Sell it or rent it out?

[Anonymous]

Anonymous wrote:$50k in savings is not very much to buy a new house and carry an existing house. I would sell and use a chunk for the down payment and the rest for investments.

I agree. You have a good HHI, but no cash. How would you purchase the new home without getting the equity out of the current one? After using the 50K for downpayment/closing costs/moving costs, would you still have an adequate emergency fund?

What price range would you be looking in? If you want to rent out the current place, I would wait a year or two and save up enough cash to make a decent down payment.

[Anonymous]

OP, we did something very similar last year except the property was in VA. Breakdown was as follows:

Mortgage remaining: $140k
Home value: $450k
Monthly PITI & condo fees: $1400
Rent: $2600
HHI: $170K

Theoretically this nets us over $14K/year in income, which is pretty much a 5% return on the $280K of so equity that we have. The property is in a great location and increased about 8% in value this year. But our stock investments returned close to 20% this year, and we didn't get the full profit from our rental because we had to spend about $4k in special assessments (it's a condo) for building repair.

So I wouldn't call it a financial win. However, we have about $500K invested in the stock market outside of our retirement plans, so we felt comfortable diversifying in this way. I wouldn't do it otherwise, and I especially wouldn't do it if I didn't already have at least 20% in cash savings to put down on the new home. It's expensive to maintain two properties.

[Anonymous]

Anonymous wrote:OP, we did something very similar last year except the property was in VA. Breakdown was as follows:

Mortgage remaining: $140k
Home value: $450k
Monthly PITI & condo fees: $1400
Rent: $2600
HHI: $170K

Theoretically this nets us over $14K/year in income, which is pretty much a 5% return on the $280K of so equity that we have. The property is in a great location and increased about 8% in value this year. But our stock investments returned close to 20% this year, and we didn't get the full profit from our rental because we had to spend about $4k in special assessments (it's a condo) for building repair.

So I wouldn't call it a financial win. However, we have about $500K invested in the stock market outside of our retirement plans, so we felt comfortable diversifying in this way. I wouldn't do it otherwise, and I especially wouldn't do it if I didn't already have at least 20% in cash savings to put down on the new home. It's expensive to maintain two properties.

PP here again. Forgot to mention, our new mortgage was $450K which sounds like the ballpark you are considering. Frankly, it's a lot of debt to be carrying on our income, even though both mortgages are under 4% and both properties have solid equity. Again, I wouldn't have done it if we didn't have a large cash/investment cushion to fall back on.

[Anonymous]

Agree that $50k is not much cash to bring to a real estate transaction around here. You'll need more than double that for a $500k house, and $500k doesn't get you much. I also don't deny landlording success stories, but I suspect there are a lot of ways for it to go wrong. Succeeding requires dedication and luck and incurs risk like anything else. Unless you have an exceptional knack or desire for landlording, there are easier ways to invest. And it doesn't sound like the rental market is particularly more lucrative than the real estate market right now. So I say sell the house and fund your new house plus hopefully some savings/investments, keeping things reasonably simple. Life is complicated enough.

[Anonymous]

Anonymous wrote: I am in the same situation as the OP, but I am in VA. We did the calculation and decided not to rent it out. Here's reason. Let's say the house is worth $350K and rental income is $2,000 per month, after expense (property taxes, insurance, HOA, repair, etc), you get about $18,000 per year (you may not get this much if required more repair throughout the year), then the return of investment is about 5%. Yes, I know the house can appreciate over time and tax deduction of the depreciation value of the house. Yes, the house can lose value as well (as in 2008 housing bubble) and yes, you will pay tax when you sale your house in the future because of the depreciation of the tax you take over the years.

BINGO - If you convert your home into a rental, then you have to pay income tax on all that gain. Say you earned 200K in equity, that's very roughly $50,000 in tax. PLUS, you have to claim the rental income as taxable income, and you cannot use the whole mortgage payment as a write off - only the mortgage interest. I say sell. Protect your gains from tax. You can always buy another property to have as an investment.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Another to consider is capital gains tax. You will not have to pay this on up to $500K (if married) if you sell your primary residence before moving into another one, but if you will if you sell it as a rental down the road.

There may be some exemptions you can apply here, not sure.

As long as you have lived in the house for 2 out of the last 5 years, you won't have to pay capital gains on the home sale.

I think PP's point was that if I rent the house out for 10 years and then sell it, I'll have to pay cap gains if it's over $500k.

You get the $500K(married couple) tax exempt only you move back in the rental property for two year before you sell. Otherwise, this statement is not true.

[Anonymous]

Sell it.
You also have to consider if you have time to take care of the house you are renting, find a responsible tenant. All that takes time. If something breaks, who will fix them. Have that written down. If you have a family with kids, you won't have time for this and may need to use a rental company...meaning, more money to dish out.

My brother had a nightmare renting his home. Every couple of months, he had to fix something.

[Anonymous]

Anonymous wrote:Sell it.
You also have to consider if you have time to take care of the house you are renting, find a responsible tenant. All that takes time. If something breaks, who will fix them. Have that written down. If you have a family with kids, you won't have time for this and may need to use a rental company...meaning, more money to dish out.

My brother had a nightmare renting his home. Every couple of months, he had to fix something.

And just to reiterate about the tenant-friendly DC laws, it's almost impossible to evict a bad tenant, even if they don't pay their rent.

[Anonymous]

I agree with PPs that I would sell, but then again I have no interest in being a landlord. It's just too risky and expensive. My MIL, who worked in real estate for years and owns 6 investment properties, thinks people are idiots for selling their houses and not keeping them as investments. I look at it this way: real estate is one way to invest. It is not the only way, and it has downsides and risks that a lot of people are not interested in. Only you can decide what you are willing to live with. Personally for me a house is a place to live. I'm interested in paying off my forever house before retirement but not in owning multiple properties. Now if this was 2009 (e.g. a bad seller's market), I would probably advise hanging on to it for a few years or until things improved. But we're there now, and it is an excellent time to sell.