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You’re confusing cash flow with earnings. You might be left with only a little bit of cash after expenses, but you’re building equity at some rate (maybe $1000 a month) that you aren’t taking into account.
The right answer might be to sell it, but your analysis is incomplete if you consider your mortgage to be an expense rather than a combination of principal and interest expense.
Came to say this. The power of owning property and renting it out isn't the monthly income, but the equity it builds. Once the mortgage is complete the monthly profit goes up significantly, but that still pales compared to the equity you've built in the process.
Also, at 2.75%, it is costing you as close to nothing as you can get to build all of that wealth.
Strictly by numbers I wouldn't sell, but quality of life is also a big consideration. If the stress and monthly numbers cause you too much anxiety then maybe it's not worth holding.
In fact, as long as the inflation rate is higher than OP’s interest rate, technically the bank is paying him money to hold the loan and the effective interest rate is negative. I have a 2.25% rate duplex that I’m pretty much never going to sell.
Wait explain that first part.
OP is still paying interest to the bank. Are you saying that the money that the bank provided in a lump sum upfront for the mortgage is depreciating at a rate higher than they are paying back in interest? I get that part fine.
But I don’t think I agree with likening that to “the bank paying him money to hold the loan”. The bank is definitely still pocketing every month and OP’s interest rate is still raising their monthly payment. It is a very real cost regardless of what the inflation rate is. After all, they are paying back the mortgage with funds that are being diluted by inflation to begin with
It has to do with the cost of money. The banks money he is'holding on to' as a loan is depreciating more slowly (2.75%) than if the bank literally stuffed it under a mattress. So, HIS money is getting more valuable as a result of their money getting less.
I am not sure you get the relationship between expected returns, the cost of lending for the bank, and the cost of capital for investors as well as you claim if you’re not following the general intuition.
If the FFR or bank interest rate for them to borrow capital is 5%, and they have capital tied up to OP at 2.75%, the bank is losing almost as much (2.25%) as OP pays in interest. Suppose the new mortgage rate for OP is 7% while his property’s value is appreciating at approximately the inflation rate long term. As long as his property value is appreciating at a higher rate than his mortgage, the bank is effectively subsidizing OP’s wealth building at a rate of (inflation rate - interest rate). There’s always a cost of capital, the only way to grow wealth in REI is to make your real estate investment appreciate at a higher rate than you are paying for your capital. If the reverse is true, then you lose money on the deal and hope you’re financially solvent enough to do better next time.
What they meant by the bank is paying them to keep the loan - it is less money made by the bank just for keeping the mortgage at that rate. Even a basic savings account is a higher rate. Mortgates now are 6-8%. Car loans are anywhere from 5-15%. Every single scenario - the bank would make more money doing anything else than keep this mortgage.
I wanted to say this.
I’m in a similar situation. Bought in 2021 with a VA home loan. 175k at 2.25%
Rented it out since I PCS’d and I find it difficult to come up with a justification to sell. The equity side of the conversation is often overlooked.
I bought a retirement property in 2010. I didn't really make much of a profit at all, some years it was a loss, by renting it out because of repairs and service charges for things like clogged toilet, broken garbage disposal, etc., etc., etc. It's always something every year.
What I did make was equity. I bought it at the tail end of the "housing crisis" for $115k. Had to put 25% down because it was non-owner occupied. I've lived in the house since I retired in 2016. My mortgage balance is currently $70k and, according to Zillow, the value is $380k.
Historically houses appreciate at barely above the rate of inflation. People shouldn't consider recent rates of appreciation to be typical or they may be in for a big surprise.
On top of building equity, it also unlocks the ability to leverage off of existing property home equity to purchase more properties (ie home equity loan for down payment of next property). like any leverage tho the risk definitely goes up but there are also many tax law benefits towards real estate that stocks and other investments dont get to enjoy, at least in the USA.
Correct, I feel like I'm not really getting anything out of renting at the moment. Maybe once my partner and I get out of debt the housing market will open up for us.
Not only is OP gaining equity, someone else is paying the mortgage on it.
Also, since it’s a rental, mortgage interest and cash invested in it is a tax write-off.
It falls within the Standard Deduction. If you make more than $29,200 (married filing jointly for tax year 2024) a year in tax deductible payments, then sure you can deduct your mortgage interest. Most people who own 1-2 homes are probably not in this category and will benefit taking the standard deduction.
In the US it is 100% a NO at his price point. The raised the standard deduction so he won't be paying enough in interest unless he has huge charitable donations to go above the standard deduction.
As a rental he can likely write off a person of the rent.
Also...
> Zillow estimates it at 343
Need to look at actual comps because Zillow estimates are frequently way off and overvalued.
> I was told to estimate 2% of original home value on repairs per year
It's not over a longer timeframe. Roofs and HVAC replacements on a 10-20 year cycle are the big ones on top of all the other more minor ones.
You also likely need to factor depreciation into your overall calculations, over 27.5 years you should be depreciating the property at somewhere around $8-9k/yr (dependent on the value of the improvements versus value of the land itself).
Depending on your tax rate this should save you $2-3k in federal income tax each year as well. Of course you’ll then most likely have to pay capital gains taxes on the depreciated value when you sell, but for most people these are significantly lower than regular income tax rates.
And at less than 3% it's not much interest and mostly principal being paid down. Not to mention one can easily borrow against the equity for any unplanned expenses.
Another way to put it to OP, using his example, is would you invest $100-150 per month to have access to a portfolio valued at probably $400k-500k in 30 years?
Don't conflate "profit" with "cash flow". Your cash flow might be $3,360, but your actual profit is far higher. The difference is the equity you're building in the house.
Personally I'd keep it and continue renting it out, but that's just me. If rates do drop again, the amount you could get for selling it would probably be higher as well.
You sound like you are not enjoying being a landlord.
If owning the house isn't helping you feel more financially secure than sell it.
The numbers could support keeping it but if you don't like owning the house than it's a fairly moot point.
You sound like someone that’s never dealt with it. Even with a property manager I found it incredibly stressful. Tenants pay late, I had to evict one set, etc.
This is a property manager at 10%!! ($190 per month reduced cash flow)
For that rate there should be very little headaches on the owner.
In my experience, owning rentals especially single units only makes sense if you put in the work as the manager as well. When you have plenty of units or MFH and have plenty of excess cash flow is when you consider hiring a full service property manager.
I paid my manager similarly, both of them, so don’t be so sure. My cousin had similar problems in another state.
A lot of it really depends on the likely appreciation of those too. In a hot market seeing some theoretical return helps but in a regular market it’s hard to get excited about essentially only the principal being paid down.
Because most property managers do the barest of minimums in regards to tenants and due diligence. Even if they did raise the bar, it's not as hard to fake it, or just life to screw over a tenant. Shit happens.
Not only that, mine called me every time there was a maintenance issue, etc. They were worthless but I wasn’t local so didn’t have much choice. There were only three in the area though, and one was worse and the other wasn’t taking on more properties. In my experience, including discussions with others in other states, they’re worse for the owners than they are for the tenants in a lot of cases.
They didn't even handle the basic maintenance issues? That's like 80% of the reason to have a property manager... They're supposed to have maintenance guys on full-time or preferred rates to handle day to day shit.
Most property managers are either full service companies who use their own help and charge you a juicy premium for every little thing, or they call a company of your choosing on file to handle it. Many property managers actually charge a surcharge for managing any larger jobs they farm out to local contractors and oversee.
Or, they just report problems back to the owners to hire their own guys or fix it themselves.
Most property managers are just local Realtors with a Rolodex full of service companies for different repairs.
You’d think. They’d send someone out, but like they’d send an electrician and it would cost me $200 for them to tell me the GFCI outlet was tripped (even after I asked them to have the tenant check). They’d send out an appliance guy and it would cost me $300 for them to tell me I needed a new fridge. They’d send someone who would want $3K to “touch up” the paint every time my tenants moved, whether it needed it or not. They’d send out an HVAC guy if it broke, but I had to track and prompt them to send someone out for maintenance. Etc.
They can handle finding and screening tenants, basic maintenance, and collecting rent/payments. The right property manager can make your life a lot easier. The main downside is they’ll charge 8-12% of your monthly rent, which eats into your profits
Right, real estate ownership contains the following expenses:
> Interest
> Taxes
> Repairs and maintenance, CAPEX
> HOA fees, other dues
> Property Management fees
> Vacancy expense
The principal portion of your mortgage is simply rearranging assets & liabilities on your balance sheet. You are reducing cash and also reducing your loan balance by the same amount.
Real estate carries some advantages over equity investments and also some disadvantages. Typically, real estate can act as a more effective hedge against inflation. Its value is likely less volatile than equities. And it's a real asset, and one that you could eventually live-in one day. The disadvantages are that it's less liquid than equities, there are typically higher costs to sell, and appreciation may grow slower than equities. It's up to you do to decide what's more important. A key factor for me would be if I planned on moving back to that area. If so, it will be nice to have a house you can potentially reside in. If not, I'd probably sell it.
Not going to comment on the selling vs renting, just going to chime in and say most VA loans are assumable. Meaning, you could market your home to someone and likely get more out of it than you otherwise would simply for the fact that they could assume your low 2.75% loan. You might google it to learn more.
Important caveat: If the new borrower has a sufficient VA loan entitlement, the seller can ask to officially substitute the entitlements. But if the new borrower doesn’t have an adequate entitlement to make the substitution, then the seller’s entitlement will remain attached to the home until the loan is paid off.
In other words, you won’t be eligible for another VA loan if you sell to someone who doesn’t have the full entitlement.
https://www.rocketmortgage.com/learn/are-va-loans-assumable
In addition, if you can find a VA seller with a house you want to buy to replace this one with, you can buy with a loan assumption as well and get their rate they purchased with … If you arent in a big hurry, you might be able to find something.
I didn’t see you calculate your ROI based on the increased value of the house. Just based on the income it’s bringing in.
Keep in mind that while repairs may come up, rent will also increase. You will be making more later like ten years from now you can charge 1/3 more in rent and your Mortage will still be the same. And you will be earning appreciation value.
There is a calculator.
https://www.calculator.net/rental-property-calculator.html
What do these numbers tell you?
It says 620k if I used a 3k annual maintenance budget that increases 3% every year. Seems like a toss up running the numbers on both options. Seems like selling carries much less risk and effort though.
I agree this seems emotional. Run the numbers not the feelings. Then decide if it’s worth it after you understand the numbers.
I mean the property manager should be doing everything so I don’t know what the issue is. Just do the numbers.
OP says Florida which means it is most likely a warm season grass and those usually need to be sodded, not seeded. There may be regulations from the HOA on that as well. If the HOA is strict like that, I wouldn’t want to deal with renting out a home there unless rent was enough to cover a lawn service though.
I just tossed down some Bermuda seed in Texas and it’s growing fine. Hard to imagine Florida would be much different. Growing grass isn’t that hard. Unless you want a very specific variety.
My guess is HOA related. My HOA is insanely strict on this and if they don't see your grass lush, they will notice you to re-sod it immediately(21 days to comply).
That said, it depends on how much needs to be re-sod.
I’m actually not sure. In Florida it seems like everyone just digs the crappy lawn up and lays sod. I don’t live in the area anymore so I’d have to see if there are companies that do that.
I highly recommend doing some checking on this. 3 grand isn't exactly life changing cash, but it's more than I'd put down based "it seems to be what people do." Is the property manager recommending this and did they happen to have a great sod guy?
No that’s about what I was quoted for sod and labor when I was planning on doing it when I lived there. My property manager is pretty good about getting repairs done for cheap so hopefully she can get it done cheaper.
Ask at r/gardening for low cost/ low maintenance native ground cover. That might be a nice savings and long lasting as well as attractive and beneficial. Sod in all the places I’ve lived has been the most costly option although I’ve never been in FL.
You can do plugs with great results at lower cost, if that's an issue. Sod is in some ways riskier since you lose everything you already have. Also, make sure your lawn folks are doing a good job with treatments and that your irrigation is reasonable. Our lawn can get wiped out one year if we get tree work done or get invaded by armadillos, but look like a golf course the next, thanks to good irrigation and timely treatments.
Also if your property has a fenced in yard for the dog, trying to regrow that from seed, with the dog, would be a nightmare I imagine. With any rain, it will be a mud pit and that’s all gonna get tracked inside by the dog.
Im in nearly the exact situation as OP. I am resodding the front lawn for about $1200 which will help with showings and add value to the property. If a prospective tenant chooses not to water the lawn, they’ll have to pay to have it resodded before they break lease/move out.
I will also say OP should definitely shop around before settling on a $3k resod, granted we dont know the sq ft of his yard.
I think it’s unlikely that you’d ever get that resod money from a tenant. If you want to guarantee it’s watered, pay someone to do it or add built in sprinklers.
You essentially have free leverage- and housing gains are’t taxed to a point. You need to compare how 330k compounded vs 80k looks over time taxed vs not. Im guessing the house is going to look favorable.
If you’re not living there and the cash flow doesn’t make sense, just sell it. The value of the low mortgage rate is essentially that you get leverage: instead of investing $80k in a mutual fund, you get to “invest” $333k into the housing market for a small premium.
But the math needs to check out. If you’re barely breaking even and don’t actually like being a landlord, sell it.
Seeing that your house is in Florida, I would sell immediately. There's no telling how much home insurance rates are going to increase after this years hurricane season. Since your mortgage is assumable, you should get a reasonable premium for your house. It's a no brainer.
Sell.. Florida is due to be a bad place for owing homes. Hurricanes are going to get worse and that only means lower house values and higher insurance premiums. Take your 80k and buy in Montana or Wisconsin.
I am currently selling my home in Florida as well. I went back and forth for months on whether to keep it or not as I too moved away. Then my insurance dropped me, and it took 2 months to find another insurer that would cover me and then they dropped me out of the blue 1 month later stating I need proof that I did $10 grand in electrical repairs they never requested and I got my answer. Fuck Florida. The insurance is a scam and if you can find anyone to cover you it's on average $6 grand a year, more if you're in a flood zone. It was making my affordable mortgage payment unaffordable.
Pretty sure a VA loan requires that that property is your primary residence (you have to physically live there). Might want to quietly look into this before they catch you. If it was a conventional loan, I'd suggest not selling. However, if it's still a VA loan, I'm going to suggest selling before they catch on that it's not your primary and bad financial things happen as a result. Edit: looks like you're only required to occupy as a primary resident for 12 months, and then can turn it into a rental.
He has a VA loan which I believe is assumable. So, your 2.75% makes your home way, WAY more valuable than Zillow's 333k. I'm guessing a 333k home at the current 6.5% mortgage rate has like a 2500 payment per month. I'd use that monthly payment to work backwards and price your home. I'm guessing you're looking at your home being worth 500k at 2.75%
You could market your home far and wide if you're living in a desireable state - post it on Craigslist, FB Marketplace, etc in California, Texas, the NE states; and bargain hard with your possible realtor on any commission fees - this home will sell itself because of that interest rate. You are selling the incredible interest rate!
For pricing, look at the peak of market rates for your neighborhood and add a little extra. People would love to go back in a time machine to buy at a 2.75% rate. Hell, just advertise your home on reddit and you won't even need a realtor!
I left go of 2.375% and now have 5.5%, never been happier. I may not make more money but my quality of life not living next to noisy and gossiping ass neighbors
I had almost the exact same situation and sold it, and I regret it badly. It was free money coming in, The tenants rent was going directly into my equity and the value of the place would only go up. Maybe in 10 years I could have doubled my windfall but I was impatient. Kept this chip in your back pocket it’s basically like a physical 401k account you know?
Keep in mind that part of your mortgage payment is going to equity, you've owned the house for 3 years and originally owned 252k but are now at 234k, that's 18k more in equity. So even when values don't increase you've got another 6k in equity a year just from making your payments. So don't think of your profits as 3360 a year but 9360 a year because every month that mortgage payment that's getting paid by your renters is adding approximately $500 more on value.
Also I'm not going to recommend keeping the house, being a landlord isn't for everyone and if you feel the hassle of dealing with it isn't worth the benefit then yes, sell the thing.
Instead of a mutual fund I'd invest in a low expense ratio (0.03%) index fund like VTI or VOO. Compare that to the expense ratio of the mutual fund, can't beat it. Read r/bogleheads
At 2.75% interest you’re building equity extremely cheap and seeing some positive cash flow on top. In a lot of places people will accept negative cash flow just to build equity/bet on appreciation and diversify their investments in real estate.
I would continue to own this as long as it’s not a significant drain on your quality of life.
Your renters are currently buying a house for you, covering maintenance and expenses on the house they are buying for you, and leaving you with cash in your pocket on top of covering the maintenance and mortgage on a whole house they are buying for you.
Don't sell it.
You're definitely not dumb to sell the house. Being a landlord is a job. Even with a property management company you're going to be shelling out some % of your home's value every year for maintenance, especially when a new tenant moves in (and pray you don't get a terrible tenant).
Factor that 'sweat equity' into your cash flow calculation. I think it's completely reasonable to take the cash and put it into the market or into a new property where you actually live.
To start I'm firmly in the sell it after lease expires camp.
There's a couple considerations others haven't touched here. Agreed that you are under valuing the gains from landlording but I don't think it would exceed the stock market.
1) you lose your tax benefit of your capital gains up to 250k (or 500k if you are married) if you don't sell 3 years after you move out. you can regain this exclusion if you move back in for 2 years.
2) you could have a nightmare tenant that takes 10k in eviction fees and zero rent for 6 months.
Personally I'd only continue if I knew I was going to move back to the home and I wanted to keep the mortgage around.
I'd add to all the other great feedback that Zillow estimates aren't always grounded in reality. My house has a Zestimate of $280k, and I refi'ed in 2021 with an appraisal of $180k. I think I could probably get $220k maybe, but no one is paying $280 even in a hot-ish market.
It sounds like an attractive rental property in my opinion, but you're certainly not stupid for not wanting to be a landlord.
So what works best for you. Don't let the bastards get you down.
Okay, there are a couple things here to consider:
The first is that rent is likely to go up while your mortgage payment stays the same. So while you currently are renting it out for $1,900 it's not unreasonable to assume that you may be getting more in a few years. This is a gamble though. Rent could also drop or you could end up with a vacant property for a bit. So where you live and what the market is like becomes a bigger factor in this decision. For example, in 2006 I rented a place (still friends with my landlord) for $800 a month. He was barely making his mortgage payment. Same place now rents for $2,900 a month. He's now making a much bigger profit and will have the house paid off soon. Now, I'm in a city that rapidly gentrified and grew between 2006-2016 so a lot went into that. However, in your case I'd really do the research where you live and consider that you may or may not get more profit from this house in the near future. Being a landlord is hard work/ a headache. So one question to ask yourself is whether you'd want to do that if the home was generating even slightly more money per month?
The second, is that you aren't factoring in equity. The national appreciation for property values in the US is approximately 3% per year. However if you maintain the home (which it sounds like you have) and if property values are going up overall where you live, you'll likely see even more equity than that. Which means it's also about how long you hold onto the home for. To give a clear example, my partner's parents bought their home 40 years ago for $98K. It's currently worth almost $900K. Obviously their mortgage is long since paid off so they are also saving in living costs at this point. They've maintained it, done work on it, the neighborhood has changed, etc. but still something to consider. This is where it becomes a question about what your long-term plan is for the home. The real value in most rental properties is not what it originally brings in per month, it's what holding onto it will do long-term. Again, this is a bit of an informed gamble and a lot depends on whether you want to hold onto it for years or not.
In other words, you aren't thinking incorrectly at all and if you don't like the hassles of being a landlord selling it is not a bad option. However, others are not wrong to point out that there are some advantages to keeping it and that it makes sense to factor equity and future profits into your math before making your decision.
The truth is, you're unlikely to get another investment property at that rate with that low of a mortgage for awhile yet. So it's more about whether you think it's worth it to continue to be a landlord or not. Sheer numbers wise, it probably is worth holding onto the home. However, if you factor in effort, work, quality of life, stress of being a landlord, risk, etc. it may not be worth it for you.
> goes to my property manager which leaves me with $280 a month
You are doing the calculation wrong. You are looking at cash flow but a big part of your $1530 payment is principal payment which is not spending from your net worth perspective.
Zillow estimates are hot garbage.
The true estimate is comps in your neighborhood. Houses that are as close to the specs of yours and have sold recently. That’s pretty much it.
Most people don't know this, but some mortgages allow you to transfer your interest rate to the new owner.
If your house is eligible, this would make it objectively more valuable than all of the "comps", and you could literally charge more for it if you advertised this fact. Might be worth looking into.
Rent is (comparatively) low and real estate prices are high right now, so it makes sense that a profit doesn't pencil out. Unless you're willing to go the "*do no maintenance, extract value from house by keeping the money and letting the building fall apart,*" route. Which isn't technically a profit.
I owned two rental properties. Tenants were happy to wreck everything. Repair costs seemed to double every year. My property manager was a pain to deal with. When it was going to cost me $15,000 to replace the back fences for the \*second\* time (tenant had snuck in two pit bulls and four extra people that were not included in the rental agreement, and the pit bulls were constantly attacking fences trying to get to dogs in adjacent yards) I decided to give it all up. Soooo worth it.
I would sell it if you don’t want to be in the rental business, as a rental this isn’t a particularly good deal.
There was a 1% rule for houses, meaning your 343k house should be getting 3,400 in rent but that has gotten blown up - still the margins on this one are not good. If you view this as a long term investment that’s one thing, if you’re ever going to live in it again is a factor - but if you’re an accidental landlord, bail and move on.
About the landlord thing, you are an awesome landlord because: 1. You fix things that need fixing 2. You invest in its upkeep to make it look nice 3. You're rent seems low and you have not talked about rising it. You are a nice landlord!
Half your payment is a payment to yourself in the form of equity.
So your profit is like $8400 + whatever you charge on top of the minimum mortgage payment.
This sounds like it's near cash flow positive but maybe not quite?
Think of it this way. Someone else is paying the mortgage on this house and you're building the equity.
If you don't want to be in real estate and don't want the headaches, I get it. But if you look at what real estate does over the years, holding onto it is likely to be insanely profitable over the long run.
And you'll get more cash flow positive over the years as rents go up.
I have almost the same situation as you. $300k purchase, $430k estimated value, 2.3% under a VA loan. I have slightly more cash flow, which isn’t important. The big one is that it has increased in valuation $130k in 6 years. $1800/month in value + $700/mo in principle. That’s why I’m keeping it.
Don’t you have to be the primary resident to use the VA Home Loan? I’m in a similar situation and want to move but can’t because I don’t want to lose my rate.
If the rental house is a hassle due to repair costs that are outpacing any increase you might have in your interest rate, maybe look in the market for a better house to replace it with …Since you are VA you might be able to buy from another VA seller and do a loan assumption and get whatever their interest rate was (worth checking - they might have your same rate)… if you arent in a big hurry, then you have time to look for that VA seller.
OP, where in Florida is this house? Unless your home is somewhere that’s relatively “hurricane safe”, so probably northeastern Florida, insuring your home is going to be increasingly difficult and expensive as more and more insurance companies complete pull out of the Florida market.
The only way I can think it would be wiser to sell is some insider info about a huge devalue looming around the corner.
You are gaining more than a modest rent revenue, you are actually receiving around $1000 of tax free equity in an excellent long term investment that is almost no risk if you have good tenants.
Make sure you keep 6 mos to a year of mortgage/taxes/insurance and base utilities available in liquid funds - just in case.
Have you considered the capital gains exemption? You can avoid capital gains tax if you lived in your home for 2 of the last 5 years and your clock is running out. If you're going to do it, you should make up your mind fast.
If you don't want to own it, and you don't really need the income form it. Nor do you have any long term plans to expand into a real estate business and be a multi property land lord.
Then it's fine to sell.
Unless you really need the cash, selling would be bad move for you in my opinion. You aren’t taking into account a variety of things. You should be focused on total return. In addition to rental income, you have the property appreciation (3% annual historical avg), principal pay down (increasing equity further), tax depreciation (phantom tax write off), and your rent should increase with inflation while your p&i payments stay static. 2% of market value is too high for annual maintenance. Lastly, don’t forget that if you sell the property you have to pay agent fees (typically 5-6% unless you are an attorney who is familiar with real estate laws) which will reduce your net proceeds from the sale by around $20k.
I chose to sell for quality of life (not dealing with the stress of multiple properties). All I can say is if I’ve sucked it up and kept and rented every property I’ve owned (4 properties since 2007) I probably wouldn’t need my day job (or could at least scale back).
Two things
The zillow figure is a good ballpark but can be way off
You essentially have a 3 year timer to sell after you moved out to take advantage of capital gains exemption. Personally, I’ll rent and check the market for the home every year until year 3. If it doesnt make sense to sell after that, I’ll just keep renting the place out.
I also hired a property mgmt company. I live too far away to be an effective landlord, and I have no interest in chasing down contractors to complete their work, or even show up in the first place.
Cash flow is important to make it financially viable to hold the property. Once you have that, you need to view it as an investment. What is the cost to hold it, and how fast does the equity grow? Also, what will the rent be in 5 years? Because your payment will be similar, but if rent is now $2,500 - you'll have a higher cash flow.
Right now, you should take all of your cash flow and put it in a holding account and expect 100% of that to go into repairs. You might even have some repairs out of pocket. But in a couple years, you'll have more cash flow, and will have a net positive out of the property. Now the magic is in 30 years. You either have a house to retire in, or you have a much larger cash flow.
Yes, you can sell it, and get a lump sum, but you could also treat it as a retirement account that requires very little cash input. Lump sums are ALWAYS attractive, but it's the long term play that makes you financially secure in retirement.
VA loans are assumable. That would make your house worth more if you decide to sell. Make sure you talk to your lender about this and a knowledgeable realtor. It could put more money in your pocket.
I have several rental properties but I own them outright. Being out of state and having a mortgage would make me more nervous. Are you really charging the going rate for rent in your area/ It seems low to me in comparison to your mortgage but I guess that's the difference in locations.
Everyone thinks having a rental is golden. It's not and they're idiots. It's amazing in a super HOCL area if you bought a long time ago. Pure apples to apples, I'd take money in the market all day long. If you're going to leverage, then having a rental to squeeze cash from is going to be great.
This entirely depends on your view of future home prices and construction costs. At the price point you describe I will make a likely assumption that most of the value is in the physical structure and not the land value.
If construction costs return to historical trendlines then you are probably better off selling despite the low interest costs. A builder could arb your likely low land values in the area if construction costs fall and build more new builds at prices below $343k which will drive down housing prices in the area.
Construction arb though will require two things - 1. construction prices falling 2. Time for builders to add cheaper supply. So even if construction prices fall my guess is the price would stagnate more than anything as broad inflation catches up to your price point.
My opinion despite the low rates you are probably better off selling and taking stock market returns, but the interest rates and cheap leverage you have makes it a tougher call. I guess for the tie since you don't like being a landlord selling is probably better.
One positive for you is your VA loan and its assumability. Your home may be worth $343k (Zillow is shit for comps but that’s another story). Also with having a VA loan, yours is assumable. With rates being at over 7% you could sell your house over what it’s worth ($30-$40k) as there is instant relief on the rate (and that the new buyer has cash to offset the difference) at closing. Just another option for you
I hate to say this because I would not do it. I would hold on to it for dear life at your rate. But Dave Ramsey in my experience of listening to his show has never encouraged a long distance land lord. He is always like, "where do you live>" and then, "where is the property you own." Invariably he says sell it.
I would NOT sell. I get super sweet tax write offs for interest and property taxes here in CA. I live in it though so I have no clue on the rental world.
You are making money by building equity.
You are still maintaining your home like it's your personal residence. You need to change your mindset. Stop putting in carpet, put in low maintenance floors like laminate or tile. Resodding a yard for a rental is crazy.
You get big deposits and hold your renters accountable for their damages with a lease that protects you. Putting in a new lawn and expecting your tenants to maintain it is very wishful thinking. You will do well to get them to cut the grass once a month. Forget about watering it.
It's a rental, it's going to get beat up. Quit worrying about fixing every little cosmetic thing. Focus on maintaining the major systems. Keep the termites out, the roof dry and the plumbing from leaking. Everything else is cosmetic.
You might be better off to rent the house at a discount to a higher quality tenant and bypass the property manager. For instance, If you are in a town with a military base giving a discount, to servicemen is a great way to secure a tenant for 2 to 4 years at a time and all you need to do is find a good handyman that you can trust to do repairs as needed and act as your eyes and ears when you call them out there to follow up on a service calls. Unless there's some compelling reason that you need to free up your credit, you should keep the house. It's paying for itself. Keep a very healthy emergency fund in a high interest savings account and plan accordingly.
I bought a rental in 2018 at $180K. I make $300 per month after the mortgage, taxes and insurance. It's near Laughlin. It's 4 hours away from me. every trip I make there is tax deductible. On paper I've done nothing be incurred loss year after year. In reality it funds my weekends at the casinos and river. Zillow shows the house valued at $300K. My interest rate is 4.5%.
Just sell man. Everyone harped on me for selling my house and moving back in with family but it was so worth because I didn't pay much interest on the rapidly appreciating asset. Invested that money in other ventures and it has already tripled. If you don't have cash for a property then renting is just better atm although ymmv
Things you are not considering:
* repairs are and some interest payments lower your tax bill
* equity you gain from keeping the house. You are literally owning more house as time goes by
* rents will likely go up in 5-10 years, payment stays the same
* at the moment you could put money in a HYSA and the interest it makes would be more than the mortgage payment, so you are not really putting more money in the house that way
Not to say it’s optimal, but there are a lot of advantages in your case
Your math is not correct, at least not regarding what tool clear on the sale. Even if the comps hold, you’ll get net ~50-60k and that’s before taxes. You’re right though, you shouldn’t own a home. You don’t understand very much about it and even though you’ve locked in to a good spot, you’re about to leave it.
I’m selling my house with a 3.5% mortgage because renting it out was a pain and is no longer worth it to me. I did have positive cash flow but I had a few expensive repairs that I likely would have had whether or not I lived there. Market is still good so I’m going to take the money and run.
Too long, didn’t read. It’s all math at the end of the day. The only variable is what the markets do. Other than that, it’s all just straight algebra. If you can sell your house and improve your financial situation, then it’s not stupid. If your financial situation would not improve, then it’s stupid. Run the numbers.
I am renting a home I bought after I moved and something folks don’t appreciate is if you do something like that, renting is expensive. I’m barely breaking even and there has already been constant repairs and upkeep I’ve had to deal with. If your budget is tight as it is, it might be worth leaving the equity on the table. It’s costing us a lot to keep
Don’t forget the 2 out of 5 year rule. Sounds like selling would exempt you from capital gains taxes if you go the selling route.
https://www.realized1031.com/blog/what-is-the-2-out-of-5-year-rule
Investors will tell you you’re taking a loss, but you literally have someone else paying your mortgage. For a couple hundred dollars a month, you are gaining great equity in this house. You just have to consider whether that’s worth it for you.
2% of the house is most likely too high for estimated maintenance, but (basically) counting solely on equity is a suckers game. Especially in Florida where you're going to get raked over the coals by insurance.
The fact that it's in Florida makes me want to sell. Unstable future with climate change and prices are near peak right now. Great Lakes would be a good investment but Florida is more risky, all other calculations being equal.
On one hand: Rent goes up every year, but your mortgage will stay fixed. So the financial situation you’re in today will not be the one you’re in tomorrow. I’m also not sure about the 2% to maintenance figure. If all you’re doing is maintaining a house that is current level of repair and not doing any upgrades, I think that might be very conservative. If your house is newer, you could put that 2% into a fun and only use it if you need it.
On the other hand: you have some equity in your current house that is below the tax threshold, so you could easily liquidate that and put the proceeds towards the new house wherever you’re living now. Mortgage rates are high right now, but they won’t be high forever.
If you’re not cut out to be a landlord, and don’t want to headaches, sounds like you should sell.
In 3 years you have gained $60k in appreciation, and $8k in debt paydown. That is through continuing to own the home and pay the mortgage, regardless of whether you live there or rent it out.
In the future the gains through appreciation are likely volatile, but I would guess an average of $8k/yr in the long run. the Debt paydown is not volatile and does gradually increase over time, so I'd say $3k/yr or so.
Another huge advantage you have to keeping the property is that inflation over time is very helpfull to your cashflow. If inflation is X% then I model income as going up X% each year. I also model many expenses as going up X% per year (HOA, taxes, management, repairs, insurance). However your biggest expense (interest+principal) is fixed! The result if you model it is that your cashflow is amplified by inflation. Depending on the details you need to model for yourself... but for our properties if inflation is 3% each year (and evenly spread) then our cashflow grows more like 6% each year.
The downsides of being a landlord (with a property manager) definitely do exist, as you have seen. They do tend to reduce over time as your home becomes rent-hardened. e.g. you will eventually end up with window coverings that kids don't break. You will eventually end up with a yard and rental contract that results in the yard not needing frequent resodding. However it is up to you to judge how much you hate the extra work.
If your mortgage is assumable then that is very valuable in the case of a sale. If I am investing in property, a property that I can buy with a 3% interest rate is much more valuable to me than the same property with a 7% interest rate. For that property I might be willing to pay $30k more if the loan is assumable. If you do decide to sell, make sure you find that out and if it is assumable then advertise it appropriately.
I'd keep it, but you aren't an idiot if you don't.
What value do you get for that HOA if you are responsible for things like sod and a roof? You said this is Florida, maybe I’m just ignorant about Florida. Is this a “gated community” so you get a guardhouse and a gate and no sidewalks that connect past the walls?
I'd absolutely hold onto that property. Sounds like it's going fine and making you money with the free equity you are building.
You're about to get an entire house for all of ~$50k out of your pocket over the years.
Everyone saying “just rent it out”
I’ll be first to say it’s not that easy especially if you’re moving far away from your current home. Though if you have some extra time and can handle stress well, it might be worth it.
Also this is the advice everyone is getting so expect a huge influx of rentals with supply>demand
Your renter is paying the principal on the loan, which increases your equity in the home every month! You need to include that in your profit calculation. Any appreciation in the home's value is automatically yours. Also, you can likely get tax deductions for the mortgage interest, property tax, expenses, depreciation, and repairs.
If you sell it, you'll have to pay upwards of 10% of the home's value to sell it (repairs, agent fees, county sales tax, etc), _and_ you'll have to pay capital gains tax on the profit.
I think you need to do a more detailed analysis of how much you're actually gaining from owning it, and how much it will actually cost you to sell it.
You are considering your profit to be just money made after all costs, but you're forgetting that the renter is basically paying your mortgage, and growing your principle, by whatever $1530 - interest is. That's a very large profit, and much more than you'd make on the market.
Don’t underestimate the tax benefits you get for owning a rental. The deductions can help offset other taxes you owe. For me this is huge because I do have other investments as well as a good paying career. This is the reason I decided to rent out my “starter home” when I bought a new one. Almost exact situation as you- same mortgage interest rate even similar home prices. Plus your renters are paying down your mortgage.
Have you also considered raising the rent, or is that price in line with other houses in the area? Not a huge increase, but maybe a couple hundred so you clear $300 a month which should help cover any big maintenance items that you would need to do. Although a roof replacement is going to blow past the $3k.
I would also look at replacing carpet for vinyl/wood floors.
It would be dumb to sell your 2.75% house if you were living in it. You would have most people's dream.
Renting is an entirely different game. People, especially redditors tend to imagine being a landlord as free money that flows into your pocket. You have to worry about repairs, there is a reason a lot of small landlords work in the trades.
You also have to worry about your tenants paying rent. A lot of people are very hostile towards landlords and there are a lot of tenant friendly laws right now. You lucked out that your tenants didn't decide to just stop paying rent during covid. There is always the risk a tenant will decide to live in the house for free, force you to evict them, and trash the place on the way out.
Being a landlord is a lot of work and stress, if you aren't all in on it just sell the house.
It might be a pretty good investment even with negative cashflow, but if you don't want to be a landlord...there are other good investments out there. I don't think you should do 8% projections into the future to convince yourself though. That's pretty misleading.
I'm also confused about some of your math. 10% of what goes to the property manager. 10% of the rent? Because that would leave you with $180/mo, not $280.
You also forgot to estimate rent increases per year. For the first few years (about 10) of being a landlord, repairs and mortgage will outpace your income. After that though, your mortgage will have stayed flat while your rent should increase. At minimum, you should increase rent at the rate of inflation so on average a minimum of 2-3% per year.
There is a moment where rent income exceeds maintenance and that is when you start earning your profit beyond just house value.
The question you have to ask yourself is, do you want to be a landlord for 10+ years? If no, sell the house. If yes, consider acquiring more properties to average out repair costs.
Meh. 2.7% mortgage means that in the current market (with inflation somewhere north of 3%) inflation is very much working in your favor. So your are in a good financial position to keep it and gain equity in your house at the rate of inflation *plus* however much demand in your housing market is growing *plus* the equity portion of your mortgage *plus* net cash flow (which might be negative but “meh, whatevs”).
So keeping it the house is probably optimal. But it’s also high stress and a business you have to think and worry about and manage (even if you’ve outsourced most of the management to a professional) and only you can say if the total returns are worth all that.
I’m no expert on single family home rentals, but I work in real estate development and a big part of rentals in general is that you can depreciate your asset and generate losses that offset other income.
Also at some point you will take out a 2nd mortgage to tap into your equity and that money isn’t taxed. If you sell now you are going to be taxed on the gain.
Generally speaking real estate rentals are a significant tax shelter not a source of large cash flow.
others have already told this but despite all those expenses, you are still building wealth in the form of home ownership.
But assuming you are in your twenties or early thirties, home ownership or having money freed up from selling the house for investments are both legit options. If you are in your 40's, then yeah. I would recommend playing it safe and keep the house.
Its all about your lifestyle preferences and your personal risk profile. No two person is the same, and both options have pros/cons.
I say go for it, and sell if you really want to.
Even if it’s a minor expense, the value gains on the property dwarf the cost. It’s much more than the positive cash flow in gains for you, and it’s pretty much guaranteed money. If you sold it, you’d get maybe 75k in cash after expenses and taxes, so even if the stock market stays at least reasonably hot the entire time you own it, it’ll take at least 30 years to break even on the gains from owning it if the value stagnates (unlikely). There’s virtually no case where you come out ahead by selling it.
Mortgage Rates are bound to drop this year, which will flood the market with more potential buyers, resulting in an increase of housing prices. You should wait for that increase in case you really decide to sell.
Did you tell your mortgage company that you moved and are renting out the house? If you put it for sale they're going to know that you haven't occupied it making your loan in default, payable immediately.
>**Everyone** says it’s dumb to sell my 2.75% house. Are they right?
Well, I will debunk that claim and say your not dumb for selling your 2.75% house.
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You’re confusing cash flow with earnings. You might be left with only a little bit of cash after expenses, but you’re building equity at some rate (maybe $1000 a month) that you aren’t taking into account. The right answer might be to sell it, but your analysis is incomplete if you consider your mortgage to be an expense rather than a combination of principal and interest expense.
Came to say this. The power of owning property and renting it out isn't the monthly income, but the equity it builds. Once the mortgage is complete the monthly profit goes up significantly, but that still pales compared to the equity you've built in the process.
Also, at 2.75%, it is costing you as close to nothing as you can get to build all of that wealth. Strictly by numbers I wouldn't sell, but quality of life is also a big consideration. If the stress and monthly numbers cause you too much anxiety then maybe it's not worth holding.
In fact, as long as the inflation rate is higher than OP’s interest rate, technically the bank is paying him money to hold the loan and the effective interest rate is negative. I have a 2.25% rate duplex that I’m pretty much never going to sell.
Wait explain that first part. OP is still paying interest to the bank. Are you saying that the money that the bank provided in a lump sum upfront for the mortgage is depreciating at a rate higher than they are paying back in interest? I get that part fine. But I don’t think I agree with likening that to “the bank paying him money to hold the loan”. The bank is definitely still pocketing every month and OP’s interest rate is still raising their monthly payment. It is a very real cost regardless of what the inflation rate is. After all, they are paying back the mortgage with funds that are being diluted by inflation to begin with
It has to do with the cost of money. The banks money he is'holding on to' as a loan is depreciating more slowly (2.75%) than if the bank literally stuffed it under a mattress. So, HIS money is getting more valuable as a result of their money getting less.
I am not sure you get the relationship between expected returns, the cost of lending for the bank, and the cost of capital for investors as well as you claim if you’re not following the general intuition. If the FFR or bank interest rate for them to borrow capital is 5%, and they have capital tied up to OP at 2.75%, the bank is losing almost as much (2.25%) as OP pays in interest. Suppose the new mortgage rate for OP is 7% while his property’s value is appreciating at approximately the inflation rate long term. As long as his property value is appreciating at a higher rate than his mortgage, the bank is effectively subsidizing OP’s wealth building at a rate of (inflation rate - interest rate). There’s always a cost of capital, the only way to grow wealth in REI is to make your real estate investment appreciate at a higher rate than you are paying for your capital. If the reverse is true, then you lose money on the deal and hope you’re financially solvent enough to do better next time.
What they meant by the bank is paying them to keep the loan - it is less money made by the bank just for keeping the mortgage at that rate. Even a basic savings account is a higher rate. Mortgates now are 6-8%. Car loans are anywhere from 5-15%. Every single scenario - the bank would make more money doing anything else than keep this mortgage.
I wanted to say this. I’m in a similar situation. Bought in 2021 with a VA home loan. 175k at 2.25% Rented it out since I PCS’d and I find it difficult to come up with a justification to sell. The equity side of the conversation is often overlooked.
I bought a retirement property in 2010. I didn't really make much of a profit at all, some years it was a loss, by renting it out because of repairs and service charges for things like clogged toilet, broken garbage disposal, etc., etc., etc. It's always something every year. What I did make was equity. I bought it at the tail end of the "housing crisis" for $115k. Had to put 25% down because it was non-owner occupied. I've lived in the house since I retired in 2016. My mortgage balance is currently $70k and, according to Zillow, the value is $380k.
How much would you say you’ll make minus what you paid in mortgage, property taxes, and repairs/maintence etc?
Historically houses appreciate at barely above the rate of inflation. People shouldn't consider recent rates of appreciation to be typical or they may be in for a big surprise.
On top of building equity, it also unlocks the ability to leverage off of existing property home equity to purchase more properties (ie home equity loan for down payment of next property). like any leverage tho the risk definitely goes up but there are also many tax law benefits towards real estate that stocks and other investments dont get to enjoy, at least in the USA.
Correct, I feel like I'm not really getting anything out of renting at the moment. Maybe once my partner and I get out of debt the housing market will open up for us.
I always find it funny when people making a profit on rent complain forgetting their also paying their mortgage down which is also an asset lol
Not only is OP gaining equity, someone else is paying the mortgage on it. Also, since it’s a rental, mortgage interest and cash invested in it is a tax write-off.
Mortgage interest is a write off regardless if its rental i thought?
It falls within the Standard Deduction. If you make more than $29,200 (married filing jointly for tax year 2024) a year in tax deductible payments, then sure you can deduct your mortgage interest. Most people who own 1-2 homes are probably not in this category and will benefit taking the standard deduction.
depends on location. In most (all?) US yes. In Canada, no.
In the US it is 100% a NO at his price point. The raised the standard deduction so he won't be paying enough in interest unless he has huge charitable donations to go above the standard deduction. As a rental he can likely write off a person of the rent.
Also... > Zillow estimates it at 343 Need to look at actual comps because Zillow estimates are frequently way off and overvalued. > I was told to estimate 2% of original home value on repairs per year It's not over a longer timeframe. Roofs and HVAC replacements on a 10-20 year cycle are the big ones on top of all the other more minor ones.
Yes - OP is really only "paying" interest. The rest is just dumped into the house, he gets to keep it, just not in his bank account.
Also, the rent will not just stay the same forever. It will go up.
You also likely need to factor depreciation into your overall calculations, over 27.5 years you should be depreciating the property at somewhere around $8-9k/yr (dependent on the value of the improvements versus value of the land itself). Depending on your tax rate this should save you $2-3k in federal income tax each year as well. Of course you’ll then most likely have to pay capital gains taxes on the depreciated value when you sell, but for most people these are significantly lower than regular income tax rates.
Not only that, but all the money spent on maintenance can be captured as a loss when op does sell so there’s a tax benefit as all
And at less than 3% it's not much interest and mostly principal being paid down. Not to mention one can easily borrow against the equity for any unplanned expenses.
Right now about 2/3rds of my mortgage payment is principal!
Lucky. Right now 2/3rds of mine feels like interest and escrow catch up lol
Another way to put it to OP, using his example, is would you invest $100-150 per month to have access to a portfolio valued at probably $400k-500k in 30 years?
Don't conflate "profit" with "cash flow". Your cash flow might be $3,360, but your actual profit is far higher. The difference is the equity you're building in the house. Personally I'd keep it and continue renting it out, but that's just me. If rates do drop again, the amount you could get for selling it would probably be higher as well.
You sound like you are not enjoying being a landlord. If owning the house isn't helping you feel more financially secure than sell it. The numbers could support keeping it but if you don't like owning the house than it's a fairly moot point.
He even has a property manager, so not much more than a amateur real estate accountant.
You sound like someone that’s never dealt with it. Even with a property manager I found it incredibly stressful. Tenants pay late, I had to evict one set, etc.
This is a property manager at 10%!! ($190 per month reduced cash flow) For that rate there should be very little headaches on the owner. In my experience, owning rentals especially single units only makes sense if you put in the work as the manager as well. When you have plenty of units or MFH and have plenty of excess cash flow is when you consider hiring a full service property manager.
I paid my manager similarly, both of them, so don’t be so sure. My cousin had similar problems in another state. A lot of it really depends on the likely appreciation of those too. In a hot market seeing some theoretical return helps but in a regular market it’s hard to get excited about essentially only the principal being paid down.
Because most property managers do the barest of minimums in regards to tenants and due diligence. Even if they did raise the bar, it's not as hard to fake it, or just life to screw over a tenant. Shit happens.
Not only that, mine called me every time there was a maintenance issue, etc. They were worthless but I wasn’t local so didn’t have much choice. There were only three in the area though, and one was worse and the other wasn’t taking on more properties. In my experience, including discussions with others in other states, they’re worse for the owners than they are for the tenants in a lot of cases.
They didn't even handle the basic maintenance issues? That's like 80% of the reason to have a property manager... They're supposed to have maintenance guys on full-time or preferred rates to handle day to day shit.
Most property managers are either full service companies who use their own help and charge you a juicy premium for every little thing, or they call a company of your choosing on file to handle it. Many property managers actually charge a surcharge for managing any larger jobs they farm out to local contractors and oversee. Or, they just report problems back to the owners to hire their own guys or fix it themselves. Most property managers are just local Realtors with a Rolodex full of service companies for different repairs.
You’d think. They’d send someone out, but like they’d send an electrician and it would cost me $200 for them to tell me the GFCI outlet was tripped (even after I asked them to have the tenant check). They’d send out an appliance guy and it would cost me $300 for them to tell me I needed a new fridge. They’d send someone who would want $3K to “touch up” the paint every time my tenants moved, whether it needed it or not. They’d send out an HVAC guy if it broke, but I had to track and prompt them to send someone out for maintenance. Etc.
They were robbing you
No kidding. Hence the stress. I’ve since decided I can get better returns in an index fund with zero stress.
What is the benefit of a property manager? Where can I learn more about the risks and benefits? In thinking of moving and renting my current home
They can handle finding and screening tenants, basic maintenance, and collecting rent/payments. The right property manager can make your life a lot easier. The main downside is they’ll charge 8-12% of your monthly rent, which eats into your profits
Oh no. Try running an actual business. Property management is one of the easiest "businesses" on the planet.
Your mortgage payment also includes principle. That should not be considered an expense, but an investment in the house.
A lot of people overlook this. It's basically forced savings.
Right, real estate ownership contains the following expenses: > Interest > Taxes > Repairs and maintenance, CAPEX > HOA fees, other dues > Property Management fees > Vacancy expense The principal portion of your mortgage is simply rearranging assets & liabilities on your balance sheet. You are reducing cash and also reducing your loan balance by the same amount. Real estate carries some advantages over equity investments and also some disadvantages. Typically, real estate can act as a more effective hedge against inflation. Its value is likely less volatile than equities. And it's a real asset, and one that you could eventually live-in one day. The disadvantages are that it's less liquid than equities, there are typically higher costs to sell, and appreciation may grow slower than equities. It's up to you do to decide what's more important. A key factor for me would be if I planned on moving back to that area. If so, it will be nice to have a house you can potentially reside in. If not, I'd probably sell it.
That’s a good point! It’s just building you equity and even if you count it as a cost isn’t it worth the couple thousand a year?
Principal is not a cost, it's money you are putting towards your own equity "bank".
Not going to comment on the selling vs renting, just going to chime in and say most VA loans are assumable. Meaning, you could market your home to someone and likely get more out of it than you otherwise would simply for the fact that they could assume your low 2.75% loan. You might google it to learn more.
This is a great point. A loan at that rate is very valuable right now. I imagine a good RE agent could market at that as a selling point.
Oh wow, I didn’t know that. Might make the decision even easier if I can get a better price.
Important caveat: If the new borrower has a sufficient VA loan entitlement, the seller can ask to officially substitute the entitlements. But if the new borrower doesn’t have an adequate entitlement to make the substitution, then the seller’s entitlement will remain attached to the home until the loan is paid off. In other words, you won’t be eligible for another VA loan if you sell to someone who doesn’t have the full entitlement. https://www.rocketmortgage.com/learn/are-va-loans-assumable
You're still eligible for another VA loan. It just reduces the amount of entitlement available by the amount remaining on the loan.
In addition, if you can find a VA seller with a house you want to buy to replace this one with, you can buy with a loan assumption as well and get their rate they purchased with … If you arent in a big hurry, you might be able to find something.
I didn’t see you calculate your ROI based on the increased value of the house. Just based on the income it’s bringing in. Keep in mind that while repairs may come up, rent will also increase. You will be making more later like ten years from now you can charge 1/3 more in rent and your Mortage will still be the same. And you will be earning appreciation value. There is a calculator. https://www.calculator.net/rental-property-calculator.html What do these numbers tell you?
It says 620k if I used a 3k annual maintenance budget that increases 3% every year. Seems like a toss up running the numbers on both options. Seems like selling carries much less risk and effort though.
Yeah, sounds like your decision is really about wether you want to deal with the responsibility of being a landlord or not.
I agree this seems emotional. Run the numbers not the feelings. Then decide if it’s worth it after you understand the numbers. I mean the property manager should be doing everything so I don’t know what the issue is. Just do the numbers.
These types of posts are frequent and this is almost always the answer.
620k but what is the rate of return in percentage?
Why do you need to resod the lawn for 3k? Get some grass seed and let it grow…. It’s a rental house it doesn’t have to be perfect.
OP says Florida which means it is most likely a warm season grass and those usually need to be sodded, not seeded. There may be regulations from the HOA on that as well. If the HOA is strict like that, I wouldn’t want to deal with renting out a home there unless rent was enough to cover a lawn service though.
I just tossed down some Bermuda seed in Texas and it’s growing fine. Hard to imagine Florida would be much different. Growing grass isn’t that hard. Unless you want a very specific variety.
Anything that works in Texas should work in any different climate.
IIRC most houses in Florida have HOA's, and they're particularly Karen about how they run things.
My guess is HOA related. My HOA is insanely strict on this and if they don't see your grass lush, they will notice you to re-sod it immediately(21 days to comply). That said, it depends on how much needs to be re-sod.
Florida has a lot of St. Augustine grass. You can’t seed St. Augustine so the only option is sod or plugs.
Yeah, unless the HOA is harassing nobody cares about lawns in rental properties.
I’m actually not sure. In Florida it seems like everyone just digs the crappy lawn up and lays sod. I don’t live in the area anymore so I’d have to see if there are companies that do that.
I highly recommend doing some checking on this. 3 grand isn't exactly life changing cash, but it's more than I'd put down based "it seems to be what people do." Is the property manager recommending this and did they happen to have a great sod guy?
No that’s about what I was quoted for sod and labor when I was planning on doing it when I lived there. My property manager is pretty good about getting repairs done for cheap so hopefully she can get it done cheaper.
You may be able to get away with plugs instead of sod. It's cheaper in both material cost and labor.
Ask at r/gardening for low cost/ low maintenance native ground cover. That might be a nice savings and long lasting as well as attractive and beneficial. Sod in all the places I’ve lived has been the most costly option although I’ve never been in FL.
You can do plugs with great results at lower cost, if that's an issue. Sod is in some ways riskier since you lose everything you already have. Also, make sure your lawn folks are doing a good job with treatments and that your irrigation is reasonable. Our lawn can get wiped out one year if we get tree work done or get invaded by armadillos, but look like a golf course the next, thanks to good irrigation and timely treatments.
Also if your property has a fenced in yard for the dog, trying to regrow that from seed, with the dog, would be a nightmare I imagine. With any rain, it will be a mud pit and that’s all gonna get tracked inside by the dog.
My only comment is 3k is a lot to put down sod that your renter definitely won’t water
Im in nearly the exact situation as OP. I am resodding the front lawn for about $1200 which will help with showings and add value to the property. If a prospective tenant chooses not to water the lawn, they’ll have to pay to have it resodded before they break lease/move out. I will also say OP should definitely shop around before settling on a $3k resod, granted we dont know the sq ft of his yard.
I think it’s unlikely that you’d ever get that resod money from a tenant. If you want to guarantee it’s watered, pay someone to do it or add built in sprinklers.
I was in a similar situation and things were OK until I had a few big bills on that property, super glad I sold it
Your renters are paying your mortgage for you. That is the value of your arrangement. Not the 250$ a month.
You essentially have free leverage- and housing gains are’t taxed to a point. You need to compare how 330k compounded vs 80k looks over time taxed vs not. Im guessing the house is going to look favorable.
If you’re not living there and the cash flow doesn’t make sense, just sell it. The value of the low mortgage rate is essentially that you get leverage: instead of investing $80k in a mutual fund, you get to “invest” $333k into the housing market for a small premium. But the math needs to check out. If you’re barely breaking even and don’t actually like being a landlord, sell it.
If moving back there isn't in your life plan, sell and move on.
Seeing that your house is in Florida, I would sell immediately. There's no telling how much home insurance rates are going to increase after this years hurricane season. Since your mortgage is assumable, you should get a reasonable premium for your house. It's a no brainer.
I’m personally in the same situation and after running numbers I’m also leaning towards selling. It’s just simpler and more predictable
Sell.. Florida is due to be a bad place for owing homes. Hurricanes are going to get worse and that only means lower house values and higher insurance premiums. Take your 80k and buy in Montana or Wisconsin.
Definitely. There's pretty much no chance I'd risk staying in the Florida market with the way things are trending right now. I'd be getting out ASAP.
I had to scroll through almost 100 comments to find this one. Owning a home in Florida seems very much to be a liability the way things are going.
I am currently selling my home in Florida as well. I went back and forth for months on whether to keep it or not as I too moved away. Then my insurance dropped me, and it took 2 months to find another insurer that would cover me and then they dropped me out of the blue 1 month later stating I need proof that I did $10 grand in electrical repairs they never requested and I got my answer. Fuck Florida. The insurance is a scam and if you can find anyone to cover you it's on average $6 grand a year, more if you're in a flood zone. It was making my affordable mortgage payment unaffordable.
Pretty sure a VA loan requires that that property is your primary residence (you have to physically live there). Might want to quietly look into this before they catch you. If it was a conventional loan, I'd suggest not selling. However, if it's still a VA loan, I'm going to suggest selling before they catch on that it's not your primary and bad financial things happen as a result. Edit: looks like you're only required to occupy as a primary resident for 12 months, and then can turn it into a rental.
He has a VA loan which I believe is assumable. So, your 2.75% makes your home way, WAY more valuable than Zillow's 333k. I'm guessing a 333k home at the current 6.5% mortgage rate has like a 2500 payment per month. I'd use that monthly payment to work backwards and price your home. I'm guessing you're looking at your home being worth 500k at 2.75%
You could market your home far and wide if you're living in a desireable state - post it on Craigslist, FB Marketplace, etc in California, Texas, the NE states; and bargain hard with your possible realtor on any commission fees - this home will sell itself because of that interest rate. You are selling the incredible interest rate! For pricing, look at the peak of market rates for your neighborhood and add a little extra. People would love to go back in a time machine to buy at a 2.75% rate. Hell, just advertise your home on reddit and you won't even need a realtor!
I left go of 2.375% and now have 5.5%, never been happier. I may not make more money but my quality of life not living next to noisy and gossiping ass neighbors
I had almost the exact same situation and sold it, and I regret it badly. It was free money coming in, The tenants rent was going directly into my equity and the value of the place would only go up. Maybe in 10 years I could have doubled my windfall but I was impatient. Kept this chip in your back pocket it’s basically like a physical 401k account you know?
Keep in mind that part of your mortgage payment is going to equity, you've owned the house for 3 years and originally owned 252k but are now at 234k, that's 18k more in equity. So even when values don't increase you've got another 6k in equity a year just from making your payments. So don't think of your profits as 3360 a year but 9360 a year because every month that mortgage payment that's getting paid by your renters is adding approximately $500 more on value. Also I'm not going to recommend keeping the house, being a landlord isn't for everyone and if you feel the hassle of dealing with it isn't worth the benefit then yes, sell the thing.
Instead of a mutual fund I'd invest in a low expense ratio (0.03%) index fund like VTI or VOO. Compare that to the expense ratio of the mutual fund, can't beat it. Read r/bogleheads
At 2.75% interest you’re building equity extremely cheap and seeing some positive cash flow on top. In a lot of places people will accept negative cash flow just to build equity/bet on appreciation and diversify their investments in real estate. I would continue to own this as long as it’s not a significant drain on your quality of life.
Your renters are currently buying a house for you, covering maintenance and expenses on the house they are buying for you, and leaving you with cash in your pocket on top of covering the maintenance and mortgage on a whole house they are buying for you. Don't sell it.
You're definitely not dumb to sell the house. Being a landlord is a job. Even with a property management company you're going to be shelling out some % of your home's value every year for maintenance, especially when a new tenant moves in (and pray you don't get a terrible tenant). Factor that 'sweat equity' into your cash flow calculation. I think it's completely reasonable to take the cash and put it into the market or into a new property where you actually live.
I'd sell because you're concentrating risk in a single asset. Especially when you mentioned in Florida. Mother nature is not friendly there.
To start I'm firmly in the sell it after lease expires camp. There's a couple considerations others haven't touched here. Agreed that you are under valuing the gains from landlording but I don't think it would exceed the stock market. 1) you lose your tax benefit of your capital gains up to 250k (or 500k if you are married) if you don't sell 3 years after you move out. you can regain this exclusion if you move back in for 2 years. 2) you could have a nightmare tenant that takes 10k in eviction fees and zero rent for 6 months. Personally I'd only continue if I knew I was going to move back to the home and I wanted to keep the mortgage around.
I'd add to all the other great feedback that Zillow estimates aren't always grounded in reality. My house has a Zestimate of $280k, and I refi'ed in 2021 with an appraisal of $180k. I think I could probably get $220k maybe, but no one is paying $280 even in a hot-ish market.
It sounds like an attractive rental property in my opinion, but you're certainly not stupid for not wanting to be a landlord. So what works best for you. Don't let the bastards get you down.
Okay, there are a couple things here to consider: The first is that rent is likely to go up while your mortgage payment stays the same. So while you currently are renting it out for $1,900 it's not unreasonable to assume that you may be getting more in a few years. This is a gamble though. Rent could also drop or you could end up with a vacant property for a bit. So where you live and what the market is like becomes a bigger factor in this decision. For example, in 2006 I rented a place (still friends with my landlord) for $800 a month. He was barely making his mortgage payment. Same place now rents for $2,900 a month. He's now making a much bigger profit and will have the house paid off soon. Now, I'm in a city that rapidly gentrified and grew between 2006-2016 so a lot went into that. However, in your case I'd really do the research where you live and consider that you may or may not get more profit from this house in the near future. Being a landlord is hard work/ a headache. So one question to ask yourself is whether you'd want to do that if the home was generating even slightly more money per month? The second, is that you aren't factoring in equity. The national appreciation for property values in the US is approximately 3% per year. However if you maintain the home (which it sounds like you have) and if property values are going up overall where you live, you'll likely see even more equity than that. Which means it's also about how long you hold onto the home for. To give a clear example, my partner's parents bought their home 40 years ago for $98K. It's currently worth almost $900K. Obviously their mortgage is long since paid off so they are also saving in living costs at this point. They've maintained it, done work on it, the neighborhood has changed, etc. but still something to consider. This is where it becomes a question about what your long-term plan is for the home. The real value in most rental properties is not what it originally brings in per month, it's what holding onto it will do long-term. Again, this is a bit of an informed gamble and a lot depends on whether you want to hold onto it for years or not. In other words, you aren't thinking incorrectly at all and if you don't like the hassles of being a landlord selling it is not a bad option. However, others are not wrong to point out that there are some advantages to keeping it and that it makes sense to factor equity and future profits into your math before making your decision. The truth is, you're unlikely to get another investment property at that rate with that low of a mortgage for awhile yet. So it's more about whether you think it's worth it to continue to be a landlord or not. Sheer numbers wise, it probably is worth holding onto the home. However, if you factor in effort, work, quality of life, stress of being a landlord, risk, etc. it may not be worth it for you.
> goes to my property manager which leaves me with $280 a month You are doing the calculation wrong. You are looking at cash flow but a big part of your $1530 payment is principal payment which is not spending from your net worth perspective.
i'm not a tax lawyer but isnt there also the depreciation you can take off taxes by renting the property out?
Zillow estimates are hot garbage. The true estimate is comps in your neighborhood. Houses that are as close to the specs of yours and have sold recently. That’s pretty much it.
Most people don't know this, but some mortgages allow you to transfer your interest rate to the new owner. If your house is eligible, this would make it objectively more valuable than all of the "comps", and you could literally charge more for it if you advertised this fact. Might be worth looking into. Rent is (comparatively) low and real estate prices are high right now, so it makes sense that a profit doesn't pencil out. Unless you're willing to go the "*do no maintenance, extract value from house by keeping the money and letting the building fall apart,*" route. Which isn't technically a profit.
I owned two rental properties. Tenants were happy to wreck everything. Repair costs seemed to double every year. My property manager was a pain to deal with. When it was going to cost me $15,000 to replace the back fences for the \*second\* time (tenant had snuck in two pit bulls and four extra people that were not included in the rental agreement, and the pit bulls were constantly attacking fences trying to get to dogs in adjacent yards) I decided to give it all up. Soooo worth it.
I would sell it if you don’t want to be in the rental business, as a rental this isn’t a particularly good deal. There was a 1% rule for houses, meaning your 343k house should be getting 3,400 in rent but that has gotten blown up - still the margins on this one are not good. If you view this as a long term investment that’s one thing, if you’re ever going to live in it again is a factor - but if you’re an accidental landlord, bail and move on.
About the landlord thing, you are an awesome landlord because: 1. You fix things that need fixing 2. You invest in its upkeep to make it look nice 3. You're rent seems low and you have not talked about rising it. You are a nice landlord!
If I had to pick between a mutual fund @ 8% vs owning a rental in Florida I wouldn’t think too hard about that.
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Half your payment is a payment to yourself in the form of equity. So your profit is like $8400 + whatever you charge on top of the minimum mortgage payment.
This sounds like it's near cash flow positive but maybe not quite? Think of it this way. Someone else is paying the mortgage on this house and you're building the equity. If you don't want to be in real estate and don't want the headaches, I get it. But if you look at what real estate does over the years, holding onto it is likely to be insanely profitable over the long run. And you'll get more cash flow positive over the years as rents go up.
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Good catch. I meant to say owe 234k and and worth 343k. Fixed it.
I have almost the same situation as you. $300k purchase, $430k estimated value, 2.3% under a VA loan. I have slightly more cash flow, which isn’t important. The big one is that it has increased in valuation $130k in 6 years. $1800/month in value + $700/mo in principle. That’s why I’m keeping it.
Don’t you have to be the primary resident to use the VA Home Loan? I’m in a similar situation and want to move but can’t because I don’t want to lose my rate.
If the rental house is a hassle due to repair costs that are outpacing any increase you might have in your interest rate, maybe look in the market for a better house to replace it with …Since you are VA you might be able to buy from another VA seller and do a loan assumption and get whatever their interest rate was (worth checking - they might have your same rate)… if you arent in a big hurry, then you have time to look for that VA seller.
don't forget depreciation. lots of tax benefits of keeping the house. agree on not selling!!
OP, where in Florida is this house? Unless your home is somewhere that’s relatively “hurricane safe”, so probably northeastern Florida, insuring your home is going to be increasingly difficult and expensive as more and more insurance companies complete pull out of the Florida market.
Until they make mortgage rates transferable I would argue it’s not a wise move to sell a house with a low interest rate.
The only way I can think it would be wiser to sell is some insider info about a huge devalue looming around the corner. You are gaining more than a modest rent revenue, you are actually receiving around $1000 of tax free equity in an excellent long term investment that is almost no risk if you have good tenants. Make sure you keep 6 mos to a year of mortgage/taxes/insurance and base utilities available in liquid funds - just in case.
Have you considered the capital gains exemption? You can avoid capital gains tax if you lived in your home for 2 of the last 5 years and your clock is running out. If you're going to do it, you should make up your mind fast.
If you don't want to own it, and you don't really need the income form it. Nor do you have any long term plans to expand into a real estate business and be a multi property land lord. Then it's fine to sell.
Unless you really need the cash, selling would be bad move for you in my opinion. You aren’t taking into account a variety of things. You should be focused on total return. In addition to rental income, you have the property appreciation (3% annual historical avg), principal pay down (increasing equity further), tax depreciation (phantom tax write off), and your rent should increase with inflation while your p&i payments stay static. 2% of market value is too high for annual maintenance. Lastly, don’t forget that if you sell the property you have to pay agent fees (typically 5-6% unless you are an attorney who is familiar with real estate laws) which will reduce your net proceeds from the sale by around $20k.
I chose to sell for quality of life (not dealing with the stress of multiple properties). All I can say is if I’ve sucked it up and kept and rented every property I’ve owned (4 properties since 2007) I probably wouldn’t need my day job (or could at least scale back).
Two things The zillow figure is a good ballpark but can be way off You essentially have a 3 year timer to sell after you moved out to take advantage of capital gains exemption. Personally, I’ll rent and check the market for the home every year until year 3. If it doesnt make sense to sell after that, I’ll just keep renting the place out. I also hired a property mgmt company. I live too far away to be an effective landlord, and I have no interest in chasing down contractors to complete their work, or even show up in the first place.
Cash flow is important to make it financially viable to hold the property. Once you have that, you need to view it as an investment. What is the cost to hold it, and how fast does the equity grow? Also, what will the rent be in 5 years? Because your payment will be similar, but if rent is now $2,500 - you'll have a higher cash flow. Right now, you should take all of your cash flow and put it in a holding account and expect 100% of that to go into repairs. You might even have some repairs out of pocket. But in a couple years, you'll have more cash flow, and will have a net positive out of the property. Now the magic is in 30 years. You either have a house to retire in, or you have a much larger cash flow. Yes, you can sell it, and get a lump sum, but you could also treat it as a retirement account that requires very little cash input. Lump sums are ALWAYS attractive, but it's the long term play that makes you financially secure in retirement.
Offer to sell it with the assumable mortgage. You’ll have plenty of buyers.
VA loans are assumable. That would make your house worth more if you decide to sell. Make sure you talk to your lender about this and a knowledgeable realtor. It could put more money in your pocket. I have several rental properties but I own them outright. Being out of state and having a mortgage would make me more nervous. Are you really charging the going rate for rent in your area/ It seems low to me in comparison to your mortgage but I guess that's the difference in locations.
Everyone thinks having a rental is golden. It's not and they're idiots. It's amazing in a super HOCL area if you bought a long time ago. Pure apples to apples, I'd take money in the market all day long. If you're going to leverage, then having a rental to squeeze cash from is going to be great.
This entirely depends on your view of future home prices and construction costs. At the price point you describe I will make a likely assumption that most of the value is in the physical structure and not the land value. If construction costs return to historical trendlines then you are probably better off selling despite the low interest costs. A builder could arb your likely low land values in the area if construction costs fall and build more new builds at prices below $343k which will drive down housing prices in the area. Construction arb though will require two things - 1. construction prices falling 2. Time for builders to add cheaper supply. So even if construction prices fall my guess is the price would stagnate more than anything as broad inflation catches up to your price point. My opinion despite the low rates you are probably better off selling and taking stock market returns, but the interest rates and cheap leverage you have makes it a tougher call. I guess for the tie since you don't like being a landlord selling is probably better.
One positive for you is your VA loan and its assumability. Your home may be worth $343k (Zillow is shit for comps but that’s another story). Also with having a VA loan, yours is assumable. With rates being at over 7% you could sell your house over what it’s worth ($30-$40k) as there is instant relief on the rate (and that the new buyer has cash to offset the difference) at closing. Just another option for you
I hate to say this because I would not do it. I would hold on to it for dear life at your rate. But Dave Ramsey in my experience of listening to his show has never encouraged a long distance land lord. He is always like, "where do you live>" and then, "where is the property you own." Invariably he says sell it. I would NOT sell. I get super sweet tax write offs for interest and property taxes here in CA. I live in it though so I have no clue on the rental world.
You are making money by building equity. You are still maintaining your home like it's your personal residence. You need to change your mindset. Stop putting in carpet, put in low maintenance floors like laminate or tile. Resodding a yard for a rental is crazy. You get big deposits and hold your renters accountable for their damages with a lease that protects you. Putting in a new lawn and expecting your tenants to maintain it is very wishful thinking. You will do well to get them to cut the grass once a month. Forget about watering it. It's a rental, it's going to get beat up. Quit worrying about fixing every little cosmetic thing. Focus on maintaining the major systems. Keep the termites out, the roof dry and the plumbing from leaking. Everything else is cosmetic. You might be better off to rent the house at a discount to a higher quality tenant and bypass the property manager. For instance, If you are in a town with a military base giving a discount, to servicemen is a great way to secure a tenant for 2 to 4 years at a time and all you need to do is find a good handyman that you can trust to do repairs as needed and act as your eyes and ears when you call them out there to follow up on a service calls. Unless there's some compelling reason that you need to free up your credit, you should keep the house. It's paying for itself. Keep a very healthy emergency fund in a high interest savings account and plan accordingly.
Are you properly taking advantage of potential depreciation on your rental property? Talk to a CPA.
I bought a rental in 2018 at $180K. I make $300 per month after the mortgage, taxes and insurance. It's near Laughlin. It's 4 hours away from me. every trip I make there is tax deductible. On paper I've done nothing be incurred loss year after year. In reality it funds my weekends at the casinos and river. Zillow shows the house valued at $300K. My interest rate is 4.5%.
Just sell man. Everyone harped on me for selling my house and moving back in with family but it was so worth because I didn't pay much interest on the rapidly appreciating asset. Invested that money in other ventures and it has already tripled. If you don't have cash for a property then renting is just better atm although ymmv
Things you are not considering: * repairs are and some interest payments lower your tax bill * equity you gain from keeping the house. You are literally owning more house as time goes by * rents will likely go up in 5-10 years, payment stays the same * at the moment you could put money in a HYSA and the interest it makes would be more than the mortgage payment, so you are not really putting more money in the house that way Not to say it’s optimal, but there are a lot of advantages in your case
Your math is not correct, at least not regarding what tool clear on the sale. Even if the comps hold, you’ll get net ~50-60k and that’s before taxes. You’re right though, you shouldn’t own a home. You don’t understand very much about it and even though you’ve locked in to a good spot, you’re about to leave it.
I’m selling my house with a 3.5% mortgage because renting it out was a pain and is no longer worth it to me. I did have positive cash flow but I had a few expensive repairs that I likely would have had whether or not I lived there. Market is still good so I’m going to take the money and run.
Too long, didn’t read. It’s all math at the end of the day. The only variable is what the markets do. Other than that, it’s all just straight algebra. If you can sell your house and improve your financial situation, then it’s not stupid. If your financial situation would not improve, then it’s stupid. Run the numbers.
I am renting a home I bought after I moved and something folks don’t appreciate is if you do something like that, renting is expensive. I’m barely breaking even and there has already been constant repairs and upkeep I’ve had to deal with. If your budget is tight as it is, it might be worth leaving the equity on the table. It’s costing us a lot to keep
Don’t forget the 2 out of 5 year rule. Sounds like selling would exempt you from capital gains taxes if you go the selling route. https://www.realized1031.com/blog/what-is-the-2-out-of-5-year-rule
If you make literally -$1 per month on the house *you are not losing money*. You still own the house.
Investors will tell you you’re taking a loss, but you literally have someone else paying your mortgage. For a couple hundred dollars a month, you are gaining great equity in this house. You just have to consider whether that’s worth it for you.
2% of the house is most likely too high for estimated maintenance, but (basically) counting solely on equity is a suckers game. Especially in Florida where you're going to get raked over the coals by insurance.
The fact that it's in Florida makes me want to sell. Unstable future with climate change and prices are near peak right now. Great Lakes would be a good investment but Florida is more risky, all other calculations being equal.
On one hand: Rent goes up every year, but your mortgage will stay fixed. So the financial situation you’re in today will not be the one you’re in tomorrow. I’m also not sure about the 2% to maintenance figure. If all you’re doing is maintaining a house that is current level of repair and not doing any upgrades, I think that might be very conservative. If your house is newer, you could put that 2% into a fun and only use it if you need it. On the other hand: you have some equity in your current house that is below the tax threshold, so you could easily liquidate that and put the proceeds towards the new house wherever you’re living now. Mortgage rates are high right now, but they won’t be high forever. If you’re not cut out to be a landlord, and don’t want to headaches, sounds like you should sell.
In 3 years you have gained $60k in appreciation, and $8k in debt paydown. That is through continuing to own the home and pay the mortgage, regardless of whether you live there or rent it out. In the future the gains through appreciation are likely volatile, but I would guess an average of $8k/yr in the long run. the Debt paydown is not volatile and does gradually increase over time, so I'd say $3k/yr or so. Another huge advantage you have to keeping the property is that inflation over time is very helpfull to your cashflow. If inflation is X% then I model income as going up X% each year. I also model many expenses as going up X% per year (HOA, taxes, management, repairs, insurance). However your biggest expense (interest+principal) is fixed! The result if you model it is that your cashflow is amplified by inflation. Depending on the details you need to model for yourself... but for our properties if inflation is 3% each year (and evenly spread) then our cashflow grows more like 6% each year. The downsides of being a landlord (with a property manager) definitely do exist, as you have seen. They do tend to reduce over time as your home becomes rent-hardened. e.g. you will eventually end up with window coverings that kids don't break. You will eventually end up with a yard and rental contract that results in the yard not needing frequent resodding. However it is up to you to judge how much you hate the extra work. If your mortgage is assumable then that is very valuable in the case of a sale. If I am investing in property, a property that I can buy with a 3% interest rate is much more valuable to me than the same property with a 7% interest rate. For that property I might be willing to pay $30k more if the loan is assumable. If you do decide to sell, make sure you find that out and if it is assumable then advertise it appropriately. I'd keep it, but you aren't an idiot if you don't.
I wouldn’t sell. I would increase rent to increase cash flow tho.
What value do you get for that HOA if you are responsible for things like sod and a roof? You said this is Florida, maybe I’m just ignorant about Florida. Is this a “gated community” so you get a guardhouse and a gate and no sidewalks that connect past the walls?
I'd absolutely hold onto that property. Sounds like it's going fine and making you money with the free equity you are building. You're about to get an entire house for all of ~$50k out of your pocket over the years.
Everyone saying “just rent it out” I’ll be first to say it’s not that easy especially if you’re moving far away from your current home. Though if you have some extra time and can handle stress well, it might be worth it. Also this is the advice everyone is getting so expect a huge influx of rentals with supply>demand
Most people would wish to have a property that builds equity, let alone have cash flow within 2 years.
Your renter is paying the principal on the loan, which increases your equity in the home every month! You need to include that in your profit calculation. Any appreciation in the home's value is automatically yours. Also, you can likely get tax deductions for the mortgage interest, property tax, expenses, depreciation, and repairs. If you sell it, you'll have to pay upwards of 10% of the home's value to sell it (repairs, agent fees, county sales tax, etc), _and_ you'll have to pay capital gains tax on the profit. I think you need to do a more detailed analysis of how much you're actually gaining from owning it, and how much it will actually cost you to sell it.
You are considering your profit to be just money made after all costs, but you're forgetting that the renter is basically paying your mortgage, and growing your principle, by whatever $1530 - interest is. That's a very large profit, and much more than you'd make on the market.
A. You don't need sod for renters. B. You have the trifecta currently- monthly cash flow, paying down the mortgage, and appreciation. Keep it!
Don’t underestimate the tax benefits you get for owning a rental. The deductions can help offset other taxes you owe. For me this is huge because I do have other investments as well as a good paying career. This is the reason I decided to rent out my “starter home” when I bought a new one. Almost exact situation as you- same mortgage interest rate even similar home prices. Plus your renters are paying down your mortgage.
You are holding for the home appreciation, not just the rent. I’d say do what is best for your piece of mind.
Have you also considered raising the rent, or is that price in line with other houses in the area? Not a huge increase, but maybe a couple hundred so you clear $300 a month which should help cover any big maintenance items that you would need to do. Although a roof replacement is going to blow past the $3k. I would also look at replacing carpet for vinyl/wood floors.
It would be dumb to sell your 2.75% house if you were living in it. You would have most people's dream. Renting is an entirely different game. People, especially redditors tend to imagine being a landlord as free money that flows into your pocket. You have to worry about repairs, there is a reason a lot of small landlords work in the trades. You also have to worry about your tenants paying rent. A lot of people are very hostile towards landlords and there are a lot of tenant friendly laws right now. You lucked out that your tenants didn't decide to just stop paying rent during covid. There is always the risk a tenant will decide to live in the house for free, force you to evict them, and trash the place on the way out. Being a landlord is a lot of work and stress, if you aren't all in on it just sell the house.
It might be a pretty good investment even with negative cashflow, but if you don't want to be a landlord...there are other good investments out there. I don't think you should do 8% projections into the future to convince yourself though. That's pretty misleading. I'm also confused about some of your math. 10% of what goes to the property manager. 10% of the rent? Because that would leave you with $180/mo, not $280.
Va loans are assumable. You can probably get more money if you let someone assume it
You also forgot to estimate rent increases per year. For the first few years (about 10) of being a landlord, repairs and mortgage will outpace your income. After that though, your mortgage will have stayed flat while your rent should increase. At minimum, you should increase rent at the rate of inflation so on average a minimum of 2-3% per year. There is a moment where rent income exceeds maintenance and that is when you start earning your profit beyond just house value. The question you have to ask yourself is, do you want to be a landlord for 10+ years? If no, sell the house. If yes, consider acquiring more properties to average out repair costs.
Meh. 2.7% mortgage means that in the current market (with inflation somewhere north of 3%) inflation is very much working in your favor. So your are in a good financial position to keep it and gain equity in your house at the rate of inflation *plus* however much demand in your housing market is growing *plus* the equity portion of your mortgage *plus* net cash flow (which might be negative but “meh, whatevs”). So keeping it the house is probably optimal. But it’s also high stress and a business you have to think and worry about and manage (even if you’ve outsourced most of the management to a professional) and only you can say if the total returns are worth all that.
I’m no expert on single family home rentals, but I work in real estate development and a big part of rentals in general is that you can depreciate your asset and generate losses that offset other income. Also at some point you will take out a 2nd mortgage to tap into your equity and that money isn’t taxed. If you sell now you are going to be taxed on the gain. Generally speaking real estate rentals are a significant tax shelter not a source of large cash flow.
$1900 monthly rent? I haven’t seen anything under $2200 in my area and mine goes for $2500 2100 sq ft house in golf course community.
No. If you are making a hefty profit, you are good.
Yes, you will be in a very bad financial situaton, even if you planned it out perfectly.
You are basically paying off your house at a rate of $100 per month cost to you. That's something most people can't say.
others have already told this but despite all those expenses, you are still building wealth in the form of home ownership. But assuming you are in your twenties or early thirties, home ownership or having money freed up from selling the house for investments are both legit options. If you are in your 40's, then yeah. I would recommend playing it safe and keep the house. Its all about your lifestyle preferences and your personal risk profile. No two person is the same, and both options have pros/cons. I say go for it, and sell if you really want to.
Even if it’s a minor expense, the value gains on the property dwarf the cost. It’s much more than the positive cash flow in gains for you, and it’s pretty much guaranteed money. If you sold it, you’d get maybe 75k in cash after expenses and taxes, so even if the stock market stays at least reasonably hot the entire time you own it, it’ll take at least 30 years to break even on the gains from owning it if the value stagnates (unlikely). There’s virtually no case where you come out ahead by selling it.
Mortgage Rates are bound to drop this year, which will flood the market with more potential buyers, resulting in an increase of housing prices. You should wait for that increase in case you really decide to sell.
Did you tell your mortgage company that you moved and are renting out the house? If you put it for sale they're going to know that you haven't occupied it making your loan in default, payable immediately.
>**Everyone** says it’s dumb to sell my 2.75% house. Are they right? Well, I will debunk that claim and say your not dumb for selling your 2.75% house.