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PaperclipPerfector  1yr ago (text post)   4261 thread views

Small-Scale Question Sunday for May 12, 2024

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I have effectively made the decision to move out of my home in the middle-class Dallas, TX, suburbs into an apartment in the fun part of town. I am debating whether I should rent the home out or sell it and would like advice and/or experiences from my fellow Mottizens. I am leaning 75/25 in favor of selling given the thoughts below.

Background:

  • 26 year-old male in committed relationship that I expect to result in marriage. We would not move into this house together if we got married.
  • Home is appraised at $380k and has a 30-year mortgage with 3% rate. Monthly payment all-in is $2200 and expected to go up due to property values increasing.
  • Home is in a socially "meh" area with meh schools and stroads galore

Pro-sell thoughts:

  • I do not have the time to manage tenants unless they are truly very quiet nor am I willing to risk getting shitty tenants and having to deal with them
  • I can simply pocket the cash and have peace of mind about not having to worry about the house and its illiquidity, tenants, etc.
  • I am moderately risk-adverse when it comes to money and investments and it can cause me stress. If I were to move to an apartment and have a vacant home, my combined mortgage and rent would be about 80% of my post-tax income. (I have plenty in a brokerage account that could cover me, but I don't want to sell that.)

Pro-rent thoughts:

  • More equity: I do not care about making a large monthly profit off of the house (maybe $100-200/mo to pay for emergencies), but rather building equity so I can get more money when I eventually sell
  • Property management companies can, but not always, do a good job of not letting anything make it to the homeowner (from what I've read)
  • If I get lucky and find excellent tenants, I can treat them very well to increase the likelihood of them staying (but this is still risking it)
  • My area's real estate market is relatively in-demand with little sign of slowing down (not including reasons that affect all U.S. cities), which may allow me to sell a bit quicker than other markets, especially if I sold for below market value (which I'm fine doing if absolutely needed)
  • 3% interest rate is very good and I suspect we won't see that for a long time

Let’s say you have 50 dollars. Let’s say investor X has 30 dollars but can borrow 70 at 5% interest rate.

You both invest and get a twenty percent return over two years.

You end up with 60 dollars. X ends up after paying off the debt 43 dollars. That’s over a 40% return on X’s 30 dollars.

Now of course X took on much more risk. The question in your fact pattern is how much risk are you taking on. if there is decent equity cushion in your home and given that the rate so low, the answer is “probably not that much risk.”

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