Should I sell my house or rent it?

[Elganja]

A paid off rental is the worst way to make money in real estate. After all the expenses I bet he'd make less than half what 200k parked in an index fund would make.

The great part of real estate is leverage. If OP cashed out and used the money as down payments on 7 - 10 cheaper houses or or in my area you could get a really nice 24 unit building at 30% down and have money left over. If you buy right in this scenario you could double even triple the return of an index fund.

I work for rental property owners I know a guy with 150 low to middle class single family houses and I know a guy with 135 low income units split in 8 to 24 unit buildings/complexes. The difference is night as day the buildings are way less work and dude makes a killing. He can do most of the work himself where the single family house guy has a bunch of contractors and management.

A 12 unit building has one water heater, one boiler, one sewer main where 12 houses have...

The guys with a few single family houses do nothing but bitch and complain how my bill to fix the a/c will keep them from making money the whole year. For one they probably didn't buy right, you have to take that sort of thing into account but with rental property you need volume. You have 30 units one bad tenant/repair gets absorbed, you have one unit, 1 bad tenant/repair completely screws you.

i can only tell you from my personal experience -- it's is more then "worth" it to me on a small scale ... not saying to invest all your eggs in one basket, but diversity is good

to your other point, i don't disagree that selling and buying more units is the way to go-- however that is a much larger undertaking then what the OP is taking about

 

[skull]

i can only tell you from my personal experience -- it's is more then "worth" it to me on a small scale ... not saying to invest all your eggs in one basket, but diversity is good

to your other point, i don't disagree that selling and buying more units is the way to go-- however that is a much larger undertaking then what the OP is taking about

Diversify sure but don't throw money down the drain renting a property out with no mortgage.

I view real estate as go big or go home. I've been working for rental property owners from one rental to 1000 unit corporations for 8 years now. The guys that seem to do the worst are the ones with only one or two properties. Most of them try what the OP is doing rent out a house they bought for themselves and try to make money with it. Rental property doesn't work that way. You have to buy with rental numbers in mind, personal houses generally don't make the same returns as properties strictly purchased as an investment. So at the very minimum sell this house and buy one with a mortgage that makes sense as a rental throw the rest into an index fund.

Then again OP hasn't gave us any real numbers to go off rent wise, maybe this house makes sense as a rental. We need property taxes, insurance costs, then you gotta take off 10% for vacancy, 10% for maintenance, 10% for management 5% for capital expenditure. After all that run the cash on cash on 200k and see how an index fund compares. Then if OP is serious about real estate investment pull up some properties online run commercial loan calculators on them based on 30% down run the same 35% plus utilities taxes insurance and get your COC.

 

[skull]

I know I didn't make it clear but cash on cash would how much you have into the deal. If you have a mortgage on a property you would count the mortgage as an expense with everything else but when you run your profit you would run it against how much you have into the property which would be your down payment. When you don't have a mortgage you'd run your profit against all the money tied up.

Basically say you make $500/month on this house after all expenses, thats 3% on you cash. You could put the money in a CD and get that with no risk.

Now lets say you used the 200k to put down payments on 8 houses that make 150/month after the mortgage. 8 * 150 * 12 months. $14,400 a year divided by 200k. Thats being conservative but that gives you 7.2% cash on cash a more reasonable return.

I could buy about 36 units here for 600k(with that amount of properties you need spare cash). You'd be closer to $75 a unit profit which would put your cash on cash on the whole 200k at 16%. Even though you have 180k tied up in the down payment you need that 20k readily available for expenses so its basically tied up too.

Thats basically how leverage works though and why its stupid not to have a mortgage on a rental property.

 

[highland145]

mortgage on a property you would count the mortgage as an expense

Only the interest. Otherwise, depreciation over 27.5 years.

 

[skull]

Only the interest. Otherwise, depreciation over 27.5 years.

I'm saying to get your cash flow I'd count the whole thing. Principal pay down and tax advantages I consider bonuses.

 

[highland145]

I'm saying to get your cash flow I'd count the whole thing. Principal pay down and tax advantages I consider bonuses.

I don't disagree. I want to know the total cost of renting because that's what I'm out every month vs what your favorite uncle says I'm out.

 

[paperfist]

A paid off rental is the worst way to make money in real estate. After all the expenses I bet he'd make less than half what 200k parked in an index fund would make.

The great part of real estate is leverage. If OP cashed out and used the money as down payments on 7 - 10 cheaper houses or or in my area you could get a really nice 24 unit building at 30% down and have money left over. If you buy right in this scenario you could double even triple the return of an index fund.

I work for rental property owners I know a guy with 150 low to middle class single family houses and I know a guy with 135 low income units split in 8 to 24 unit buildings/complexes. The difference is night as day the buildings are way less work and dude makes a killing. He can do most of the work himself where the single family house guy has a bunch of contractors and management.

A 12 unit building has one water heater, one boiler, one sewer main, one roof where 12 houses have...

The guys with a few single family houses do nothing but bitch and complain how my bill to fix the a/c will keep them from making money the whole year. For one they probably didn't buy right, you have to take that sort of thing into account but with rental property you need volume. You have 30 units one bad tenant/repair gets absorbed, you have one unit, 1 bad tenant/repair completely screws you.

Damn! Where can I send my investment check?

 

[highland145]

Damn! Where can I send my investment check?

Hi. :waves;

 

[IronWing]

Hi. :waves;

I offered to invest in your printing press and you turned me down.

 

[paperfist]

Hi. :waves;

The check is all written out, just need an address. I'll include a SASE for which you can mail me the deed back

 

[highland145]

I offered to invest in your printing press and you turned me down.

Be grateful. It didn't turn out so well.

 

[highland145]

The check is all written out, just need an address. I'll include a SASE for which you can mail me the deed back

Shouldn't I wire you $499 and call you Prince Paper 1st?

 

[AznAnarchy99]

You guys wouldn't rent out if it covers the monthly cost of the house? Mortgage, property tax, insurance.

 

[highland145]

You guys wouldn't rent out if it covers the monthly cost of the house? Mortgage, property tax, insurance.

The problem is repairs and effed up tenants. One example, I put in new carpet/vinyl/paint. Tenant skipped out 3 months later. I had to put in new carpet/vinyl/paint she'd effed it up so badly. Another guy was a fantastic payer but he smoked like a chimney. I don't remember what I paid but it was expensive to fix that. The deposits just don't cover what they can screw up.

 

[kn51]

Sell. It will be a relief.

Was in the same position. Sell it. Move on.

 

[Red Squirrel]

One thing with renting too is it may yield you more money in the long term but also consider the fact that some costs go up, especially property taxes. So you hit a point eventually where the money you make from rent leaves little to no profit left after all the other stuff is paid for. Pretty much want to figure out at what rate all those costs are going up, and how long you can profit by charging the going rate for rent. If it's more money than what you'd get if you sold the house it may be worth to rent, otherwise it may be better to sell.

 

[scannall]

Unless the housing market is in a slump, just sell it. It feels to me like we're getting close to another housing bubble, and bubbles burst.

 

[paperfist]

Shouldn't I wire you $499 and call you Prince Paper 1st?

No please call me Paper We here at Paper Industries believe in people above profits. No scams here, I assure you.

One thing with renting too is it may yield you more money in the long term but also consider the fact that some costs go up, especially property taxes. So you hit a point eventually where the money you make from rent leaves little to no profit left after all the other stuff is paid for. Pretty much want to figure out at what rate all those costs are going up, and how long you can profit by charging the going rate for rent. If it's more money than what you'd get if you sold the house it may be worth to rent, otherwise it may be better to sell.

The thing is he owns the house free and clear. That's not going to change, it's basically a piggy bank for him. Every month he'll collect $1k (whatever the market bares) and after taxes put it into his pocket. He can still sell his house whenever he wants.

It's not a huge money maker being a single family and there's headaches involve, but it's extra income.

 

[PricklyPete]

If you had $200k sitting in your pocket, would you buy your current house as a rental or would you do something else with the money?

That is the frame of mind you should be looking at this from.

I’m at a similar decision making point. Not 100% sure myself. Have about ~60% equity in a house (literally across the alley way) in a very desirable downtown part of Denver. Will easily net 1-1.2k after mortgage/tax/insurance. 21 years left on mortgage at 3.125%

Just trying to figure out whether that is what I would do if I had that cash sitting around...would I buy my old house? Possibly. Not really looking forward to the whole property management aspect...but across the alley definitely makes it a lot easier (and family down the street who can help out in a pinch).

 

[ultimatebob]

Sell it. Renters are assholes, they will trash the place.

And I would know... I'm a former renter

 

[ImpulsE69]

I always hear how great owning rental properties is...however, the key here I think is 'properties'. A single property is putting all your eggs in one basket. If someone trashes it, it is no longer rentable until you fix it and consider it could be a HUGE amount of money to fix it - so you are essentially losing money. Unless you live next door to it, I wouldn't recommend it.

 

[highland145]

I don't see a problem with 1 rental if it's making $$ every month. I do see problems if you have several and are tight like me....I did most of the repair work on mine and it disrupted my life on multiple occasions.

 

[Genx87]

It's crossed my mind to be a landlord but heard too many horror stories. The issue is landlords have zero rights. Tenants can stop paying rent, trash the place, even do illegal stuff like start a meth lab, and there is absolutely nothing you can do, you're not allowed to kick them out and you are on the hook for all damages they do to the place and they are not obligated to pay.

I would MAYBE consider renting my house if I moved but I would only rent it to family or someone I can trust. Failing that I'd probably lean towards selling it. I'd really have to sit down and figure out how long it will take before I make more money off rent, vs from the one time lump sum of selling it. It's probably a rather long time I imagine, because you still have to pay utilities, taxes etc so by the time that's all paid off, whatever profit you get from rent is going to be small. If you sell then that money can go straight towards the new house.

This is an exaggeration. Yes renters have rights. But if they stop paying rent, trash the place, or open a meth lab. A landlord is within their rights to evict. And in the case of damaging the building or opening a meth lab. The courts can evict immediately in many jurisdictions. The key is doing a background check. If people have evictions or judgements against them. Do not rent to them. Single family homes are also exempt from most equal opportunity laws.

I rent single family homes. I make it very clear the rules within the lease. If you miss one rent payment I will start eviction proceedings. Dont mess around. You will be surprised how quickly that turns off deadbeats. And they will ask during the walk through about making rent on time. It is amazing. I even had a guy tell me he is bad with money and the rent is usually late. But he will get it to me. I said "5 days past the first of the month, I evict". I never heard back from him.

But to rent these single family homes. One has to be ready to be an actual landlord.

 

[dasherHampton]

A few years ago I asked my financial advisor about using some liquidity to buy a condo in a hot complex and rent it out.

He STRONGLY advised against buying a single rental property. His advice was exactly what some have said in this thread:

#1) Be 100% sure you want to be a landlord. Do all of the necessary research.

#2) Once you've made that choice use the the money you would have used to purchase the condo to make down payments on at least 5 rentals. All eggs in a single basket should be a non-starter

My current situation (and the OP's) is a little different in that we already own the houses we are thinking about renting out. I think its a little more complicated than the old Dave Ramsey "if you didn't own the property would you go out and buy it?" adage.

Who knows? I might retire here eventually, and I like my current house. If that's the case I could just move back in a few decades down the road.

 

[Not So Mild]

Skull is right, there's no point in renting out a single house. It's going to be way more work than it's even worth. If your goal is to make money, you want to have leverage so you can have higher ROI. If you want to go that route, than you should listen to him, sell your house, and use that as a down payment on a larger rental property (think apartment complex). That's how you make money that sustains your property. Having a single house isn't going to pay the bills, you're not going to be able to quit your current job, and it's more likely that you'll have to commit extra hours into the rental house.

However, if you really just want to own a few properties so you have something to pass on to your kids when you pass then feel free to keep the house as a rental property.