[USER]

My spouse and I are in the process of selling our home in a neighborhood of Chicago that will likely see increased home values over the next 5 years because of new developments in the area.  We are now second guessing the sale and if we should keep it for our first rental home.

If we rent it, we would net $1,000-1,500/month after mortgage, tax, insurance. If we sell, we walk with about $200k.

It seems like an opportunity to have our first rental home. However, we’re unsure if taking our cash from the sale is the better route. Any advice to share?

For what it’s worth we both work full time and have 3 children 5 and under.

[Chris]

If you have lived there the last 3 years you could rent it for the next 2 years, sell it and still not pay capital gains.

Think of it as a 1-2 year test if you are ok with being a landlord.(2 of the last 5 years rule) We did the same. When we upgraded houses we kept our old one(down market, no choice) and rented it out. Rented for 8 years(good renters) after that I was done being a landlords.

[J.C.]

Tough call, but you couldn’t pay me enough to be a landlord. People are slobs.

[Heather]

What would you do with the proceeds? Are you buying another home?

If so, that’s $200,000 less of a mortgage you’ll need to take out at 7% or whatever it is now.

[John]

Depending on how accurate you believe you can predict all the factors that determine net income and your need for the current proceeds vs ability to successfully invest the $200k maybe it really doesn’t matter that much…

Most analysis of real estate value growth vs equities shows over long periods of time real estate rarely is even 1% better…

You can check also: In a year we plan on buying our first home, we will be using a VA loan

[Tony]

I’d sell it. The money you make on returns from 200k in an index fund will probably equal or surpass what you’d collect from your rental when you factor in repairs, capital upgrades, and delinquent tenants, and you also reclaim peace of mind not dealing with a rental property and more free time to put toward family.

[Sydney]

Location, location, location… if it’s a good area for rentals and not a location with trashed rentals, I’d keep it and hire a property management company.

[Kathy]

Being a landlord can be tough calls at all hours for furnace or ac costly as well. would you be the maintenance guy if so maybe you would profit more money.

Are you knowledgeable electrical plumbing HVAC garage disposal. Holes in dry wall repair or replace carpets. Does it come furnished appliances can you repair fridge, stove, dishwasher, washing machine, dryer, garage door repaired replaced, termites, would you have pest control come out?

Clogged tubs commodes sinks. So much more. Consider these factors as well as carrying home owner insurance and property taxes.

Don’t miss: Is it better to rent or buy a house in USA?

[Ann]

Adding landlord duties to your busy life will be a lot, especially with 3 kids, but it would be a great learning experience for them if you get them involved. Your oldest is 5 but it’s never to soon to teach them about real estate investing!

Also, while it’s convenient that you will be nearby, keep in mind that two properties in the same geographic area is not well diversified. That’s not a deal breaker, but wanted to mention it.

Keep us posted!

[Taylor]

If it cash flows, and you have a low rate, you’d be crazy to sell it…besides, you have a few years to decide of you wanna sale before having to pay taxes on any gains (assuming you’ve been in the home for the previous 24 months…

[Aparna]

I would definitely rent it since the market is picking up in your area and you could make much more selling in a few years.

The returns made on RE is typically way more than index funds.

[Ron]

$200K invested is $10K/year at 5% average annual increase, $20K/year at 10% average annual increase. You say the property is producing $12-18K cash flow, no? This amount would be reduced by repairs, vacancy period and the like but increase by the amount you are paying down principal.

I don’t think there’s a one size fits all answer. Will you be near the house or have a solution to managing it if you are not? Do you want to try being a landlord and think having a property portfolio is something you want to have as part of your long term plans?

Explore these too: Debating about buying a house or condo where I rent instead of renting

[Will]

Not worth the major distraction with small kids.

I have a 3 and 6 and sold my last rental in 2020. Some days i wish i kept it when i see what rents and property values climbed too…..but over all glad i sold it. I sold it to have more attention for my family and at the time had a new born and a 2.5 year old and i got that. Life hard enough with a career and snall kids. When kids are older and ill be peeking around for rentals…maybe in 2 more years for me.

Economy can always take a turn and home values could slip a bit and you’ll be locked into this side gig. Normally thats no big deal but you sir, have limited free time i imagine. If a recession started and this place dropped 50k in value how would you handle it? How would you handle it if after a year it wasn’t as profitable as you though because of vacancy or higher than planned repairs?

Also….singles are rarely home runs for first time rentals. That thing sits vacant for 2 or 3 months because exiting renters broke the lease and move out in december and youll get desperate for renters and thats when you get crap renters who wear and tear the place hard.

Also….renting out your former home that you or your wife may be emotionally attached to is less than desirable. Renters generally won’t take as great care of it as you.

Want a rental….buy a home that was designed to be one and would have simpler maintance for near the same rent. Your home likely wasn’t designed with renters and durability as the top priority.

Value time and sinplicity over money till those kiddos are all in grade school.

Having been in a similar situation…this is a sorta good opportunity at best (not factoring in the timing)….its not a great opportunity by any stretch. Given your situation in life…lot of risk for taking on extra stress to the marriage and family….i just dont think that’s worth it. Its honestly the worst time in your life to learn this side hustle…..i personally wouldn’t do it for a sorta good opportunity. The risk and reward are grossly mismatched in my opinion.

Sell it and invest it if your trying to fast track your net worth a little….but protect your free time at this stage in life friend.

[Lynne]

Fix it up.. Not seller grade. But top rent grade And try renting for two years. You may end up with a great tenant. Or sell at 2 years.

[Author]

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