Rent Out or Sell?

9 years ago

We are renting out our prior home that we moved out of last year. We have about 50% equity in the property, and net about $300 profit on it per month after mortgage and water are paid. The real estate market is really good in our area at this time for houses in that price range. The renter's lease is up next month and we are debating whether to rerent or sell. Is there a formula for deciding which is best? Are we making enough money on it to even be worth the potential future damages to the property and the capital gains we'll pay if we wait too long to sell?

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Comments (5)

sealavender
9 years ago
Do you want to be a landlord? It's not strictly about the math.
knoxx66 thanked sealavender
Denita
9 years ago
Consider selling now. Get a market analysis from your trusted Realtor and speak to your CPA about the tax consequences now and in the future so you have the information to make an informed decision. Agree with sealavender. Naturally you want to do the math, but take into account the 'hassle factor' which is something only you and your spouse can calculate.
knoxx66 thanked Denita
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steve_o
9 years ago
Sell. If you're only clearing $300 a month after mortgage and property taxes (and, presumably, insurance), you don't have much left for the fund which will replace the roof and/or the appliances and/or the furnace or to have the place painted or the flooring or countertops updated. Not that all of these things have to be done right now. But nothing in your house is getting newer. In addition, depending on what your expenses are, $300 a month may not long cover an empty house waiting for another tenant.

If you don't enjoy being a landlord, this is an excellent time to sell and move on. Markets are good and there are no current (new) economic crises. Just be sure to adhere to your lease as far as giving your tenant notice of non-renewal and making the house available for house showings (if they're still in the house while it's on the market).
knoxx66 thanked steve_o
User
9 years ago
Sell. Being a landlord SUCKS.
bry911
9 years ago
We have about 50% equity in the property, and net about $300 profit on it per month after mortgage and water are paid

Thoughts from someone who was a longtime landlord and after 2008 swore to stay out of that market forever. Which makes the three rentals I currently have a bit hard to explain...

How much money you clear after mortgage is really not important. You need to look at your net change in financial position. It is easy to clear more money on a rental property, just buy it with an interest only loan and you can make tons more than your mortgage, at least until the balance comes due. On the other hand, you can take a five year mortgage be losing money every month and still be in a great position.

You have to consider three things (1) your net rental receipts (including paid repairs) (2) the increase or decrease in sales price, and (3) the increase or decrease in mortgage notes. The increase or decrease in sales price should reflect current condition. After you do all that reflect on how much you made and how much you worked, see if it is worth it.

The three houses I currently own as rental properties are in a great school district which is building a new state of the art school and a new very upscale boutique type shopping center is going in, both only through an adjacent small park. I am making most of my money in appreciation.

Also note that the IRS homestead tax exemption requires that you live in the property at least 2 of the last 5 years, so really you must sell three years after you move out or worry about that.
knoxx66 thanked bry911