Howdy Texags. Looking for some advice on my family purchasing a home. Last week I was traveling for work and an off-market opportunity to buy a bigger house in our neighborhood presented itself. This neighborhood doesn't have many opportunities like this hit the market so we are trying to seize the opportunity. We were able to get the house under contract and are currently in the option period.

The info for our current house is below:

Current house:
- Purchased in 2021 with a 2.5% Interest rate
- The number the realtor said we could comfortably sell our current home would net us 166k after realtor fees etc.
- 1850 sq feet 3 bed 2 bath home
- Mortgage payment (with taxes and insurance) $2,333.00 vs. Expected Rent: $2,600.00. The house is in the same neighborhood as where we would be buying.

I've always been interested in trying to rent a property out. I feel that a 2.5% interest rate for a 30 year loan is an asset worth keeping, but the equity in the house is tough to leave on the table.

Would you keep it and rent it or sell it?

Can you qualify with both payments?

Yes I do

IMO, it's 100% a personal decision.

Another factor, though. What's the interest rate on your new home? How much would you save by using the sell of your old home to pay down the new home and avoiding the interest on that $166k?

I am personally not a huge fan of owning rental houses. That being said you said you are interested in doing it so I would give it a shot. Worst thing that can happen is you realize it's not for you and then you decide to sell the house, but then at least you will know.

If you have the itch, I say scratch it.

I would think the interest saved by applying the equity to the new house would far exceed the money you would make in rent. You also have to remember you will pay for property taxes and repairs with the original home too.

Not worth it to me - sell and move on.

I can tell you that I bought a house in Austin in 2010 for $262k, my wife couldn't handle renting it so we sold it a couple years later with a sales price of $289k, and now it's worth more than $600k (even after falling in value). I think about that every time someone says they're going to list their house.

Hold on to it if you can COMFORTABLY, but if you have to sell to stay comfortable $166k is a nice consolation prize.

gvine07 said:

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I can tell you that I bought a house in Austin in 2010 for $262k, my wife couldn't handle renting it so we sold it a couple years later with a sales price of $289k, and now it's worth more than $600k (even after falling in value). I think about that every time someone says they're going to list their house.

Hold on to it if you can COMFORTABLY, but if you have to sell to stay comfortable $166k is a nice consolation prize.

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And if you would have put $289k in the S&P 500 in 2012 it'd be worth $896K today....

You can't really forecast what will happen based on past results.

Is that your payment currently with homestead? How much will it be after that drops off?

htxag09 said:

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gvine07 said:

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I can tell you that I bought a house in Austin in 2010 for $262k, my wife couldn't handle renting it so we sold it a couple years later with a sales price of $289k, and now it's worth more than $600k (even after falling in value). I think about that every time someone says they're going to list their house.

Hold on to it if you can COMFORTABLY, but if you have to sell to stay comfortable $166k is a nice consolation prize.

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And if you would have put $289k in the S&P 500 in 2012 it'd be worth $896K today....

You can't really forecast what will happen based on past results.

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He didn't have $289k in 2012 though, so how could he have invested it?
He simply had a house worth that, and today it's worth a lot more.

hutch012 said:

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Howdy Texags. Looking for some advice on my family purchasing a home. Last week I was traveling for work and an off-market opportunity to buy a bigger house in our neighborhood presented itself. This neighborhood doesn't have many opportunities like this hit the market so we are trying to seize the opportunity. We were able to get the house under contract and are currently in the option period.

The info for our current house is below:

Current house:
- Purchased in 2021 with a 2.5% Interest rate
- The number the realtor said we could comfortably sell our current home would net us 166k after realtor fees etc.
- 1850 sq feet 3 bed 2 bath home
- Mortgage payment (with taxes and insurance) $2,333.00 vs. Expected Rent: $2,600.00. The house is in the same neighborhood as where we would be buying.

I've always been interested in trying to rent a property out. I feel that a 2.5% interest rate for a 30 year loan is an asset worth keeping, but the equity in the house is tough to leave on the table.

Would you keep it and rent it or sell it?

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I'd keep the house and rent it out. If the payments or stress gets to be too much, you can always revisit the selling part of the equation at a later time.

Reasons why I think this:

• 2.5% interest rate is well-below the current treasury and bond market, so you are financing that original home purchase well-below the current rates and inflation figures. Your keep vs sell equation would drastically change if you had a 5% handle on that interest rate
• Even at $2600 for renting, you're at least cash-flow neutral or even positive. Every month you make an additional mortgage payment (whether funded by the tenants or yourself) adds to your equity in that house. So that $166K today can grow to $175K this time next year and so on.
• The new house and old house are in the same neighborhood, which makes it really easy from an asset management perspective. My biggest recommendation would just be diligent on your tenant screening to make sure you get a good one. Check their references!

Potential Torpedos to the Deal:

• Current interest rates are tough in this market these days, but if you can get to an acceptable rate and make that monthly payment - it should be ok. Besides in the event you choose to sell the first house, you can might have the option to plow that entire equity check into new house mortgage and "recast" the loan to lower the monthly payment. I would just check with your lender to make sure that you have/understand what that would take (usually there is a minimum amount needed - $100K? - to recast the loan)

If I was in your shoes with a well-stocked emergency fund and comfortable ability to afford both payments, I'd keep the house.

The future of renting is changing. Every appliance and amenity is subject to inflation and will hit your bottom line along with insurance and property taxes something fierce.

There's only one way to go in future profitable renting -- hand tenants a clean, sanitary, freshly painted rock sturdy little home with window units, and make them provide appliances. Yes your rent will be a little lower. But your ROI will be much better than renting a nice home.

jagvocate said:

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The future of renting is changing. Every appliance and amenity is subject to inflation and will hit your bottom line along with insurance and property taxes something fierce.

There's only one way to go in future profitable renting -- hand tenants a clean, sanitary, freshly painted rock sturdy little home with window units, and make them provide appliances. Yes your rent will be a little lower. But your ROI will be much better than renting a nice home.

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Is your mortgage assumable? If so, you may be able to seek to a qualifying buyer at a premium, extracting more net than otherwise available. This scenario could be financially equivalent to pulling a lot of potential rent income to today and allow you to still repurpose the money.

What month did you close on the purchase? You may owe a tax on the gain if you sell within 2 years.

Inflated costs are devouring ROI … I offered the landlord model that best addresses the problems going forward. In short, it isn't holding on to a nice house to rent "just because my mortgage is cheap"

Bassmaster said:

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What month did you close on the purchase? You may owe a tax on the gain if you sell within 2 years.

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After 3 years. Need to have live in house 2 or the last 5 years. After that you loose 1/24th per month of gain exclusion.

If you've depreciated part of the house you've got recapture independent of the above.

I'm not a fan of debt. I'm 59 and haven't had debt since 2007.

I can't believe you're going to net $166K in two years on a house that size. You must have purchased it at the perfect time.

I think I might use the gains to pay down the other house and sell.

But as mentioned, to each his or her own.

"Mortgage payment (with taxes and insurance) $2,333.00"

I assume you meant to include property tax in that number?

remember this property would lose the homestead exemption for property taxes since it wouldn't be your primary residence.

Another thought. My opinion on being in the rental business is either go big or don't do it at all.

Just having one investment property isn't worth it to me.

My friend is a retired accounting firm partner and now has 23 rental properties.

So now he's in the landlord business.

I put 3.5% down... I didn't leave with $289k. I think we left with ~$1,200 after all the realtor fees and closing costs.

We should have never sold it.

gvine07 said:

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I can tell you that I bought a house in Austin in 2010 for $262k, my wife couldn't handle renting it so we sold it a couple years later with a sales price of $289k, and now it's worth more than $600k (even after falling in value). I think about that every time someone says they're going to list their house.

Hold on to it if you can COMFORTABLY, but if you have to sell to stay comfortable $166k is a nice consolation prize.

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I still cant believe prices went up in two years to make a $166K profit on a house that size. I thought the market had already taken off by 2021.

This must be in the Austin area. You must have purchased the property in early 2021.

txaggieacct85 said:

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"Mortgage payment (with taxes and insurance) $2,333.00"

I assume you meant to include property tax in that number?

remember this property would lose the homestead exemption for property taxes since it wouldn't be your primary residence.

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Was going to mention this (losing homestead) - it is especially important since it sounds like you're in an area that has seen a heavy increase in values. Your first year in the new home will be uncapped and once you no longer have the current one homesteaded, it will likely see a big spike in assessed value as well.

gvine07 said:

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I put 3.5% down... I didn't leave with $289k. I think we left with ~$1,200 after all the realtor fees and closing costs.

We should have never sold it.

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Not really the point of my post....

It's easy to look at your scenario and hindsight and say that. But the past doesn't dictate the future. Just because home values have almost doubled over the last 10 years, doesn't automatically mean they will do so the next 10 years.

You're basically saying you were underwater on it. Not sure it's ever wise to be underwater on a rental. Market could have turned the other way and you would have wished you sold it....

jagvocate said:

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The future of renting is changing. Every appliance and amenity is subject to inflation and will hit your bottom line along with insurance and property taxes something fierce.

There's only one way to go in future profitable renting -- hand tenants a clean, sanitary, freshly painted rock sturdy little home with window units, and make them provide appliances. Yes your rent will be a little lower. But your ROI will be much better than renting a nice home.

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As someone pointed out, if he takes the money and puts it against his new high mortgage rate, it will save him net about 4%. So 4% on $170K is more valuable than keeping it as a rental IMO. A bit of a wash.

The only reason to keep it is to ride it until interest rates fall again, if they do, so the housing market gets hot again and sells for much more than you could today.

hutch012 said:

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Howdy Texags. Looking for some advice on my family purchasing a home. Last week I was traveling for work and an off-market opportunity to buy a bigger house in our neighborhood presented itself. This neighborhood doesn't have many opportunities like this hit the market so we are trying to seize the opportunity. We were able to get the house under contract and are currently in the option period.

The info for our current house is below:

Current house:
- Purchased in 2021 with a 2.5% Interest rate
- The number the realtor said we could comfortably sell our current home would net us 166k after realtor fees etc.
- 1850 sq feet 3 bed 2 bath home
- Mortgage payment (with taxes and insurance) $2,333.00 vs. Expected Rent: $2,600.00. The house is in the same neighborhood as where we would be buying.

I've always been interested in trying to rent a property out. I feel that a 2.5% interest rate for a 30 year loan is an asset worth keeping, but the equity in the house is tough to leave on the table.

Would you keep it and rent it or sell it?

---

I would vote to sell. It sounds like best case scenario, you make $267/month or $3,204/year. That doesn't account for vacancy, repairs, etc. $3,204 on the $166,000 you net would be about 2%. I would put my money elsewhere.

You are really tight even with a 2.5% mortgage. This shows there is an imperfection between buying and renting in your neighborhood. Either home prices need to go down or rent needs to go up.

Troglodyte said:

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hutch012 said:

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Howdy Texags. Looking for some advice on my family purchasing a home. Last week I was traveling for work and an off-market opportunity to buy a bigger house in our neighborhood presented itself. This neighborhood doesn't have many opportunities like this hit the market so we are trying to seize the opportunity. We were able to get the house under contract and are currently in the option period.

The info for our current house is below:

Current house:
- Purchased in 2021 with a 2.5% Interest rate
- The number the realtor said we could comfortably sell our current home would net us 166k after realtor fees etc.
- 1850 sq feet 3 bed 2 bath home
- Mortgage payment (with taxes and insurance) $2,333.00 vs. Expected Rent: $2,600.00. The house is in the same neighborhood as where we would be buying.

I've always been interested in trying to rent a property out. I feel that a 2.5% interest rate for a 30 year loan is an asset worth keeping, but the equity in the house is tough to leave on the table.

Would you keep it and rent it or sell it?

---

I would vote to sell. It sounds like best case scenario, you make $267/month or $3,204/year. That doesn't account for vacancy, repairs, etc. $3,204 on the $166,000 you net would be about 2%. I would put my money elsewhere.

You are really tight even with a 2.5% mortgage. This shows there is an imperfection between buying and renting in your neighborhood. Either home prices need to go down or rent needs to go up.

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I agree as said above, but most people don't calculate the mortgage pay down and appreciation of the house. It's likely to sell more than today IMO 5 years from now. A bit of a guessing game, but there is natural appreciation over time.

this board sure has changed... back in the day people say "passive" rental income is the way to go.

(Being a landlord sounds like a job to me so I never considered it passive)

hutch012 said:

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Howdy Texags. Looking for some advice on my family purchasing a home. Last week I was traveling for work and an off-market opportunity to buy a bigger house in our neighborhood presented itself. This neighborhood doesn't have many opportunities like this hit the market so we are trying to seize the opportunity. We were able to get the house under contract and are currently in the option period.

The info for our current house is below:

Current house:
- Purchased in 2021 with a 2.5% Interest rate
- The number the realtor said we could comfortably sell our current home would net us 166k after realtor fees etc.
- 1850 sq feet 3 bed 2 bath home
- Mortgage payment (with taxes and insurance) $2,333.00 vs. Expected Rent: $2,600.00. The house is in the same neighborhood as where we would be buying.

I've always been interested in trying to rent a property out. I feel that a 2.5% interest rate for a 30 year loan is an asset worth keeping, but the equity in the house is tough to leave on the table.

Would you keep it and rent it or sell it?

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one thing you haven't mentioned. If you keep your current house, how much do you have to borrow for the new house. If you borrow more than 80% of the value of the new house, you'll likely be paying PMI.

I assume if you used the $166K, you would borrow less than 80% and avoid PMI which is money down the drain with no value to you

hypeiv said:

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this board sure has changed... back in the day people say "passive" rental income is the way to go.

(Being a landlord sounds like a job to me so I never considered it passive)

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Long term rentals are very passive and if you want to outsource things and get a home warranty they can be even more passive. It just is harder to justify with higher interest rates.

Didn't consider this honestly. Thanks for bringing this up

Interest rate on the new home is 5.999%. It needs some work too so the equity in my original house would really come in handy but I don't want to just do what's easy/quick and forfeit something good long term.

Thanks for all the responses. I really appreciate the perspectives. We bought this house in January of 2021 when rates hit their bottom. I'm kicking myself for not buying more house then knowing our family would be growing at some point in the near future..

Are you married with kids?

Married with an 8 month old