Sell or Rent out?

[Anonymous]

OP, here is another way to look at it.

SELL AND INVEST
Sell and invest the 300K in the market.
It will turn into 650K in 10 years, assuming a conservative 8% annual return. A profit of 350K in 10 years.

RENT
Yearly rental income: $26,400. That's $264K after 10 years.
Assuming a 3% yearly appreciation, your 300K house would be worth 400K in 10 years.
100K appreciation + 264K rental income and you have a profit of 364K in 10 years.

Roughly the same profit. Right? But unlike the sell and invest option, the rental option is not passive.
Also, this analysis didn't include home maintenance cost.

Assuming you spend $40K over the 10 years in repairs and maintenance. You are left with a profit of $324K in 10 years.


Your choice.

[Anonymous]

Sell.

I have a home I have rented out like this for the last decade. It’s in a great school district and wonderful neighborhood. I only rent to people with decent credit, but the last tenant just trashed the place. The husband had anger issues and literally punched a dent in a steel door, holes in the walls, broke plumbing by yanking on it, etc.

I kept most of their security deposit but it took me three years to get them out. I knew they were breaking their lease but they paid so there was very little I could do.

Just be aware that this is a risk. Renting is not passive income. Tenant rights are in a major upswing in the DMV.

[Anonymous]

Anonymous wrote:Sell.

I have a home I have rented out like this for the last decade. It’s in a great school district and wonderful neighborhood. I only rent to people with decent credit, but the last tenant just trashed the place. The husband had anger issues and literally punched a dent in a steel door, holes in the walls, broke plumbing by yanking on it, etc.

I kept most of their security deposit but it took me three years to get them out. I knew they were breaking their lease but they paid so there was very little I could do.

Just be aware that this is a risk. Renting is not passive income. Tenant rights are in a major upswing in the DMV.

Where in DMV?

It doesn't take 3 yrs to evict in VA.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Sell.

I have a home I have rented out like this for the last decade. It’s in a great school district and wonderful neighborhood. I only rent to people with decent credit, but the last tenant just trashed the place. The husband had anger issues and literally punched a dent in a steel door, holes in the walls, broke plumbing by yanking on it, etc.

I kept most of their security deposit but it took me three years to get them out. I knew they were breaking their lease but they paid so there was very little I could do.

Just be aware that this is a risk. Renting is not passive income. Tenant rights are in a major upswing in the DMV.

Where in DMV?

It doesn't take 3 yrs to evict in VA.

Evicting due to property damage is a whole different thing and far more difficult than eviction due to nonpayment of rent. I did get rid of them after all the pandemic pro-tenant crap stopped. I’d never rent in DC. They are still doing that.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Sell.

I have a home I have rented out like this for the last decade. It’s in a great school district and wonderful neighborhood. I only rent to people with decent credit, but the last tenant just trashed the place. The husband had anger issues and literally punched a dent in a steel door, holes in the walls, broke plumbing by yanking on it, etc.

I kept most of their security deposit but it took me three years to get them out. I knew they were breaking their lease but they paid so there was very little I could do.

Just be aware that this is a risk. Renting is not passive income. Tenant rights are in a major upswing in the DMV.

Where in DMV?

It doesn't take 3 yrs to evict in VA.

Evicting due to property damage is a whole different thing and far more difficult than eviction due to nonpayment of rent. I did get rid of them after all the pandemic pro-tenant crap stopped. I’d never rent in DC. They are still doing that.

Can't you just not renew their lease and then take action to evict if they they are hold overs?

[Anonymous]

Anonymous wrote:

Anonymous wrote:Sell.

I have a home I have rented out like this for the last decade. It’s in a great school district and wonderful neighborhood. I only rent to people with decent credit, but the last tenant just trashed the place. The husband had anger issues and literally punched a dent in a steel door, holes in the walls, broke plumbing by yanking on it, etc.

I kept most of their security deposit but it took me three years to get them out. I knew they were breaking their lease but they paid so there was very little I could do.

Just be aware that this is a risk. Renting is not passive income. Tenant rights are in a major upswing in the DMV.

Where in DMV?

It doesn't take 3 yrs to evict in VA.

Doesn’t matter how long it takes. Fact is the tenant could do 10k+ in damages easily and you get to keep the $3-4k deposit only. Then once tenants leave, it will take you 1-2 months to get it ready for sale or rent due to the damages. Not worth the risk. The market is a much safer bet

[Anonymous]

Anonymous wrote:

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.

Yup! Higher returns and no work required.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

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.

Yup! Higher returns and no work required.

The stock market and rental income are completely different. The stock market can have negative returns for a good 10 years, maybe even 20. A halfway decent rental should easily outperform bonds on an after tax basis and probably with less volatility. If someone is looking to retire and doesn't mind the work, then keep it. But I have no idea what the numbers look like if you are younger and choose to sell and dump the proceeds into 100% stocks.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Sell.

I have a home I have rented out like this for the last decade. It’s in a great school district and wonderful neighborhood. I only rent to people with decent credit, but the last tenant just trashed the place. The husband had anger issues and literally punched a dent in a steel door, holes in the walls, broke plumbing by yanking on it, etc.

I kept most of their security deposit but it took me three years to get them out. I knew they were breaking their lease but they paid so there was very little I could do.

Just be aware that this is a risk. Renting is not passive income. Tenant rights are in a major upswing in the DMV.

Where in DMV?

It doesn't take 3 yrs to evict in VA.

Doesn’t matter how long it takes. Fact is the tenant could do 10k+ in damages easily and you get to keep the $3-4k deposit only. Then once tenants leave, it will take you 1-2 months to get it ready for sale or rent due to the damages. Not worth the risk. The market is a much safer bet

So you are out only 6k. This can mostly be mitigated by doing thorough background/eviction/employment/criminal history checks.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Sell.

I have a home I have rented out like this for the last decade. It’s in a great school district and wonderful neighborhood. I only rent to people with decent credit, but the last tenant just trashed the place. The husband had anger issues and literally punched a dent in a steel door, holes in the walls, broke plumbing by yanking on it, etc.

I kept most of their security deposit but it took me three years to get them out. I knew they were breaking their lease but they paid so there was very little I could do.

Just be aware that this is a risk. Renting is not passive income. Tenant rights are in a major upswing in the DMV.

Where in DMV?

It doesn't take 3 yrs to evict in VA.

Doesn’t matter how long it takes. Fact is the tenant could do 10k+ in damages easily and you get to keep the $3-4k deposit only. Then once tenants leave, it will take you 1-2 months to get it ready for sale or rent due to the damages. Not worth the risk. The market is a much safer bet

So you are out only 6k. This can mostly be mitigated by doing thorough background/eviction/employment/criminal history checks.

First, it's not just $6K. You are also out the 1-2 months it is vacant and loss of rent. So lets say $3.5K/month or $7K. Now it's up to $13K. Plus you have to manage the repair work/contractors. That 1-2 months could become 2-4 months as you wait for them to do the work/get parts/etc.

Also, not always do the background checks fully help. I know of a Doctor who rented in our luxury condo building. On paper and with background checks, appeared to be an excellent tenant---you'd never think there would be issues. Got annoyed at several noise complaints against them. One day turned on several faucets, closed the drains and left the building. Did over $300K in damages (not hard to do with water damages in high rise building, it spread to 6+ units). Since it was tenants fault/negligence, the HOA refused to use their insurance and turned it all on the owner.
All done by a tenant who appeared to be top notch, hassle free, excellent tenant. That owner spent over a year getting it settled with their own insurance company. Also, the HOA tells us we only typically need to have $50K in insurance (before our own belongings) as we are only responsible for the Deductible, then the condo insurance picks up the rest---howerer, that's not the case if you are negligent. So the owner may not have had $300K+ in coverage.

That is not the only "nightmare" case I've heard of in nicer homes/condos. Terrible tenants exist at every level. Fact is you have to manage it all when the issues occur and could be out $$$$ and lots of hassle.

Much easier to invest and not have the hassle of being a landlord

[Anonymous]

Speaking as an accidental landlord, I say just sell. In my case, this was a property I was living in so I renovated to my tastes. However, I over-renovated for the area and would not have gotten back what I put in if I sold. I have been renting it out ever since (8 years) and have basically regretted every minute of it.

Mind you, I've had great, high-income tenants who never missed a single payment. It's still a pain. And now, I'll probably never sell because I'd have to give back all the depreciation tax benefits -- those "tax advantages" aren't so great unless you never sell.

Overall, the only thing I like about the rental is that it's a place to put a big chunk of money that provides steady income and minimizes my freakouts when the stock market is down. But becoming a landlord is still my one and only financial regret.

[Anonymous]

Anonymous wrote:We are in a similar position and will be renting our home out. The house has a 2% mortgage and is inside the beltway walking distance from a Metro stop in a highly desirable school pyramid. We are going to hang on to it.

Not thrilled about becoming a landlord, but we have the skills and time to do it.

Do you have a separate fund for repairs on the rental home? Tenants are much more damaging to homes than owner occupants usually. Landlords can only recoup so much from tenants. Most of them are broke and tenant protections mean that you as the owner are on the hook for most of what they break. FYI.

I just had a tenant move out and do well over 10k worth of damage to the property but all I could do was withhold most of the security deposit. It happens sometimes. You need to be prepared for that liability if you want to be a landlord.

[Anonymous]

Anonymous wrote:Speaking as an accidental landlord, I say just sell. In my case, this was a property I was living in so I renovated to my tastes. However, I over-renovated for the area and would not have gotten back what I put in if I sold. I have been renting it out ever since (8 years) and have basically regretted every minute of it.

Mind you, I've had great, high-income tenants who never missed a single payment. It's still a pain. And now, I'll probably never sell because I'd have to give back all the depreciation tax benefits -- those "tax advantages" aren't so great unless you never sell.

Overall, the only thing I like about the rental is that it's a place to put a big chunk of money that provides steady income and minimizes my freakouts when the stock market is down. But becoming a landlord is still my one and only financial regret.

I don't know anyone who was happy with the choice to rent out their home and become a landlord.

[Anonymous]

Anonymous wrote:

Anonymous wrote:We are in a similar position and will be renting our home out. The house has a 2% mortgage and is inside the beltway walking distance from a Metro stop in a highly desirable school pyramid. We are going to hang on to it.

Not thrilled about becoming a landlord, but we have the skills and time to do it.

Do you have a separate fund for repairs on the rental home? Tenants are much more damaging to homes than owner occupants usually. Landlords can only recoup so much from tenants. Most of them are broke and tenant protections mean that you as the owner are on the hook for most of what they break. FYI.

I just had a tenant move out and do well over 10k worth of damage to the property but all I could do was withhold most of the security deposit. It happens sometimes. You need to be prepared for that liability if you want to be a landlord.

Plus, even with good/decent tenants, most are not going to notice issues in the early stages. Once they tell you something is wrong, there might be water damage/major issues. Whereas if you were living there, you'd notice the slightest issue and address it before the issues compound.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:We are in a similar position and will be renting our home out. The house has a 2% mortgage and is inside the beltway walking distance from a Metro stop in a highly desirable school pyramid. We are going to hang on to it.

Not thrilled about becoming a landlord, but we have the skills and time to do it.

Do you have a separate fund for repairs on the rental home? Tenants are much more damaging to homes than owner occupants usually. Landlords can only recoup so much from tenants. Most of them are broke and tenant protections mean that you as the owner are on the hook for most of what they break. FYI.

I just had a tenant move out and do well over 10k worth of damage to the property but all I could do was withhold most of the security deposit. It happens sometimes. You need to be prepared for that liability if you want to be a landlord.

Plus, even with good/decent tenants, most are not going to notice issues in the early stages. Once they tell you something is wrong, there might be water damage/major issues. Whereas if you were living there, you'd notice the slightest issue and address it before the issues compound.

In my experience, when tenants do damage and know they are responsible, they live with the damage, never say a word about it, and only mention it if it is noticed in the final walk through. The deliberate sabotage tenants are the worst. Good tenants can turn bad when they are notified that their lease will not be renewed. Even fraudulent. It’s a liability. Very few people think about these risks before they rent out their homes.