Sell or use as rental? (tenants, agent, mortgage, mortgage)
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Bought my first house in Seattle for $185K in 2012 with a 30 yr loan at 3.6%.
I have put no money into it and have not taken an equity loan.
The house today is worth roughly $330K.
Sell or keep?
My family and realtor friend say to hold onto it and use it as rental. I'm 27 now so they say I can easily pay down principal and have this paid off by the time I'm in late 30's or mid 40's.
However, I've been battling with the idea of selling it now, taking the ~110K'ish profit and setting it aside until the economy/market goes back down, and then investing it in stocks/real estate. ( I know, quite the gamble)
I'm stuck on this idea that... when will I ever get an opportunity to make this type of return again? It seems I should cash out while I'm ahead and use it elsewhere. On the other hand, I could be completely mortgage free before I'm 50 but I don't even like this house. I bought it to simply make money.
I know this is tough to give advice on....But pretend you're in my scenario. What would you do?
Personal opinion. Keep it. It will be cash flow and pay the principal. Don't get hung up on equity or play the HELOC game. Keep it, learn HOW to be a LL and what it takes to manage properties correctly.
Good luck. I was in your situation 22 years ago. Decided to keep it. Glad I did.
Do you WANT to be a landlord? Do you want to be in the BUSINESS of renting a property that you own?
If the answer to those questions is "Yes" and you have educated yourself on the requirements, legalities, responsibilities, risks and costs - then keep the property.
Otherwise, sell it. Take the profits and invest in something else.
EITHER WAY - ONLY invest in what you understand, can manage, can accept the risk, and allow you to sleep at night.
Your 27 and are looking at making a 110,000 dollar profit? I would suggest to just sell it and put that in bonds, but make sure you understand the bond game before investing. You don't like the house anyway, and believe me, being a landlord really sucks. Everybody has a sob story whenever you rent to someone.
Do you WANT to be a landlord? Do you want to be in the BUSINESS of renting a property that you own?
If the answer to those questions is "Yes" and you have educated yourself on the requirements, legalities, responsibilities, risks and costs - then keep the property.
Otherwise, sell it. Take the profits and invest in something else.
THIS!!! There's no point to owning a house you don't like and don't want to live in, and don't want to rent out. It's just a white elephant.
If you decide being a landlord isn't for you, sell the place. It's just a house, and you bought it to make money, and if you sell it now you'll achieve that goal. You can always buy another house later if you decide you want to be a homeowner again.
Location: East of Seattle since 1992, 615' Elevation, Zone 8b - originally from SF Bay Area
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I guess you will get a variety of opinions. That $110k is really not a lot of equity/profit. Ours, for example, cost $190k and is now at about $700k. That's after 22 years including the recession drop. To make real money you have to either keep it a long time, or gamble with the short-term gains that you made buying at the right time as prices started to go up fast. The way rents are increasing in Seattle, you should be making a profit from the tenants right away even with maintenance, taxes and insurance.
OP: 1st, Can you move out and rent it is the first question? What does your loan say about occupancy requirement? Most loans require you to be owner occupied with many possible conditions to be met before you convert it into a rental property.
2nd, have your Agent friend pull up the rental comps (I'm sure he/she has done this for you already) and calculate your annual rental gross income. Understand that you will only have about 70% of that number to use against your mortgage. Stated differently, plan on 30% of your annual rental gross income to go to taxes, costs, maintenance (strongly suggest a home warranty for $500/$650 a year and having the tenant pay the $50/$60 deductible for claim which gives them skin in the game to take care of the appliances et al) vacancy between tenants. The point is, run all the detailed numbers and understand the financial ROI at that point. This is a financial data driven decision, not an emotional or pride based one. And with that said, go speak to a financial planner and get some real advice. An expert should be able to confirm you outlook on the future or get you up to speed with the best strategy for your long term financial health.
Good luck and keep us posted on what you end up doing.
Thanks all for the replies I really appreciate it.
A few points... No, I never want to be a landlord . Thanks for making that clear. Renting it out is really not an option because the stress to me isn't worth it.
I like the idea of selling and investing after educating myself.
What about this... The main issue here is I don't like the house. It's dark, outdated, and has a load/low (can never remember) bearing wall dividing the living room and kitchen that I can't stand.
Theoretically, I could take an equity loan out and upgrade the house to something I actually enjoy and want to live in. Would that make financial sense? I'm guessing 40-60K is what it would take given its still stock since 1971 other than some kitchen upgrades the previous homeowner did.
What about this... The main issue here is I don't like the house. It's dark, outdated, and has a load/low (can never remember) bearing wall dividing the living room and kitchen that I can't stand.
Theoretically, I could take an equity loan out and upgrade the house to something I actually enjoy and want to live in. Would that make financial sense? I'm guessing 40-60K is what it would take given its still stock since 1971 other than some kitchen upgrades the previous homeowner did.
You don't like the house. You think (Read: hope) you will like it when it is bright, updated and the load bearing wall is modified (read: architect, contractors, cost overruns, permits, timelines, inspections, more cost overruns and you are living there while this goes on for weeks if not months). For this effort you are deeper in debt with an equity loan for modifications that most likely will not add enough value to the home to recover half the cost. Your dislikes are subjective not objective issues.
Or Sell the home and take the proceeds to buy what you do like. Talk to a financial guy, tax adviser and your Agent friend. Ask them about the 1997 Taxpayer relief act (capital gains exclusion for the sale of a personal residence; you will be pleasantly surprised.) Ask them what a plan would look like to buy and sell your home every 5 to 7 years (upgrading size, quality and location) until you get close to retiring then do the reverse (down size but keep the quality and good location) while you pocket the proceeds and invest it for your retirement tax free.
Did I mention talking to a financial planner and tax adviser? In fact, talk to and interview three of them. That would make financial sense.
Last edited by Triggerman6; 08-07-2015 at 10:31 AM..
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. Thanks for making that clear. Renting it out is really not an option because the stress to me isn't worth it. 
