Rent vs. Sell: Calculate best option with index fund investment

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  • #95364 Reply

      Rent or Sell? My bf wants me to rent my house out. I am thinking of selling. Can you show some good calculation to convince him selling and investing in index fund is better than renting it out?

      This is My house. He does not live with me.

      • Interest rate: 3.75%
      • Balance: $115,000
      • Monthly mortgage: $771 (including escrow)
      • HOA: $70

      If sold, proceed after the sale would be $300,000

      If rent, Monthly Rent would be $2,100 w/ Property Management fee 8%

      Thanks Ya’ll

      #95365 Reply

        Who cares what he says. It’s YOUR house. Do what YOU want. His input is worth nothing.

        #95366 Reply

          I’d rent it personally. It’s an income source initially and a long term asset and a safety net if the relationship doesn’t work out.

          #95367 Reply

            Investment: (assumes $300k is after taxes). With 8% annual return, that’s around $24k/yr in the first few years.

            Real estate: $2100 – 8% pm fee – $850 (escrow + how) = $1100/month or $13200/yr. Add in 3%/yr appreciation of house (based on your mortgage and projected after sales profit, I’m guessing is $415k) is additional $12k/yr. Which totals to $25k/yr. Subtract $250/month for maintenance, which is around $3k/yr. So real estate profit is around $22k/yr.

            I’d say stock likely makes more sense given that it’s also passive. But financially, they’re within error.

            #95368 Reply

              You’re sitting on a gold mine. Rent rent rent rent rent. It will be paid off so soon!

              #95369 Reply

                If it were me I would rent it out and use the extra to play off it the balance asap.
                That real estate investment we grow exponentially over time and you can still invest your other money to grow your wealth as you go.

                That extra rental income could mean a paid off house in 2-3 years and give you flexibility in future purchases

                #95370 Reply

                  Pull out a heloc. Rent the house out to cover mortgage and heloc. Use heloc money to invest in another property or the stock market.

                  #95371 Reply

                    Management may nickel and dime you to death and make you wish had just sold and put it in index funds.

                    But, if you every wanted to try rental property this is a great chance. The property is going to continue to appreciate over time, the rent will go up over time, but your principal and interest are locked.

                    Relatively low risk to turn it into a rental. You have 3 more years before you lose capital gains exclusion on primary residence. Rent it a couple years and see how it goes.

                    Ignore the folks telling you to pay it off. Let that 3.75% debt ride as long as possible. Paid off real estate does not give great returns. Need some leverage to make the returns worth it. Index funds will generally beat paid off real estate.

                    You need to keep some liquid funds on hand for capital expenses, new roof, new hvac, etc. Once you have that covered you can save your profits for down payment on your next rental.

                    #95372 Reply

                      Arvind Stocks are more passive while real estate (even with a management company) is much less passive and the fact of the matter is both have risks.

                      The company can have a down fall, the market might have a down trend, there could be a drop or even a correction, if it’s a dividend stock that can stop, etc.

                      This is why we diversify to lower those risks but they can still exist but with these risks come the reward of a higher passive investment, somewhat quick liquidity, and the ability to right off losses (of course it’s a small amount).

                      With real estate it can be tricky to manage alone where there can be a host of problems where it can be something as simple as basic maintenance costs to replacing the plumbing system to something much worse (depending on the state you live in) squatters. Hiring a management company helps alleviate these problems but there is no guarantee of all these issues being resolved or even a guarantee that the company manages your single home as well as their other portfolios.

                      With that all being said there is definitely the income from the said rent – costs and future funds set aside but you also get property valuation increases and still get the ability to write off depreciation.

                      Overall they both have their own pros and cons but it comes down to what you’re comfortable with and what your long term goals are. If you do not want anything holding you from just up and leaving one day then real estate may not be the best option for you even if it’s more profitable. Let’s say the value of the house drops by 50% and the same thing happens to all stock and they don’t recover (this is an imaginary scenario) at least you still have a real asset that’s tangible whole stocks are just numbers on a device. This is a rudimentary approach of course and smarter people than me have worked out the math. The way I look at it isn’t what’s the most profitable option but rather what’s realistic for you and where are you leaning towards given your short and long term goals.

                      #95373 Reply

                        It just depends on what you want. If you’re not wanting to be a landlord or have some other compelling reason not to rent, then fine. That is a great mortgage though, and I’d be reticent to sell. We build wealth through buy and hold, not buy and sell. If I could only own one house, I’d own a rental and rent a modest place to live in.

                        Some of the calculations above are rather generous. I prefer to be more conservative in my calculations, including vacancies, ROR in the market, time/frustration, etc.

                        I have never regretted keeping a house as a rental- only regretted selling.

                        What’s your area like? LCOL? How are house appreciations in your area?

                        Personally, I would not sell this house. It’s so low cost to keep it and can be a great source of income. And if/when you need liquidity, sell it at that time.

                        #95374 Reply

                          Rent but be prepared to be a landlord. You have a good profit above the payment, HOA and insurance. I also would hire a management company.

                          Not trying to be negative but if things go south with your boyfriend you can get your house back.

                          #95375 Reply

                            Is it in a HCOL area with a lot of growth in equity? If not, given it’s in an HOA where other people can affect desirability, I would Sell and Invest…it gives you maximum flexibility, especially if you have lived in it for at least 2 of past 5 years, so you don’t have taxes on the gain

                            #95376 Reply

                              Personally I’d rent and hire a property manager. You can always sell down the road, and collect that passive income now. That’s what I do with a property of mine in Florida.

                              Just make sure your manager is diligent about finding good tenants.

                              #95377 Reply

                                Rent. Having someone to pay mortgage for you and you getting cash flow. $1000/month is way more any stock dividend for that $300k invested. You can also write off tax for your income property depreciation, property tax, mortgage interest…etc. When you wanna sell you can do 1031 exchange and buy even bigger investment property without having to pay tax.

                                Compare that to owning stocks. True you might get higher % intern of investment return.

                                You will have to pay tax for your capital gain and you can’t write off any of that.

                                #95378 Reply

                                  We found it wasn’t worth renting because the hassle of trying to manage tenants was too stressful. The property didn’t make enough beyond what was due for the mortgage and taxes to cover a separate management company so we had to handle the management ourselves. We decided instead to sell and invest in our careers and invest in the stock market.

                                  Plan for the property to not always be 100% rented which means that you’re having to cover the mortgage and taxes and property management fees on your own.

                                  #95379 Reply

                                    Since they are almost equally financially good options, then you get to allow your preferences and emotions to choose. Which feels more liberating? Being unencumbered and without the responsibility house? Or having the house and knowing you have a stable place to go to if your relationships ends?

                                    For me it would be the latter.

                                    However, that’s not the case for all people in all life stages. If you are a minimalist, adventuresome, have high earning potential, and won’t feel unsafe if suddenly homeless due to a breakup, then you could sell, and it would make sense. If you’re like me and fear inflation and having no place to go in a breakup, then hold the house.

                                    Also: if you sell, do not comingle the proceeds with his assets unless you have a prenup and get married.

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