Keep current home for rental or sale

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nj121
Posts: 1
Joined: Sun Oct 29, 2017 8:55 pm

Keep current home for rental or sale

Post by nj121 » Sun Oct 29, 2017 9:03 pm

Hi guys,

I am a new member here and this is my first post (I am already excited to be part of this great group and yes I learnt about index funds from this site so thank you already)

This is my situation:
I bought the home for 300k and current market value is 370k.
Based on current market value i have 200k equity on this home.
I live next to big university and homes around here doesn't stay vacant at all and we rent it to Masters or PHD students.
I can get 2400/month rent and I will be managing the property. (Will have 600 cashflow/month) (Never been landloard myself)
We have 10% down for our next home and we will be able to get/save 10% in next 2 years and remove pmi.

In this situation, would you guys suggest to keep the home and rent it or just sale it?

Let me know if you need any further information.

Thank you,
-Raj

tampaite
Posts: 389
Joined: Wed Feb 18, 2015 9:29 pm

Re: Keep current home for rental or sale

Post by tampaite » Mon Oct 30, 2017 7:29 am

nj121 wrote:
Sun Oct 29, 2017 9:03 pm

I bought the home for 300k and current market value is 370k.
Based on current market value i have 200k equity on this home.
I can get 2400/month rent and I will be managing the property. (Will have 600 cashflow/month) (Never been landloard myself)
We have 10% down for our next home and we will be able to get/save 10% in next 2 years and remove pmi.

No details provided in your post regarding your income or assets. Short anwer - Sell, unless you like being a landlord.

euroswiss
Posts: 89
Joined: Sun Oct 25, 2015 4:40 pm

Re: Keep current home for rental or sale

Post by euroswiss » Mon Oct 30, 2017 7:44 am

Just from the numbers you provided, I don’t think renting it out would be your best move. The return is too small relative to the value of the asset. Also, how solid is your rent estimate, and have you accounted for CapEx, maintenance, vacancy cost, tenant turnover, etc.? Finally, in some parts of the country, insurance cost as well as property taxes for rentals are significantly higher than for owner-occupied properties. Some localities have mandatory inspections and require landlord permits. Have you done your research on that? Finally, I hope you don’t just subtract your mortgage payment from your theoretical rent proceeds to come up with your $600 cashflow (like many first time landlords do), because you will be in for a disappointment that way.
Now, if you think your property will massively appreciate in value over the near/mid term then you may decide to speculate on big capital gains and rent it out in the hope of striking it rich. In most part of the country, the real estate market is quite hot though, and you probably have just as good a chance that the bubble will pop in the next few years.
I would take the profit while you can and sell.

Lakeparty
Posts: 19
Joined: Mon Apr 25, 2016 7:57 am

Re: Keep current home for rental or sale

Post by Lakeparty » Mon Oct 30, 2017 8:11 am

Hard to cash flow as well with 54% paid down (200k). If you want to rent it long term you may want to refi it on a 30 year note and get a really good rate while it is still your homestead and pull money out to only have 20-25% in it (74-92.5k). That way you will cashflow much easier/better. Go buy a new home with your left over cash or invest it Bogle style :D

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Pajamas
Posts: 2780
Joined: Sun Jun 03, 2012 6:32 pm

Re: Keep current home for rental or sale

Post by Pajamas » Mon Oct 30, 2017 8:19 am

Can't imagine that it is a good idea to rent a nice house to college students, no matter how careful you are, because I have been a college student who rented houses and apartments. I was always very responsible and had responsible roommates but still think that. I also think you are underestimating the amount of time, mental effort, and risk involved.

Furthermore, I suspect that your desire to be a landlord is affected by status quo bias and that you would not be actively seeking to buy a house to rent to college students if you didn't already happen to own a house, and that even if you DID decide to be a landlord to college students, you would probably choose a different property than the house you live in now.

You should also check to see what your mortgage and homeowner's insurance both say about the owner occupying the property vs. leaving it empty or renting it to others. You might need a new mortgage and almost certainly would need different insurance.

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