Deciding if it will be a good investment to rent out or sell existing house

[James Krywin]

Hi All,

I am in the process of moving and am at a cross-roads. I need to determine where I should sell or rent out my house.

To do so, I am need to understand what is considered the "breakeven" and "target" % of rent versus a property's costs. For example, if the property was $3,000 in mortgage payments (including taxes). What should we target to have the rent as (I do understand that rent is decided by the local prices)?

If the property could generate rent that $4,000 of the mortgage, is that a good deal? This would give ~133% of the mortgage amount and 12k annually (assuming no vacancy).

By my crude calculations, if things were to go wrong each year (e.g., bathroom fixes, boiler, roof repair, etc.), this 12k should be able to roughly cover those expenses (give or take). Am I missing something?

As for selling the house.. I have lived in the house for nearly a year during which I have been aggressively renovating. This has improved the prices of the property, but it is not enough based on a house flipper's calculations (estimated an ROI of ~7-11%). I am hoping that the wider group here can advise on the rental cash flow amount as well as any additional factors to consider. Thanks!

[Alecia Loveless]

@James Krywin Hi James, it is dependent upon the area as to whether or not the tenant in a SFH will be responsible for the water and sewer bills or if that will fall to the owner. If is not customary in my location for tenants to pay this and the municipalities won't let those utilities be transferred into the tenants name, so if I were to charge for this I would have to either bill the tenant each time I received the invoice from the utility or simply work an average cost into the rent. This may be an additional cost you have not factored into your accounting as well such as trash pickup if there is an additional expense for that or if the tenant will have to pay for that or if there's a transfer station.

Otherwise you’ve basically got your figures correct.

Biggerpockets has a Rental Calculator on their website under the tools section that you can use 5 times for free. If allows you to calculate for a vacancy percentage each month, I typically use 5% of rent, a CapEx percentage for things like the roof or furnace, once again if those are in pretty good shape I will use 5% and repairs and maintenance.

[James Krywin]

Ok, thank you Alecia. You are correct. I did not factor garbage/trash and utilities such as electricity. I'll need to see what can be transferred onto the tenant. I am aware that garbage can be self-serve here. Water is well and sewage is septic, so that has been factored into my rental calculations.

I will look into the calculator in a bit. Appreciate your response. Thanks