Rent current house or sell and invest?

[Anonymous]

We have ~200K equity in our current SFH..
In the market for a new house now, and contemplating whether or keep and rent current home or sell and invest the proceeds (estimating ~160k after selling costs?).
FWIW, house is older and will need roof, HVAC in the next ~5 years. However interest rate is 3%.
Aside from the responsibility of being a landlord, what are other pros and cons to each?

[Anonymous]

What is your financial goal? Do you plan on buying more rentals or will this be a one and done?
What is rent in your area for a home like yours? What is your current mortgage with PITI?

[Anonymous]

Sell and invest.

[Anonymous]

Sell it immediately before it falls apart.

[Anonymous]

sell it. roof and HVAC are MAJOR costs and a huge hassle, and I have to imagine other things will pop up too, if that is the case (we have a similarly old house and have done roof and HVAC, then also need to get it brickpointed, needed a new boiler, etc etc etc. tens of thousands of dollars flow out constantly. We love our house and want to live here forever, so it's worth it, but these old houses take a lot of money.

[Anonymous]

How much rent do you expect to get for your current house? How much can you sell it for? What's your monthly payment?

[Anonymous]

Similar, 2.5% mortgage on our old house and we decided to keep and rent it out although we just bought a new house.

Pros:
- the house itself is an ok SFH for rental because it is small, walkable to a lot of amenities and to metro, small yard to maintain but also enough bedrooms for young family and good schools. So it can work for multiple demographics (young couples, young or small families, older people)
- DH really wanted to keep our $$ in real estate instead of adding investments in stock market. We know that house and it’s maintenance costs so it is easier than buying other investment properties (but for sure not as good an investment as apartments would be)
- we are planning on keeping the house for a very long time, hopefully even passing it on to our kids

Cons:
- I don’t think we would have done it with a house that needed a lot of investments. You need to calculate your return rate based on the rent you plan on charging. Our current house PITI is 2500 we are renting it at 3500 (based on comp we thought rent for that house could be anywhere between 3250 and 3800). We are not planning to make a profit on it, just be able to maintain the house for the coming 5/8 years with average 12k positive cash-flow. Then with rent increase maybe it will start to provide some cash-flow
- we would not have done it if we didn’t plan to keep it for long term because then you lose the tax benefits linked to selling your primary home (you need to have lived in your home 2 out of the last 5 years to be exempt of taxes on profit -up to a certain amount that I forget now). That to me was a key factor.
- we will be living nearby which will save us money on property management. Planning to do it ourselves


All in all it wasn’t a clear cut smart choice. It made sense for us based on specific house, being able to get 1k a month to reinvest in house and the fact that we wanted to keep more real estate and are ready to hold it forever

[Anonymous]

Keep for benefit, sell for convenience.

[Anonymous]

I don't understand why you would not put the proceeds from the sale toward the new house when mortgage rates are 6 percent.

[Anonymous]

Anonymous wrote:I don't understand why you would not put the proceeds from the sale toward the new house when mortgage rates are 6 percent.

This. Being a landlord, supervising major renovations where you won't be able to have a tenant (nobody will rent a place while the roof and HVAC are being redone), losing the capital gains exclusion and the homestead deduction...there are easier ways to make money, like having a smaller mortgage payment on the house you live in.

[Anonymous]

We rented and sold after 2 years because it wasn't worth the hassle. I wish we'd sold originally, we would have saved so much money and time.

Renters will never be as good to your house as you are. If your house is in decent but not great shape, things will break, and it won't be the things you expect. A faucet handle. A toilet that leaks, etc. A property manager will do the bare minimum so you have to plan on actively managing them.

If you know that the roof and HVAC need to be replaced, make a plan now and get your quotes. I'd even consider replacing the HVAC before you rent it out because if the heat goes out in the dead of winter, you have a real problem to keep your tenants warm. Especially if equipment is in short supply, there's not time to shop extensively for quotes and parts.

[Anonymous]

Anonymous wrote:Similar, 2.5% mortgage on our old house and we decided to keep and rent it out although we just bought a new house.

Pros:
- the house itself is an ok SFH for rental because it is small, walkable to a lot of amenities and to metro, small yard to maintain but also enough bedrooms for young family and good schools. So it can work for multiple demographics (young couples, young or small families, older people)
- DH really wanted to keep our $$ in real estate instead of adding investments in stock market. We know that house and it’s maintenance costs so it is easier than buying other investment properties (but for sure not as good an investment as apartments would be)
- we are planning on keeping the house for a very long time, hopefully even passing it on to our kids

Cons:
- I don’t think we would have done it with a house that needed a lot of investments. You need to calculate your return rate based on the rent you plan on charging. Our current house PITI is 2500 we are renting it at 3500 (based on comp we thought rent for that house could be anywhere between 3250 and 3800). We are not planning to make a profit on it, just be able to maintain the house for the coming 5/8 years with average 12k positive cash-flow. Then with rent increase maybe it will start to provide some cash-flow
- we would not have done it if we didn’t plan to keep it for long term because then you lose the tax benefits linked to selling your primary home (you need to have lived in your home 2 out of the last 5 years to be exempt of taxes on profit -up to a certain amount that I forget now). That to me was a key factor.
- we will be living nearby which will save us money on property management. Planning to do it ourselves


All in all it wasn’t a clear cut smart choice. It made sense for us based on specific house, being able to get 1k a month to reinvest in house and the fact that we wanted to keep more real estate and are ready to hold it forever

OP. Thanks so much for this thoughtful response.
Characteristics of the house are similar.
However, the difference between our PITI (2300) and potential rent ( ? 2800) is much smaller and I think that's the most significant point.
In theory, keeping and renting out sounds great, but then I think about the "issues" associated with an older house and it sounds like a headache.

[Anonymous]

Anonymous wrote:I don't understand why you would not put the proceeds from the sale toward the new house when mortgage rates are 6 percent.

We have 25%+ DP on new house without using proceeds from current house.
Isn't rule of thumb that its better to invest after you put enough down to get best interest rate?

[Anonymous]

Anonymous wrote:

Anonymous wrote:I don't understand why you would not put the proceeds from the sale toward the new house when mortgage rates are 6 percent.

This. Being a landlord, supervising major renovations where you won't be able to have a tenant (nobody will rent a place while the roof and HVAC are being redone), losing the capital gains exclusion and the homestead deduction...there are easier ways to make money, like having a smaller mortgage payment on the house you live in.

We are in MD. I thought you were exempt from capital gains if lived in house for >2 yrs and make less than 500K off the house? Also wouldnt we get homestead deduction on new house?

[Anonymous]

Anonymous wrote:

Anonymous wrote:Similar, 2.5% mortgage on our old house and we decided to keep and rent it out although we just bought a new house.

Pros:
- the house itself is an ok SFH for rental because it is small, walkable to a lot of amenities and to metro, small yard to maintain but also enough bedrooms for young family and good schools. So it can work for multiple demographics (young couples, young or small families, older people)
- DH really wanted to keep our $$ in real estate instead of adding investments in stock market. We know that house and it’s maintenance costs so it is easier than buying other investment properties (but for sure not as good an investment as apartments would be)
- we are planning on keeping the house for a very long time, hopefully even passing it on to our kids

Cons:
- I don’t think we would have done it with a house that needed a lot of investments. You need to calculate your return rate based on the rent you plan on charging. Our current house PITI is 2500 we are renting it at 3500 (based on comp we thought rent for that house could be anywhere between 3250 and 3800). We are not planning to make a profit on it, just be able to maintain the house for the coming 5/8 years with average 12k positive cash-flow. Then with rent increase maybe it will start to provide some cash-flow
- we would not have done it if we didn’t plan to keep it for long term because then you lose the tax benefits linked to selling your primary home (you need to have lived in your home 2 out of the last 5 years to be exempt of taxes on profit -up to a certain amount that I forget now). That to me was a key factor.
- we will be living nearby which will save us money on property management. Planning to do it ourselves


All in all it wasn’t a clear cut smart choice. It made sense for us based on specific house, being able to get 1k a month to reinvest in house and the fact that we wanted to keep more real estate and are ready to hold it forever

OP. Thanks so much for this thoughtful response.
Characteristics of the house are similar.
However, the difference between our PITI (2300) and potential rent ( ? 2800) is much smaller and I think that's the most significant point.
In theory, keeping and renting out sounds great, but then I think about the "issues" associated with an older house and it sounds like a headache.

You will be loosing money with that! The extra $500 has to cover all expenses. With a house that age you can easily expect $6k each year, some years more. If heat goes and you have tenants you can’t get 3 quotes and wait a week—you have to pay extra and get it done asap or spend $600 on individual heaters/etc. roof alone will run you more than 6k. Your “profits “ from first two years are already gone to roof and hvac , I’d not more. If you need to hire a property manager, that eats into your profits as well—-but are you ready ti manage it when the plumbing leaks and you are on vacation?