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Landlord or Sell

April 2nd, 2015 at 10:53 am

So more than one friend has commented that my DH and I should turn our current house into a rental. That we should cash out some equity for the DP on our next place and then rent it out. Truth be told we probably have enough cash on hand to buy our next place with a 20% DP without cashing out our current home.

But I don't think it's a good idea. I haven't calculated the OAR or done a spreadsheet of the analysis. But just my gut says it's a bad idea.

I am going to do a rough analysis now. We could rent out place conservatively for $3500/month or $42k/year gross income. Our mortgage on it is $2250/month PITI is $27k/year. We'd only net $15k/year not including HOA $250/month ($3k/year), utilities say $25/month ($300/year) since it's only when vacant.

Obviously it's not a very profitable rental in the sense it has very little cash flow. Another Reader has said in HCOLA people are counting more on appreciation than on cash flow. Sounds reasonable but I think it's really risky to be investing in real estate where I live then. Because you need to have a large cash flow to be able to carry these types of rentals if something goes wrong and there is very minimal cash flow. If something major breaks or is not rented for months then what?

Perhaps if we lived somewhere that renting it would generate 10-15% return on cash I'd do it. But at barely breaking even and counting on appreciation as the way to make money. I think I'll have to pass.

Perhaps more savvy real estate investors will explain why I should or shouldn't keep it as a rental.

Posted in Mortgage | 6 Comments »

6 Responses to “Landlord or Sell”

  1. CB in the City Says:
    April 2nd, 2015 at 12:52 pm 1427979135
    1427979135

    Go with your gut. I understand being a landlord is hard work; if your heart isn't in it, you won't do well.

  2. ThriftoRama Says:
    April 2nd, 2015 at 01:20 pm 1427980859
    1427980859

    I wouldn't unless you really want to. We considered this briefly in our last move, but recognized we weren't in the place in our lives where becoming a landlord made sense. Soon after, our other house sold and we used all the money to pay down the principal on the new house. A much better choice, for us at least.

  3. creditcardfree Says:
    April 2nd, 2015 at 01:36 pm 1427981773
    1427981773

    I've debated this very briefly with our current home. I don't know what the rental market for my type of home is, I would think it would rent, as we had the hardest time to find a remotely good rental when we moved here...thus why we purchased. I don't think our return would be very high either. For me, it comes down to the fact I can't see being a landlord from halfway across the country! Yes, I realize I could hire a property manager. I would also go with your gut. It doesn't mean it wouldn't pay off if you did rent, but it also isn't wrong to pass on it.

  4. MonkeyMama Says:
    April 2nd, 2015 at 01:57 pm 1427983068
    1427983068

    We could have rented out our last place for a small fortune, but just didn't want to deal with the hassle. You have to have the personality for it. All I hear in our circles (similar personalities) is how much landlording sucks. Even if extremely profitable, just how not worth it the whole thing was. Of course every broke moron thinks you should have a rental.

    & of course, long distance landlording just makes it worse.

  5. MonkeyMama Says:
    April 2nd, 2015 at 02:01 pm 1427983295
    1427983295

    P.S. If you have a passion for rentals or real estate would be totally different. It's just, don't get suckered into it by broke people.

  6. Ima saver Says:
    April 2nd, 2015 at 02:08 pm 1427983734
    1427983734

    I tired it and hated it. About 30 years ago, I had three rentals. I lost money on all of them and sold the homes for a loss. It is not worth the worry.

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