Question on Selling my House to Invest the Profits Vs. Renting (renter, deposit)
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This is one of my first posts on here, done lots of reading, not much posting though. I have a theoretical question and I want people's opinions on what they think would be best, I am not planning to do either of these for a year or more, but I got to thinking about it and it wasn't an easy question to google.
I am 27 years old and a homeowner in Northern California, I bought my house for around $170,000 and right now it is worth about $230,000, not including all the work we put into it. I am still in school, majoring in Economics and minoring in Accounting, I will graduate in under a year and am considering job hunting out of the area, which begs the question of what to do with the house.
Now, obviously we don't know what it would sell for in a years time or more, but say it sold for $300,000, pretty high, but lets just use that for the purposes of my question, that would net us roughly $100,000 profit after all is said and done I believe. If we used that money to invest, long term (30-40 years since I am young), would that be more profitable versus renting the house out? We can get about $1,600 a month in rent, and the mortgage is around $1300 including PMI, insurance, etc.
Sorry for the long post, I have always had it in my mind that I wanted to own a few homes by the time I retire and rent them out for that income, but if the house keeps going up in price and it's worth that much, I am curious if would be more my financially beneficial to sell and invest or just to hold onto it.
And for the record, I have thought about renting and all the costs involved, I know it's a big deal, so no lectures please, and I am well aware investing is risky as well, I just want to get peoples ideas/opinions on what they think is a more profitable option long term.
Thanks everyone! I am excited to see what people say
The returns on our investments easily pays our rent and rent increases.
Although hindsite is 20/20 the same amount we paid for our house back in the 1980's and invested in a plain ole mix of fidelity funds is enough today to buy 2 homes and have subtracted out decades of rent.
Others will have had different results,there is no correct answer.
The only thing that matters is if you don't buy a home you buy other assets instead.
Renting is NOT for the faint hearted. You could lose your azz very very quickly if the wrong renter gets in. I have a rental that is own for 4 months because it got trashed. I had a renter in it for a long long time but they were slobs. Granted they were friends and we thought we didn't need to check up on them. Yeah I thought was the problem. The place needs a complete remodel. It was older but the utter and compete negligence compounded the issues.
You may have repairs that will pass the $300 mark easily so not only do you not have a profit you may have to pony up money.
Since you are carrying a mortgage you will be the one who has two house payments if one house is not rented. Can you do double payments for 1-2-2-3-4 months? Can you afford to refurb repair fix and how much of a turn around are you looking at?
...considering job hunting out of the area, which begs the question of what to do with the house.
If we used that money to invest...
You would still have to pay a mortgage *somewhere* (or at least pay rent there)...
so most and probably all of any investment yield will flush through as a housing cost wash.
Buy a house to live in if/when you are confident that you'll want to remain.
That the job and social/personal aspects of your lives are stable.
Without that... or until that exists? Rent.
If you have reason to believe that you will/might be returning to the area you currently live in...
then it might be worth the risk to keep and rent the house for the 2-5 years it takes to be sure.
Just recognize that it is a very real risk to be a LL and especially from any sort of distance.
Last edited by MrRational; 09-15-2013 at 06:41 PM..
Reason: will/might
The most important thing right now is your career - you're about to set the course for the rest of your life. That house is an anchor holding you back, so cut it loose.
I've helped friends get into the business by finding a 4-plex they could buy and live in one unit and rent the others...
They did well for about 6 years and decided to cash out and buy a nice single family in San Jose... they would not have been able had they not had that income property.
Just make no mistake... be a landlord is a business and you have always remember that.
Early on I bought a home with a cottage in back... the home rent paid all my expenses for the property plus the tax write off on the rental...
Usually, owner occupied 1-4 units have much better loans than straight investment property.
This advice is coming from someone that bought their first house the same year I graduated in my very early 20's
Last edited by Ultrarunner; 09-15-2013 at 08:11 PM..
I rented out my home and I am using some of the equity to finance my living expenses for graduate school. The small profit I make helps defray some of my costs. You do not have to sell your home to benefit from it. I would say keep it and rent it out. Make sure that you take your time in selecting a tenant. There are no guarantees but a paid off well maintained home is a beautiful thing.
I recently discovered a person would have to save between $250,000 and $300,000 to yield a monthly payment of $1000. That is not very encouraging.
The dilemma is buying the second house. I just learned that banks only count .75% of the rental profit reported on your tax return as income. They are making it very difficult for people to purchase multiple properties. I need to figure out something soon because I cannot afford to rent long term.
I'm not sure how you would even do that, without risk. The highest interest rate you can get right now on a 6 year certificate of deposit is 2.010%.
One year of interest on $300,000 at that rate is only $6,030, which would be only $502.50 a month, pretty lousy income for that amount of money.
I am referring to the monthly draw during retirement. At the end of the day, that is a lot of money for the average person. However, it does not provide much money during retirement. People need to create multiple streams of income to be able to retire.
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