[USER]

Looking for some advice!
I’m weighing two options for a rental property and would appreciate your suggestions:

1. Keep the paid rental and continue earning a net rental income of about $8K per year.

2. Sell the rental $300K and (after accounting for capital gains tax, a realtor fee, and closing costs), invest the net $250K proceeds into an S&P 500 or Fidelity 500 index fund for 10 years.

Which option would you choose?

My husband is hesitant to sell, mainly because he believes the stock market could crash, wars, another covid, etc, over the next 10 years, while there will always be a demand for rentals

[Robert]

I have said this a million times before, and I have problem repeating it again….1) residential real estate has been an invaluable component of my own journey towards FIRE.

(At the same time, I do have a significant amount in the S&P 500). 2) But your husbands (and my) instincts are correct- people will ALWAYS need a place to live. 4)

We have had a decade of great gains in the S&P 500. But there is no way to know what the returns for the next 10-15 years are going to be. 3)

Once that sucker is paid off (or, if it’s already paid off) you and your husband have a stream of income that you CANNOT outlive.

Retirement income depends upon replacing your paychecks with other paychecks- Social Security, distributions from a 401K, etc.

One of those paychecks will be your rental income from this property. SO….I would keep it, but that’s just me.

[David]

Cash out refi at about 50% ($150,000-ish) and put that in an s and p 500 index and keep the rental.

In 10-15 years your $150,000 in index funds is going to double to $300,000, the value of your house is going to double to $600,000, tenants been paying the mortgage / expenses and you’re probably still collecting a little rental income too.

Especially with rent increases over next 10-15 years.

[Ralph]

250K in a HYSA at 4.1% which is easy to get is 10,250 a year which is more than you are making and no risk.

People say you get the tax breaks of owning rental but to some the headaches are too much.

Invest half and save half in HYSA and you have the best of both worlds if you like.

[Polly]

Keep the rental and put the $8k into savings and/or investments

[Mindi]

Keep the rental. My rule of thumb is split investments 50/50 between RE and the stock market.

If one crashes you have the other one to keep you afloat.

[Russell]

I have this debate about my own property almost every other month.
Planning to retire soon, so looking at them as income assets.

Comparison then seems to me to be dividend funds, since the appreciation in home value / stock value would be unrealized gains.

Best guess, I’d make about 60-80% of the income if I switched to dividends with the sale proceeds…but lower stress and no maintenance costs to add variability to my net income flow.

In other words…small enough to make it not an obvious choice and high enough to make it still seem just viable enough to make me revisit the topic again and again…and again.

In the end, inertia wins.

[RE]

Keep the rental and invest the income or save to buy a 2nd rental if you can yield a decent return. REI is a tax safety net.

[David]

The ROI on the property is low because it’s fully paid off. I would cash out refi so that I only have 25-30% equity in that property then use the funds as downpaymenys for 1 or 2 new rentals.

Your ROI will go up significantly.

[Mark]

Keep the rental get a heloc or mortgage it and buy another rental

[Bethany]

what us the ROI on the rental?
Average return on an index fund is 10.7 percent.

Just do the math and it’ll show you what you need to do.

[Curtis]

Your going to sell a paid for property to invest that money into a stock market that is the most expensive on a valuation perspective since the dot com bust invest the 8K yearly into the S&P 500 if your wanting to invest.

Why is a paid off rental of 300k only netting 8grand per year is the bigger question?

[Author]

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