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Should I sell or rent my home out?

I paid $150k for a house in Sacramento, Ca. It has been completely remodeled and is ready for move-in.  Our plans were to rent it out, however the value in this neighborhood has drastically increased.  The home is now worth about $350K.  Our mortgage payment is $700 which includes taxes and insurance.  The going rent for that area is about $1300.  Is it worth renting out or should we sell it to make a $200k profit?
  • February 14 2014 - Sacramento
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Answers (7)

I would keep as a Rental allowing the Property Value to increase and when you are ready for your next property... Pull Cash out in order to acquire an additional Investment property.

I always have 1 Free and Clear Property Income that I can Refi Cash Out in order to acquire the next Rental with CASH competing with many CASH only buyers. I found it interesting since my Credit Risk no longer increase as long as new Rental Income is washing out the new mortgage with additional positive cash flow.. however with depreciation and costs involved, new properties are showing up as Paper Loss at the end of the year... means I kept more $$$ in my pocket.

As I kept refinancing with the same lender, lesser paperwork with speedy U/W.. 

Always make sure your total Mortgage+Ins+Tax+buffer is less then Rental Income. I like to see a net monthly of $500 per property.

Here is another interesting fact.. Since I have multiple Mortgages.. just happens 2 landed on the same month and closing date. The 2nd Mortgage has become a Shadow of the prior mortgage thus raising my credit.. to borrow more. Since the Shadow items are automatically removed.




  • February 14 2014
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The rule of thumb that I learned to quickly assess if you are making enough rent for your investment is that rent should be about 1% of your investment.  If you paid $150K, the rental should be $1,500/month.  However, there were the costs to renovate - with how much you think you can get, I would guess you may have paid $30K - $50K for renovations.  If the lower amount, you now have invested $180K so rent should be $1,800/month to make a reasonable profit.  If you did pay $30K (or substitute your #) for renovations, your profit might be $170K ($350K - $180K) less seller costs (commission, title insurance, transfer tax) and estimating at $25K.  So real profit will be around $145K or 40% - not bad % to get on an investment.  As others have said, this has personal tax ramifications depending on how you have this set up.
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There's so many things to weigh in, like people have already mentioned. Renting out is great for the tax benefits, but remember you'd have to be a landlord and deal with always having the right tenant in there. Selling now with that great of a profit is awesome. While the market is steady, you never know how long your $200Kprofit will sustain, fluctuate, etc. Selling now is a great time due to the demand. It may not necessarily be a totally hot market, but there's definitely still buyers out there looking for the right home with not as much to choose from. Though you may not go into contract in less than a week, you may even get higher offer than you thought. Either way, double check with your CPA if there's other things to weigh in. Any questions, feel free to reach out to me. We have offices in Sacramento, and could assist you anytime. Good luck!
  • February 14 2014
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When is it the best time to sell? A common question. But the answer is different for everyone and based on one's circumstances. However, if you base it strictly on the current real estate market, "now" is the best time! As you mentioned, home values have "drastically increased". The market has flattened out after the huge surge, but prices are still holding steady for the most part--some markets better than others. It's a strong seller's market now, but it's not the frenzied market condition with "one-day sales" that started in 2012, which was driven by short sales and foreclosures. There's been a "slight" shift in the market: more homes are taking longer to sell, increase of expired listings, more price reductions... This may suggest that sellers are asking more than buyers can swallow. However, your house has a great chance of selling at top dollar in this market. Bottom line: A profit of $200K is worth selling--no question about that. If you would like more information (Also, would like to tell you about listing and closing cost assistance), please feel free to contact me.

Good luck!
Anna Stender
  • February 14 2014
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That's a great question! It depends on a several things. Is your income going to be more, less or the same this year compared to next year? That could effect the amount of taxes you would have to pay if you sold your house (depending on if your tax bracket will change).

Is this home your primary residence or an investment property (e.g. a flip or a rental)? From your post it appears it's not your primary residence.

Are you married or single? There are different IRS exclusions depending on what filing status you claim. 

Did you buy the home more than a year ago? This GREATLY effects the amount of taxes that you would have to pay if you sold it.

Feel free to send me a personal message with your responses or any more questions.

Thanks,

Jason Walter
REALTOR
Certified Public Accountant (CPA)
  • February 14 2014
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FYI - I have the same question about my house.  After long research I'm finding it's not that simple (didn't think it would be).

I'm in Indiana and my current refinanced mortgage runs me $600/mo.  After figuring the increases in property tax for not being a homestead, increase in insurance, cost of my mortgage, PLUS cost of having to report income on my taxes (25% of the rental $ in my case), this is what I was left with:

$3500yr property tax
$1300yr rental ins
$7200yr mortgage

Equals $12,000yr PLUS add $3000 (25%) to cover the tax = $15,000yr

Monthly rental = $1250

That is the bare minimum, break even.  My only benefit from that is that they are paying the mortgage.

Judging by my area, I can rent the home for at least $1500, probably $1600.  So let's use the $1600.

At $1600/month, I am getting $350 profit, or $4200 per year.  That isn't much for repairs if they break stuff.  Let's face it, two month's worth of deposit doesn't cover many repairs if they're rough.

So, if all goes well...my profits are $4200 per year cash and the year's equity not paying the $7200 to my mortgage.

Or, I can sell the home for $50k profit all at once.  Kinda dashes my dreams of property investing.
  • February 14 2014
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If it were me, I'd take the money and remodel another home. At the moment, you're earning $6,000 a year, which is a good return but it's not nearly as good as $200K. Know what I mean, jelly bean?
  • February 14 2014
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