70: Rookie Reply: Should I Sell or Rent Out My Primary Residence?

This is real estate Rookie show number 70.

My name is Ashley Kerr and I am here with my co host Tony Robinson. Hey Tony.

What's up, Ash? How are things going on the east coast today?

Good. I just right before we started I got my groceries delivered. So I have a little snack here with me.

What's new with me? Let me think. I just had I think two offers rejected in the last week. So part to being a real estate investor not getting every deal done, but you know, we're moving forward, see what else we can find.

Yeah, I put an offer in Monday on a foreclosure and they said offers due by Tuesday 3:00pm So I get my offer in and then they say, well we received multiple offers so send your best and final offer by the next day at 9. It's like, okay, well that was my best offer. How many times are you going to make us resubmit? And they still haven't accepted anyone. I guess there was someone else that was higher than me and they countered that person, but the person hasn't accepted yet. So I told my realtor, I'm like, there's still a chance. That's like an dumb and dumber. It's like so you're telling me there's still a chance until that they accept another offer, I will still have hope.

There's still a chance.

Yeah.

Yeah.

Well things are getting kind of crazy right now. Like we even put in an all cash offer, but then I'm going with someone else who was financed but just more money, you know. So it is what it is. You win some, you lose.

Yeah. I think a great strategy too for rookies or any investors to give out two different offers. So if you're unsure if your cash offer is going to be stronger or if the buyer actually wants more money, they don't care if it's finance. Lay it out both ways and give them both offers. Say hey, I can pay you this much with a cash offer or I can pay you this much doing seller financing or I can pay you this much if I go and get a conventional mortgage. So that's just a little.

Man, I love that today. This wasn't even, that wasn't even supposed to be today's thing, but there you go dropping some good knowledge for people.

So. Well, let's read, read today's question. This actually was in my DMs on at wealth from Rentals and this one is from Dane.

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So Dane said. Hi. I listened to your podcast. Great work. I have a question. I have my primary residence that I purchased back in 2017. I purchased it for 89,000. Now it's worth 210 to 240. Had it listed back in December, January. Didn't get the price I wanted to. Now the wife and I are thinking of purchasing another home and renting the current home out. Just wanted some newbie advice on how to go about it. Thank you. Yes, I own 79,000 on it now. So this is located in Charlotte, North Carolina, this market. And Tony and I, we don't know anything specific about the North Carolina market or especially Charlotte. But what we're going to talk to you guys about today is breaking it down as to how you would actually go about finding out if you should rent it out or if you should try to sell it.

Yeah, so I guess the first place I'd start is doing a little bit of market research. I don't, I don't think Dane gave us the specifics on the property like bedrooms and baths and whatnot, but Dane If I were, if I were you, you know, let's just for all, you know, for, for investment, I'm sorry, For example purposes, let's say this is like a two bedroom, one bath, right. I would go out and find all comparable two bedroom, one baths, you know, within a 5, 10 mile whatever radius it is and see what those properties are renting for. I want to make sure that they're comparable. Right. If yours is like a C level property, you don't want to compare it to an A level property and vice versa. So definitely find some stuff that's comparable, you know, bigger pockets. BP Insights, you can go there to get market rent data. There are other resources. Well, but BP Insights is a great place to start, but I think that would be my first step. Ash, where would you go from there?

Yeah, I would agree with that. I would look and pull the comps for your area for sales price and for rental listing. So Dane mentioned that he didn't get the sale price that he wanted on his property. So maybe pull some more comps and see, you know, what price could you actually get or what were the offers that you got. And then also look at the market rent in the area. What could you rent it out for? So you know, he was asking 210 to 240 it seems like on the property he wanted to get and he owes 79,000 on it. Though I'm assuming that your, your mortgage payment is pretty low or you might even have the option to refinance, maybe pull some more money back out of that house and you can even refinance that so your payment is actually lower, whether that's going for a longer term or for getting a lower interest rate than maybe you had previously gotten on the property. So you want to pull that market rent and see what you can get for it and make sure that it's going to cover all your expenses. Will it cover your mortgage payment? Will it cover your property taxes? Will you cover insurance, any other expenses that you'll need to maintain the property that a renter wouldn't cover. Go about that and figure that out. What would that number be and will you be able to cash flow off that property? I don't want you to, to rent this property out and to be taking a loss. Maybe that's the only option if you don't, if you can't sell it for what you want. What are your thoughts on that, Tony?

Yeah, that's always like a tricky part too, right? Like we're, we're looking to sell a property, right? Now in Louisiana that we're losing money on. It's in a flood zone. Our insurance premium went up like way high this year. For whatever reason we shopped around and that's just like the, the going rate. So we're like actively losing money every month on this property. So we're like, we're trying to sell it as fast as we can.

Hey, did you guys hear that Tony has a property for sale?

I don't know if any other investors would want it. We're trying to sell it to like some people that are living as a primary residence only because the numbers ended up not making sense. Right. So, yeah, I mean, I would, I would definitely agree with you, Ashley. Make sure that everything is covered. And then you just have to, you know, if you're going to lose money either way. Like if he's, I guess he didn't really say though. He didn't say if he was going to lose money on the sale. He just said he wasn't going to get what he wanted for it. So I guess, Dan, you would just need to compare those two things. Like if you do end up losing money monthly from a cash flow perspective, is that better than just taking a little bit less profit on the sale? Because you could sell it and then take those funds and go into some other market maybe where the numbers do make a little bit more sense and then you can get a cash flowing rental.

Yeah, one way to look at it too. So as Tony just said, you can, you know, you sell it, you take that cash, you, you buy your next property. But if you hold onto it and you refinance the property or maybe you go and get a line of credit on the property, since it is your primary residence, you'd be able to get a great low interest rate on a line of credit right now. Then you go ahead and you move out and you use that, that money to buy your next property. So instead of increasing the, the mortgage on your next property, you have more cash to go in, make a better offer on your next property because you're pulling equity out of that, that first property and then you're, you're going to rent it out. You just have to make sure that that rent income can cover the new mortgage payment. But I think that's a way that a lot of people build their, their portfolio, they, and be able to grow and scale is that they move out of these, these properties and they rent out the previous one they were in. So they live in them, fix them up. It kind of sounds like you that Dean did some work to it. If he bought in 2017 for 89,000, now it's worth 200,000. That, that's awesome, Dane. Congratulations. So you could just keep that momentum going. So either you're doing the live and flip strategy where you're going to sell it and then take the proceeds, move to the next property or you can rent it out. But really what you have to do is run the numbers for each scenario, look at what that looks like and look at long term too. What does that, that money do for you? Is it more beneficial for you to take out a higher loan on that property that will now be your rental and have your tenant paying that mortgage and you living in your primary residence have a lower mortgage payment because you were able to come in with more cash and not have to get as high of a mortgage payment and look down the road, how does that end up too? And plus, if this property has appreciated this much in this short of time, is there even more room and more growth for appreciation that you want to hold onto it longer to.

Yeah. Decision decisions. Right. And I guess the, the thing is there's no right answer, Dane. Right. Like you have to think about your specific situation and what's important to you because what, what Dane's goals are might be different than Tony's or Ashley's and that's going to kind of dictate what, what the, what the best move is. I guess the, the only last thing I'd add is just as you're, as you're going through all of those potential expenses, just make sure that you capture everything. You know, I've seen, you know, rookie investors kind of make the mistake of forgetting certain expenses. Maybe they're not accounting for repairs and maintenance or maybe they' capex or property management. Right. Are you going to manage this property yourself? Are you going to outsource it? So just make sure you're capturing everything. Again, Bigger Pockets, use one of the calculators and they, they really kind of walk you through everything you need to be including. So if you're, if you're trying to find the best way to do it, head over to Bigger Pockets and check out the calculators.

Yeah. And just to, to wrap it up, Dane, go and get yourself a huge whiteboard and write out the different scenarios that could happen. If you're going to sell the house, you're going to rent the house out and just lay it out. What's going to, you know what's going to come from that. Run on the numbers and see and kind of comp side by side. But yeah, I think that's, that's it for that one, Tony.

Yeah, I'm all good on my side too.

Okay, well, thanks, Dane. Thanks for submitting your question. And if you guys want to hear your question or a specific topic on Rookie Reply, please put a message on Facebook and the real estate rookie group or, you know, send us a DM on Instagram. I'm ashleyealth from Rentals and he's Tony. Tony J. Robinson. Thank you guys so much for joining us for Rookie Reply and we'll see you guys on Wednesday with our next guest.

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