Rent out or sell to reinvest equity gains elsewhere?

[David Smith]

Hi all,

Long time forum lurker looking for advice on how to move forward from my first home.  Property is located in northern Sacramento in California.  Employment sectors for Sacramento are founded in government sector employees and are very stable; in addition, a number of large businesses have moved into the area.  However, the CA state government and even more so the Sacramento local government are not landlord friendly and every year new restrictions are placed on the ballots.  A citywide homelessness action plan was recently approved by the city council that places a 200 person safe land/lot location on the outskirt of my subdivision.  This may or may not impact rental returns, but I assume it will limit equity gains in the future.  

My current decision is whether to rent this property out (which was always the goal) and move into a new home, or sell this property to capture the equity gains and invest in something else for better returns.  I have lived in the property for the last five years.  Big ticket maintenance item repairs are not expected for years - most are within 7y (roof/hvac) or newer (floors, windows, water heater).  I am flexible with where/how I live to make either option work.  I have other money to use on a new down payment without the sale of this home if needed.  I am familiar with the concepts, but currently have no experience in landlording or investing in outside markets.  Any feedback on which avenue to move down and how to better utilize the cash if selling is elected is greatly appreciated!

The numbers:

• Property value: $421,000
• Mortgage: $241,000
• Potential cash from sale: $154k (after fees)
• Potential gross rent: $2,100-$2,300 (used $2,200 for calcs)
• Potential net rent: $277/m (excluding equity gain on mtg)

• Estimated monthly costs

• PI: $1027
• Property Taxes: $233
• Home/Flood Ins: $112
• PM (10%): $220
• Vacancy (5%): $110
• Maintenance (10%): $220