in the house is essentially dead. It's not generating income, nor can it be redeployed. I actually see this as the worst of all choices as it limits what additional properties you can purchase and keeps you locked into a non-performing asset.

        I think there is much more risk keeping your money locked in your current house than if you were to redeploy in a MFR or even just dump it in index funds. With a MFR, you have less vacancy risk, efficiencies of scale, and (if 5+) the ability to force appreciation. With index funds, you're completely liquid and can quickly change your position, if necessary.

        Good luck, brother. Don't hesitate to reach out if you have any other questions or want to talk through options.

        0Reply
      • Account Closed
        Member since 2020 · 122 posts · 11 votes
        6y

        @Christian D. I suggest you keep your home and rent it out to provide you with a second income source.

        0Reply
      • Pesach Weiss
        Member since 2020 · 1 post · 0 votes
        6y
        Originally posted by @Christian D.:
        Originally posted by @Jaysen Medhurst:

        @Christian D., if you hold until it's paid off and cash flow $750/month you'll have a property worth nearly $220k (assuming 2.5% appreciation) with a 4% ROE. Still not great.

        If you cash out refi, it's very unlikely you'll cash flow with your new ~$670 monthly P&I payment (30-year). Go with another 15-year mortgage and you'll definitely be in the red. Plus you will have to leave 20% equity in the property, leaving nearly $40k off the table.

        What's your real hesitation to selling?

        I guess my hesitation is a few things:

        1. I feel like the house is a great candidate for a rental (math aside for right now) based on location, high demand and low supply of rental homes in the area, etc. It's "ready-made" in my mind, as it's already renovated and basically ready to go.
        2. Bringing the math back into the picture, I think it would benefit me to hold a rental property NOW, even if it hovers around zero cash flow. More details here...the reason we need to move is actually that we'll be taking in my ailing mother (devastatingly, she was diagnosed with ALS recently). She'll be paying us rent in the new house to take her in and help with her care, so I will have rental income to declare, and keeping the current home that should net a loss on paper for the next several years w/ depreciation and stuff, will allow me to offset the rental income I'll be getting on the new house. Of course if the rent stays below the gift tax threshold, we could also maybe go that route and it could fly under the radar. I need to talk to a CPA on all of this for sure.
        3. I was thinking leveraging only *part* of the equity could be beneficial too...for down the road when I'm ready to scale. This house could be a tap for me. For example, pulling $100k of equity out would still allow for good cash flow, and could give me funds to buy another property, or 2-3 depending on how the financing is structured, while still keeping cash flow in the green.
          As a worst case if I decide I never want to scale...a paid off rental provides good steady cash flow. This is only a small blip in my investment portfolio...so maybe I'll only ever want the one. Who knows! lol. I know the ROI is smaller, but so is the risk there, right?

         did you think about selling and becoming a real estate investor? you dont have to be as hands on and you can still keep learning about real estate (or you can partner up)

        0Reply
      • Caleb Smith
        Bakersfield, CA · Member since 2019 · 17 posts · 7 votes
        6y

        @Christian D.

        I’d agree with many of these people in the comments: cash out on the equity, especially because of the tax break. Especially since you are thinking long term before going all in on rental homes. When you find a great deal, you can execute. Maybe a purchase every year with minimum down.

        On the other hand, leveraging your equity with a HELOC will allow you a large revolving line of credit. Something that you can BRRRR into great cash flowing properties.

        Good on ya for taking care of your family member; thats admirable.

        0Reply
      • Clint E.
        Investor · Saint Charles, MO · Member since 2016 · 118 posts · 91 votes
        6y

        Lots of guys talking ROE, XYZ, and ABC. This is rental #1 for you, what better way to start off than with a house you know well already, dont have to put 20-25% down, and since you know the rental market you know you'll cash flow. This property will offer you options down the road, especially if paid off. 

        Just find a good tenant and this property will be a good start to your business. 

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