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Rent. No brainer.
I’m a landlord and rented out my first home after I moved. Also on a 15 year loan. That was one of my worst rentals. You won’t cash flow - $3800 rent and $3300 in just mortgage and hoa means you’re breaking even with the basic bare bones expenses (insurance is higher for rentals, you have to pay for marketing and basic rental screening at minimum). And that’s with zero vacancy, which never happens. Plan on having it leased 11 months of each year best case. On top of that you’ll likely have a few grand of light maintenance between tenants. Assume tenants will turnover every year and you’ll be lucky if they don’t.
That said, on a 15 year loan you’ll be building equity at a pretty good clip. So it’s a net worth play - banking on appreciation mainly and feeing good because of your cheap loan. But your extra time and stress have a cost too.
You could also use that $300k in equity and reduce your new mortgage which likely will have a rate of 7.5%. That’s a pretty high guaranteed rate of return. And would improve your cash flow versus reducing it like the rental absolutely will.
I’d only keep it as a rental if you can easily afford to feed it and still max retirement and have plenty of spending money.
Yes, we currently max 401k, HSA, Roth IRA, 529 etc. after all expenses left with 4K a month. If we keep the house and consider the rental & associated expenses as wash, plus 2K additional for new mortgage i.e. 5K, we should still have 2K surplus for brokerage accounts. This excludes annual cash bonuses cos can’t really count on them though have been paid as far as I recall.
As a homeowner going through major updates right now, I’m biased. But I would sell. Houses are expensive and require a lot of upkeep.
I just got a new hvac last year. Old models were built to last 20 years but the tech (who I trust - have used them for years) said these days it’s more like 10 years with good maintenance. I’m in TX tho so they get used.
Coach
If you can afford it, keep it
D1: I think financially I can manage. What makes me nervous is - never been a landlord.
Mentor
There’s a couple of ways to look at this.
You should set 10% of rent aside for maintenance and 10% for vacancy reserve each month. With that in mind, you’re really not cashflowing much if anything. Now, rent should go up over time, and it sounds like you’re in an appreciation market, so renting it for 1 to 3 years and letting a tenant pay down your mortgage isn’t a terrible idea. But I’d look to sell the property in 2 to 2.5 years to take advantage of the $500k homestead exemption (assuming you’re married).
If you sell now, you could take that $300k and put it into a rental property (or multiple rental properties) in areas that cashflow better. You may not see the same appreciation as your primary, but you’re much more likely to generate cashflow (even if you’re putting 30% or 40% down). There’s also the option of buying a vacation rental that can generate decent cashflow and give you the flexibility of staying there a few times a year.
Then you could look at $300k into index funds, which should grow at around 7% per year. If you don’t need the cashflow and can let it compound for several years, that may come out on top. But there’s some tax consequences to consider…
PM1: true. And then I also thought that 21 K per yr may not look a lot year 1-3 and seems a wash against principal. But then year 4-5 onwards to 10-15 would be a lot as compounding on 21K each year. Thanks for your thoughts.
Primary residence isn’t much of an investment. Interest is front loaded, insurance taxes, repairs. In the best of homes you basically get your payments back in appreciation. Rental is different, someone else is paying the interest and you get the appreciation and loan pay down. Plus it’s a leveraged investment. Breaking even on cash flow on a 15 year 1.9% loan. Thats awesome. Imagine getting 4k a month indefinitely on a paid off home. Or being able to access that equity if you wanted to do a couple more rentals. Give it a try being a landlord, build a team, you’ll love it or hate it. I’m not fixing toilets in the middle of the night. I call my handyman and pay him $50hr.
Be sure to use a realtor to draft your lease. Make the trivial items (changing bulb, mowing the lawn, etc) the tenants responsibility
Keep it and rent it. Being a landlord isn’t bad if you have a good tenant, which is something you can control
How’s the roof, AC / furnace, water heater? If those are in good shape, then definitely keep and rent it as long as you can financially carry it in case you have months where you can’t get a renter or the renter doesn’t pay rent, etc.
I’d definitely keep it and rent it. Could look into a management company to get help for a bit until you figure the process out.