Is renting this out a good idea?

[Tangler]

My opinion is the low cash flow is not worth the hassle of being a long distance landlord, especially with the anti-landlord legal climate in CA.

Yes. I would sell it. Unless you think you are going to return. Then it becomes a guessing game but I would still probably just sell it and move on. Long distance land lord can be worse than annoying. I have done it. Not always fun.

[Tangler]

Cap rate is a starting point to determine if a potential rental is worthwhile, and that is monthly rent divided by home price. You want that over 1%. You're is $2200/$400,000 or barely 0.5%. which is pretty terrible.

The might be other reasons to hold it and thus rent it: avoiding a large capital gain; needing to come back to the house in a year and not wanting to pay transaction costs, for example.

But on the surface this isn't a great rental (it's better than one of mine though, which rents for $1800 and whose value is now approaching $500k. But the house was only worth $190k when we bought it so we'd have huge amounts of taxes to pay to get out of it).

Yeah, this looks like a pretty crummy investment property.

Correct me if I am wrong but the cap rate should be net operating income (NOI) divided by value. Not just rent, so you gotta count in expenses (maintenance, management fees, taxes, insurance, vacancies, utilities etc.) and those expenses are not going down in our inflationary times.

I am no rental genius. In fact I stink at it, but this cap rate is even less than 5% because expenses need to be included.

Long distance landlord adds expense (management fees) and headache (not there to check in on it).

Sell boss.

[Tangler]

One of the reasons I'm thinking of renting this out is to diversify since all my money is in stocks and bonds right now. Maxed out 401k and roth, have some cash but I'm putting it in the stock market gradually. If I sold this place I would probably just sit on the money for a while...

How old are you? If you are youngish (less than 50), I would not sit on it, I would throw it into the market and let it compound.

If you are 67 and 6 months from retirement then I could see sitting on a cash bucket to act as a large EF and to avoid SORR.

If you are young, I would get a small EF (3-6 months of expenses in cash) and put the rest to work.

[Alex2022]

How old are you? If you are youngish (less than 50), I would not sit on it, I would throw it into the market and let it compound.

If you are 67 and 6 months from retirement then I could see sitting on a cash bucket to act as a large EF and to avoid SORR.

If you are young, I would get a small EF (3-6 months of expenses in cash) and put the rest to work.

Where would you recommend putting it to work? I already put about 30K in a taxable account this year in total market index funds, bought 10K of I-bonds, don't want to put a large sum in the stock market anymore for now given short-term outlook on the market, would probably continue to put some in every month.

I'm 30 btw.

[White.Beard.Doc]

If the property will be cash flow positive after paying principle, interest, property taxes, insurance, maintenance, repairs, and allowing 5% rental loss for vacancy, then you can consider holding.

If this is a property at a distance, you need to also factor in 10% of rent for a property manager.

If the property cash flows, and it is in a strong economic area with good prospects for rental demand and market appreciation, then it is reasonable to consider holding it for diversification purposes. If inflation is high, owning leveraged investment real estate is a great way to grow your wealth. Real estate investments were one of several pillars that helped us grow our net worth.

[FIREshrink]

given short-term outlook on the market,

I'm 30 btw.

Will the market be higher or lower in forty years?

If you're a long term investor don't worry about the short term.

[pit.alumni]

One of the reasons I'm thinking of renting this out is to diversify since all my money is in stocks and bonds right now. Maxed out 401k and roth, have some cash but I'm putting it in the stock market gradually. If I sold this place I would probably just sit on the money for a while...

I agree with the sentiment of RE as a diversifier. About a third of my NW is in direct ownership RE and in retirement it generates a six figure income tax deferred. I like that it doesn't change with issues across the globe. And I feel like I've got plenty in stocks and bonds. The sentiment from some is that this is a poor investment, yet they don't know how to calculate Cap rate and misuse the term. From your prior post it sounds like you prepaid quite a bit of principal, so how long will it take to be paid off completely. Even if you're a little cash flow negative the tenant is paying $15k a year towards principal and that money counts in your return. I agree there are things to look at like managing from a few hours a way, hiring a Property Manager which may cut further into cash flow, and Ca doesn't have a rep as being landlord friendly. Unlike those who will tell you it is bad, I'm not going to tell you it is good. Rather, if you are going to own RE you need to be comfortable with the numbers and vacancies and maintenance needs to be considered. So, this could be an OK investment, especially for someone with a long horizon and good income as a backup. Run the numbers yourself, find someone who owns investment property in the area and talk to them, then make a decision.

[bovie]

Where would you recommend putting it to work? I already put about 30K in a taxable account this year in total market index funds, bought 10K of I-bonds, don't want to put a large sum in the stock market anymore for now given short-term outlook on the market, would probably continue to put some in every month.

I'm 30 btw.

Nope you’ve got this all backward. I’ll fix it for you:

”I do want to put a large sum in the stock market given long-term outlook, and would probably put it all in at once.”

For what it’s worth, I also think real estate is a worthy place to put money and build wealth, as part of a diversified portfolio.

Just not the property you are talking about.

[Alex2022]

Nope you’ve got this all backward. I’ll fix it for you:

”I do want to put a large sum in the stock market given long-term outlook, and would probably put it all in at once.”

For what it’s worth, I also think real estate is a worthy place to put money and build wealth, as part of a diversified portfolio.

Just not the property you are talking about.

Fair enough, I agree with the long term outlook, but why all at once as opposed to incrementally over the course of say 1 year?

When you say real estate, are you talking about actual physical RE? Or indirect investments like REITs?
To be honest there is no way any property near where I live will be a good investment per some of yall's standards

[bovie]

Fair enough, I agree with the long term outlook, but why all at once as opposed to incrementally over the course of say 1 year?

History and math. 2:1 that you come out ahead. But either is fine, just get it in.

When you say real estate, are you talking about actual physical RE? Or indirect investments like REITs?
To be honest there is no way any property near where I live will be a good investment per some of yall's standards

Any real estate. Direct, syndications, funds, REITS, whatever. But what do you think those all hold? Yup—actual physical real estate. Just a different package.

Those vehicles will have varying correlations with the market, of course. Ascending in that order, more or less. A nice mix would be prudent.

Important point: If there is “no way any property near where I live will be a good investment” then stop looking for an investment near where you live.

There is real estate everywhere. The point is to make money. The chances that the highest quality investment properties are right in your backyard are exceedingly low.

If you don’t like how that tastes, maybe look into a syndication or fund, something more passive.

[FIREshrink]

I also own plenty of rental real estate (9 doors) and think it's all well and good, but yours is kind of a dog.

[Tim]

“To be honest there is no way any property near where I live will be a good investment per some of yall's standards”.

Not that it’s more attractive RE investment. Y’all can find rental property in Texas.

[Alex2022]

“To be honest there is no way any property near where I live will be a good investment per some of yall's standards”.

Not that it’s more attractive RE investment. Y’all can find rental property in Texas.

I wish I lived in a more reasonable state like Texas...

[Tim]

I wish I lived in a more reasonable state like Texas...

You can buy rental property in any place in the USA. If you are planning on using a property manager, it's easy to do. Make no mistake, Texas hold 'em in real estate is played by the same rules, plenty of bluffs and skill involved in these markets.

[Tangler]

Where would you recommend putting it to work? I already put about 30K in a taxable account this year in total market index funds, bought 10K of I-bonds, don't want to put a large sum in the stock market anymore for now given short-term outlook on the market, would probably continue to put some in every month.

I'm 30 btw.

At 30 you should by as much toatal stock market index as possible. Then ignore the news for 35 years.

If you want to invest in RE you can do that as well but I think vtsax is easier.