Rent out house or just sell and cash out?

[Dubbington]

Our move in turning my townhouse I've owned for almost 11 years into a rental AND then renting a larger house around the corner is becoming a major stressful situation. Finding quality tenants is not easy #1. I also didn't know tenants would haggle on rent :huh

An agent called me yesterday asking if I wanted to sell which at that point I didn't. BUT then it started thinking, maybe they'd give me an offer hard to refuse.

Question: Is it worth renting and keeping equity in home OR selling and putting that cash into stable 10% and greater return investments? I know the investing isn't guaranteed money. Renting also has variables like sudden repairs and HOA dues that can rise.

I can sell and make around $430k+/- taxes and fees. I figure I could invest that and should be able to make 10-15% a year on that, $40k+ a year.

Renting I'll be no more than positive $1200-$1400 a month for the life of the loan which is 30 years. 30 years of the positive rent rental cash is around $430k. The house would be paid off at that point BUT I'll be 70 years old.

A friends argument is that $400K I make on the sale will dwindle with our current larger rent payment in new house and just by having access to the $$$ would cause us to spend it. Maybe. We'll still be working and brining home our typical income. Cashing out and selling would allow us to put more $$ into our retirement accounts BUT then we'd have not other assets or writes offs a home provides.

Is there an angle I'm missing?

 

[JesasaurusRex]

Walk away with 430k or headache for 30 years to make 430k? You're a math teacher right?

 

[scootergmc]

If you don't want to be a landlord, don't. Period. If you can't stomach all the headaches and don't have enough capital reserves for unforeseen expenses, don't. Just take the cash, find yourself a nice place you can afford, maximize your Roths every month in a few aggressive funds, do your 457 up to the match (if you have one).

You're also missing the fact that a "write off" isn't what you think it is. You're paying xxxx.xx interest to save xx.xx in taxes. Unless your AGI is sending you into an elevated tax bracket where a "write off" can drastically lower your tax rates, then forget the write off. Usually for the middle class, you're spending a dollar to save a quarter. The best wealth building tool is no or less debt.

 

[Dubbington]

Walk away with 430k or headache for 30 years to make 430k? You're a math teacher right?

But it’s $430k in 30 years and still have the house paid off that’d be worth $1mil at that point.

 

[scootergmc]

But it’s $430k in 30 years and still have the house paid off that’d be worth $1mil at that point.

And where are you living in the meantime and how much is that expense over 30 years?

 

[Eldritch]

Being a landlord is hard, tenants are a pain. HAnging on to the rental is a much better investment over the longterm.

If you do not have the time and energy to deal with being a landlord, just sell and take the easy money.

 

[auntiebling]

c) have a management company handle the rental.
you probably have to pay them a month of rent per year to handle it but the lack of headache might be worth it for you.

 

[ScottRNelson]

I moved out of my Pleasanton house in 2011, to another house I was buying in Folsom. The market was way down that year so I decided to rent it. First I rented to a friend, which was a mistake. But he got divorced and moved out, so I did a few repairs and let my daughter and her husband manage it. They found someone that was good at paying the rent on time, but terrible at taking care of the house.

Fast forward to 2016. My job in Folsom ended, I decided to stop working, sold the Folsom house, asked the renters to leave, then moved back into my Pleasanton house. We had to replace all flooring in the house that wasn't either in a closet or a bathroom. Every single square foot of it. And we had to repaint every wall in the place and a few of the ceilings. And the yard was really wrecked. I spent two years getting it back in shape to sell it. I had to put in two years there anyway as part of the two of five years tax rule. Living there for the two years saved me over $150K in taxes, according to my tax guy.

If you have a choice and it's a seller's market, sell. You don't have the headache to deal with. You won't have to worry about renters damaging stuff. You won't get taxed on the first $500K of profit on the sale.

Just my opinion, based on my experience with the issue.

 

[DefyInertia]

I sold my house in SF because (1) it was not an ideal rental, bs if been fully hit rehabbed, (2) it was a seller’s market, (3) I needed to simplify my life at the time...things had gotten too complex. While owning/renting would have been nice, especially down the road, current quality of life matters.

 

[DannoXYZ]

being landlord really sucks. Tenants really suck. Having to deal with plumbing issues at 2am on Sunday really sucks.

As mentioned, interest payments is higher than tax savings, so you're always negative. Add in property taxes, insurance, maintenance, etc. Rents won't cover enough to be worthwhile. Not to mention cost of your time.

Best to take 430k cash now because you can easily earn %10-20 in tax-free 401k/IRA. Which will pay off much better in 30yrs than trying to make something out of rental. BTW, I'm up +110% in my IRA for 2020.

 

[Climber]

Bottom line. If you find a good renter, it can work out for you with very few hassles. If you go that route, do your due diligence to ensure what you're getting. If you get a bad one, you're screwed.
DON'T DO SECTION 8!!!!!! Too many things that can go wrong! The stories I could tell you about a family friend who got utterly screwed.
Also, don't rent to family, I've heard of far, far more things that went wrong than things that went right.

 

[lefty]

My Wife and I have two homes, my home, that we live in, is paid off. Her house, that we rent out to our (her) Daughters at a HUUUUUGE loss.

There is a mortgage on that house, but we cannot write off anything because it is not our primary residence. We have been getting hosed on taxes.

Rentals are a PITA!!! I say SELL it.

 

[dagle]

i would say keep it, but that's because im a jealous no-homer and i want you to be slightly poorer. sell it and let it ride on GME, brotherman.

 

[Caddywumpus]

Your price posted in another thread on barf seems extremely high fwiw.

 

[GAJ]

But it’s $430k in 30 years and still have the house paid off that’d be worth $1mil at that point.

We are fortunate that we have three rental homes with two excellent tenants and one tenant that has straightened up after getting read the riot act.

Once for being late on rent and more recently for building an "apartment" in the garage.

The lectures "stuck" because the rent is so low that there options are expensive and limited.

But they are all within a 10 minute drive of my home so it is very easy to monitor the homes to keep them ship shape.

The depreciation has ensured we barely pay Fed or State taxes and maintenance/upgrades are written off, some immediately, some over time.

Best decision I ever made buying those three rentals but I've heard the horror stories.

Worst case, consider a Property Manager firm with a decent reputation.

So definitely factor in depreciation before making a final decision.

https://www.investopedia.com/articles/investing/060815/how-rental-property-depreciation-works.asp

 

[AbsolutEnduser]

keep it
give it to me

and yes tenants can "haggle" on price ask me how I know duh

 

[Matty D]

Assuming it's in a desirable location the safer bet is to hold and rent. But that's purely about dollars as relates to this one asset. Only you can decide whether the hassles and drama will be worth it as compared to selling, taking into account your whole situation, not just this house. If you sell you'll probably leave some dollars on the table long term but have less stress, particularly if you will be comfortable either way due to other investments, sources of cash, etc. And who knows, maybe you'll nail the next Gamestop stock, cash out at the right time, and end up sitting pretty.

Heck, owning real estate without renters can be enough of a PIA for some people that they decide it's not worth it.

I own a house in SF and have always said I'll rent it out when I leave the city.
I'm in an area where I should be able to rent the place for more than twice the mortgage (maybe closer to 3X), so I'd clear taxes, insurance, etc., and still be ahead, all while the place continues to appreciate. Sounds great in theory but the reality of renting is of course different, and the notion of selling and hoarding the cash gets more and more attractive as time goes on.

 

[mercurial]

My Wife and I have two homes, my home, that we live in, is paid off. Her house, that we rent out to our (her) Daughters at a HUUUUUGE loss.

There is a mortgage on that house, but we cannot write off anything because it is not our primary residence. We have been getting hosed on taxes.

Rentals are a PITA!!! I say SELL it.

If the daughters are paying rent informally, I think you can write that second house off as a second home. I think the total write-off for both homes has to be less than 750k in total mortgage amount, but it's allowable. You should talk to an accountant because it sounds like you are leaving dollars on the table.

 

[Yakoo752]

c) have a management company handle the rental.
you probably have to pay them a month of rent per year to handle it but the lack of headache might be worth it for you.

ding!

I don't pay them anything out of pocket, they skim it off the rent. I have a draw account that they can access to pay for any repair under $1500. I get quarterly statements from them.

Pro:
I don't have to deal with tenants

Con:
I have to deal with a property management company

When times are good, like GAJ has experienced, they eat into your profits. When times are bad, they are worth their weight in gold.

I don't look at it as a revenue stream. I don't see any income from it, every extra penny is reserved for property updates. I use this as a different vehicle towards retirement or an asset I can borrow against.

 

[bikewanker]

Consider it a leveraged investment like a hedge fund! I’ve used a management company, primarily due to distance, and have still had bad renters. If you’re planning to buy a house down the road having a rental might freeze market increases. California and local rental laws matter as due occasional walk throughs. Your rental rate will go up over the years. I often think home ownership is overrated but it’s worked for me rental wise. Run the numbers on a year of all housing expenses and see what it does for you tax wise. The ScottRNelson plan to move back in to sell is a tax $ saver but I’m not sure I want to live in Kansas anymore.