In 2.5-3 years I am hoping to pay off my 90,000 mortgage. After that I plan on saving more each year from omitting the mortgage payment I have monthly. I do plan on moving on from this house, so the question is, would it be better to rent out or sell the house? The only worry I have with renting out are terror renters. Is there something else I should be worrying about? Any suggestions?
To Rent or Not to Rent
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BeyondtheWrap
- Posts: 598
- Joined: Thu Jul 22, 2010 3:38 pm
- Location: NYC
I'm no expert, but here's a way to decide.
If you sell the house, you can then invest the money. So if you can make $100,000 and invest it, you will increase your investment income by $3,000 a year, assuming a 3% safe withdrawal rate, or $4,000 with a 4% safe withdrawal rate.
Consider the monthly rent you would collect, minus the expenses of continuing to own the house (property tax, maintenance, etc.). Assuming my guess above is accurate, you would want rental profit that exceeds $3,000-$4,000 a year ($250-$333 a month) for this to be the more profitable option. If the house if worth $300,000, then you'd want $9,000-$12,000 a year ($750-$1000).
So consider how much your house is worth to sell, how much it is worth to rent, and whether you think you would want to do the work of managing your property.
If you sell the house, you can then invest the money. So if you can make $100,000 and invest it, you will increase your investment income by $3,000 a year, assuming a 3% safe withdrawal rate, or $4,000 with a 4% safe withdrawal rate.
Consider the monthly rent you would collect, minus the expenses of continuing to own the house (property tax, maintenance, etc.). Assuming my guess above is accurate, you would want rental profit that exceeds $3,000-$4,000 a year ($250-$333 a month) for this to be the more profitable option. If the house if worth $300,000, then you'd want $9,000-$12,000 a year ($750-$1000).
So consider how much your house is worth to sell, how much it is worth to rent, and whether you think you would want to do the work of managing your property.
@beyond - Renting it out would optimally give me a better return, being that I would rent it out for $700-850/month. Selling the house would get me around $110k (after paying 6% to the agent). I suppose I have to think about the 'second investment home' aspect' - if anyone has any experience in this.
That's not the greatest return. I have 10 years experience and wont do it for less than 11-13% plus. You not only need a good return, you need to justify the extra time to take care of your property AND obviously the expenses of constant renovation and upkeep. Pay yourself a salary too.
Can you increase the rent? Turn it into a duplex?
Can you increase the rent? Turn it into a duplex?
