Sell or Rent out?

[Anonymous]

I thought this might be an interesting question where you had a 300k property with a 250 mortgage @ 3%. In your case, it is a no brainer that renting your current home is not the right choice.

Rarely are properties that are bought to live in good investment properties. Being a landlord is a lot of work, so owning a single property is also rarely a good financial decision. Property ownership really only shines when you can leverage things and borrowing money at 7% does not make sense.

[Anonymous]

Rent of course. Higher a property manager. Then who cares if there are issues...that is why you hired them. Passive income. I would never sell.

[Anonymous]

One really bad tenant can screw you up for years. And years. Hard to evict plus you lose all the unpaid rent and there's often damage too.

[Anonymous]

Anonymous wrote:Assuming your question is a financial one...

Assume you net $300k on the sale.

You'll receive $26,400 in rent.

You'll owe $5k in taxes. Assume you'll need to pay $3k in expense per year. And assume you'll have 0% vacancy rate.

You'll net about $18k/year on an asset you could net $300k if sold. That's a 6% cash on cash return under ideal circumstances.

Or you can get a 5%+ return by parking the $300k in short term treasuries -- risk free and no hassle of being a landlord.

Or you can get more than that in other marketable investments.

Sell it.

0% vacancy rate is extremely optimistic. $3K in annual expenses is also a bit low, especially for rentals that take a beating and need frequent painting. Plus some years may be $20K+ if it's time for a roof replacement.

It's rarely a better return to rent rather than sell and invest the money, plus it's a lot more work being a landlord.

[Anonymous]

Anonymous wrote:One really bad tenant can screw you up for years. And years. Hard to evict plus you lose all the unpaid rent and there's often damage too.

+1 NEVER be a landlord in DC. It could financially ruin you.

[Anonymous]

What is your cost basis on the house?

[Anonymous]

Anonymous wrote:

Anonymous wrote:Assuming your question is a financial one...

Assume you net $300k on the sale.

You'll receive $26,400 in rent.

You'll owe $5k in taxes. Assume you'll need to pay $3k in expense per year. And assume you'll have 0% vacancy rate.

You'll net about $18k/year on an asset you could net $300k if sold. That's a 6% cash on cash return under ideal circumstances.

Or you can get a 5%+ return by parking the $300k in short term treasuries -- risk free and no hassle of being a landlord.

Or you can get more than that in other marketable investments.

Sell it.

0% vacancy rate is extremely optimistic. $3K in annual expenses is also a bit low, especially for rentals that take a beating and need frequent painting. Plus some years may be $20K+ if it's time for a roof replacement.

It's rarely a better return to rent rather than sell and invest the money, plus it's a lot more work being a landlord.

Plus even the best vetted tenants can be a disaster. We live in a luxury condo building. As I read the HOA meeting notes before moving in, realized there was a tenant in one unit who basically got pissed at noise compliants, so they plugged all drains, and turned on several faucets and left the premises. Flooding multiple units, causing easily $400K+ of damages.
That tenant was a DOCTOR. Someone who you'd vet and think "great, I've got an awesome tenant, who will take care of the property and always pay rent". Instead they had to evict them, and fight with their insurance to get them to pay out.

IMO, unless you are renting in a resort/beachy area where the returns are high, it's not worth the risk. Sell the property and invest in the SP500 and you likely will come out ahead, certainly will have less headaches/stress

[Anonymous]

Anonymous wrote:Assuming your question is a financial one...

Assume you net $300k on the sale.

You'll receive $26,400 in rent.

You'll owe $5k in taxes. Assume you'll need to pay $3k in expense per year. And assume you'll have 0% vacancy rate.

You'll net about $18k/year on an asset you could net $300k if sold. That's a 6% cash on cash return under ideal circumstances.

Or you can get a 5%+ return by parking the $300k in short term treasuries -- risk free and no hassle of being a landlord.

Or you can get more than that in other marketable investments.

Sell it.

Your return calculations don't include appreciation on the property. If the property appreciates at 3% a year, then the return is boosted to 9%.

Note, however, that if you decide to rent the property out, and you do so for more than 2 years, then if you eventually sell the property you will have to pay tax on the capital gains. In contrast, if you were to sell the property now, and then buy a new primary residence, you would be exempt from capital gains. This is an important consideration.

[Anonymous]

I'd lean towards renting if in VA and maybe MD. Sell if in DC, given the red tape.

[Anonymous]

I'd sell since you have no leverage in the investment. It is 100% equity and that's not a great return on equity.

Now if you had a $250K principal balance and a 2.75% interest rate, I'd tell you to keep that rental until its paid off. That's basically free leverage.

[Anonymous]

Since you own the property outright, I agree with others that this is not a good candidate for a rental home. Unless you have ties to the house and plan to move back to it at some point in the future.

1) If you sell it and buy the other house, you don't pay capital gains tax on the appreciation gain. This is a big deal.

2) Since you own the property outright, you can't deduct mortgage interest as a cost on your rental income, which you are taxed on.

3) All the people who are saying "just hire a property manager" don't realize that the 8-10% the property manager charges from the rent will further negate any advantage to having a rental house vs. investing in the market.

[Anonymous]

Anonymous wrote:Since you own the property outright, I agree with others that this is not a good candidate for a rental home. Unless you have ties to the house and plan to move back to it at some point in the future.

1) If you sell it and buy the other house, you don't pay capital gains tax on the appreciation gain. This is a big deal.

2) Since you own the property outright, you can't deduct mortgage interest as a cost on your rental income, which you are taxed on.

3) All the people who are saying "just hire a property manager" don't realize that the 8-10% the property manager charges from the rent will further negate any advantage to having a rental house vs. investing in the market.

+1

And hiring a PM doesn't ensure you won't go 1-2 months without a tenant at times. Also doesn't guarantee the tenant wont destroy the home beyond the deposit amount.

Most I know who have rented like this have regretted it. Rarely do you even break even. It's a hassle and you'd be better off with the money in the stock marekt

[Anonymous]

Anonymous wrote:

Anonymous wrote:Since you own the property outright, I agree with others that this is not a good candidate for a rental home. Unless you have ties to the house and plan to move back to it at some point in the future.

1) If you sell it and buy the other house, you don't pay capital gains tax on the appreciation gain. This is a big deal.

2) Since you own the property outright, you can't deduct mortgage interest as a cost on your rental income, which you are taxed on.

3) All the people who are saying "just hire a property manager" don't realize that the 8-10% the property manager charges from the rent will further negate any advantage to having a rental house vs. investing in the market.

+1

And hiring a PM doesn't ensure you won't go 1-2 months without a tenant at times. Also doesn't guarantee the tenant wont destroy the home beyond the deposit amount.

Most I know who have rented like this have regretted it. Rarely do you even break even. It's a hassle and you'd be better off with the money in the stock marekt

My DH inherited a couple of modest SFHs, probably like the one you own. He rented them out for a few years but then sold because it was a PITA and putting the money in the market was more profitable.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Since you own the property outright, I agree with others that this is not a good candidate for a rental home. Unless you have ties to the house and plan to move back to it at some point in the future.

1) If you sell it and buy the other house, you don't pay capital gains tax on the appreciation gain. This is a big deal.

2) Since you own the property outright, you can't deduct mortgage interest as a cost on your rental income, which you are taxed on.

3) All the people who are saying "just hire a property manager" don't realize that the 8-10% the property manager charges from the rent will further negate any advantage to having a rental house vs. investing in the market.

+1

And hiring a PM doesn't ensure you won't go 1-2 months without a tenant at times. Also doesn't guarantee the tenant wont destroy the home beyond the deposit amount.

Most I know who have rented like this have regretted it. Rarely do you even break even. It's a hassle and you'd be better off with the money in the stock marekt

+1 to these pp's

[Anonymous]

Anonymous wrote:I'd sell since you have no leverage in the investment. It is 100% equity and that's not a great return on equity.

Now if you had a $250K principal balance and a 2.75% interest rate, I'd tell you to keep that rental until its paid off. That's basically free leverage.

+1
Well said.

100% equity in a real estate investment is a bad deal. One the main reasons why real estate investing is financially appealing is leverage. Without leverage, the return on equity is low and not worth it except if you already have so many other investments and parking your money in real estate just for diversification.