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COVID move, should I sell or rent out my current home?

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  • COVID move, should I sell or rent out my current home?

    As the title said, my husband lost his job and the reason why we live in the city. We've been thinking a lot about moving to the suburb much closer to my job. Problem is, we've only owned our home for 2.5 years and done a few renovations that inflated our cost. Our cost in terms of price, buyer's closing cost, tax (2% transfer tax for both buyer and seller in my state), and renovations is $640k. This does not include a seller's agent fee and 640k is likely the higher end of how much the house will sell for. We are planning to do FSBO and not hire an agent.

    The other option is to rent it out, likely for about $3000/month. We are currently on 30 year mortgage. Mortgage and tax cost $2300/mo. We don't really need the money to buy another if we decide to buy but for now, the plan is to rent to feel out the new area before we buy.

    Should we sell or rent out?

    Edit: to answer all questions below, the house is 9 years old, 3 bed/2 baths, comparable rents in between $2700-3250. Monthly mortgage + insurance + property tax = $2300 on 30 year mortgage that's been refinanced early this year. We will manage the property ourselves. My husband and I want to be landlords. The end goal is to have multiple rental properties to qualify my husband as a RE professional by IRS standard, a worthy goal considering that my husband is currently unemployed for the foreseeable future and his previous job has flexible hours. We have been looking for a good investment property for a few months but decided to wait to see what will happen with COVID. We have a good amount of cash parked to jump in when good opportunities come along.

    From a RE investing perspective, I would never buy this house to be rented out. In my local area, to make the rough 1% rule I have to go to not-so-nice neighborhoods, places I'd never live in. However, we reasonably know this house, it's pretty new, and there's really no deferred maintenance we can think of. I will be able to cover my mortgage and tax with $700 extra every month to cover anything that comes up but I'll be losing on the opportunity cost on the 30% equity I have on the house.

    As a side question, we're considering having my husband take his RE license but when we found out about FSBO, we didn't see the point for now. He used to run a successful Airbnb out of our house so we have a good photographer, our furniture is pretty nice, hence we won't need a stager or photographer. A friend who is a RE agent ran comps for us. Knowing this, is there any reason we should hire a seller's agent?

    Fumigation is expensive, I just breathe it back in.
    Last edited by GassyGirlScout; 11-21-2020, 06:32 PM.

  • #2
    Do you want to be a landlord? Yes: rent it out. No: sell it.

    Regardless of what you do, judging by your screen name, you should definitely fumigate the house.


    • #3


      • #4
        Assuming you have a goal of going into real estate, is this the house you would choose out of all those on the market? If not, you would be making a mistake to keep it as, by default, you are making that choice if you keep it to rent out.
        Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087


        • #5
          Not that this was your situation, but for the lurkers out there who want to buy a house right after training or right after starting a new job, this is why renting is always the answer for a few years.


          • #6
            How old is the home? How many Beds/Baths? What are comparable rents for the area? How old is the roof and HVAC? Do you plan on managing it yourself?

            If you provide some numbers, then you can figure out if you'd actually cash flow on the rental. At $3000/month rent, you might not break even considering all other expenses (my assumed calculations say you're far from breaking even... so that's why needing real numbers would be helpful).

            I'd pay to stage it and get an agent to sell it. You're in a not great situation and might sell for lower than what you can get for it if you FSBO. This is not a situation to be penny wise and pound foolish,

            Good luck


            • #7
              Terrible rental. Sell.


              • #8
                Don't get sucked up in sunk costs. Do what is right now. Probably sell.


                • #9
                  To decide if the house is a good rental, do the calculation:

                  Monthly rent less ~5% for vacancy

                  Mortgage P/I payment
                  Property taxes
                  Repair fund
                  Cap Ex (perhaps $100/month for roof replacement, appliance replacement, water heater, HVAC, etc if you live in flyover country)
                  Management fee of 13% of monthly rent if you are not going to self manage

                  Then subtract the expenses from the income to see if you have positive monthly cash flow. Then calculate how much money you would likely get back when you sell, which is your equity that you could get out of the asset, and take the annual positive cash flow divided by the equity. If this amount is 6% or more, and the home is in an area that is appreciating at 3% or more per year, then this house is reasonable to keep and rent.

                  I aim for 8% income (cash on cash) with 3% minimum likely appreciation, which if leveraged 80% LTV will yield approximately 25-30% in total annual tax free yield in an average year. This 25-30% yield includes cash flow, increased equity due to tenant covering mortgage paydown, and finally appreciation. And the icing on the cake is the fact that the depreciation paper losses will shield all of the income and appreciation from taxation.


                  • #10
                    Isn’t it a sellers housing market right now?


                    • #11
                      Originally posted by Dusn View Post
                      Isn’t it a sellers housing market right now?
                      In my area it definitely is and I bet if OP hired a realtor they might be pleasantly surprised at the value. I used to be in the rent and build equity camp however the pandemic and lack of being able to evict tenants has given me pause. I am considering unloading my rentals as they become vacant.


                      • #12
                        One other point I forgot to mention - if you keep your house for rental and it has increased in value, you have, at most, 3 years to sell it and avoid being taxed on gain up to $250k per spouse. This is a HUGE consideration if you are running a call of cost/bene’s of converting to rental. Very difficult to overcome a bit hit to taxable income, no matter your emotion about owning rental RE.
                        Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087


                        • #13
                          jfoxcpacfp does the 2 of the last 5 year rule mean 2 of the last 5 calendar years, or 2 of the last 5 tax years?


                          • #14
                            Your sunk costs really do not matter (with the exception of taxes).
                            “I would never buy this house to be rented out. In my local area,”.
                            Is that your final answer? Then don’t “buy this rental property”. Everything else is a rationalization. Due to the job loss, your reason for owning it vanished. Move on.