Sell or rent out primary residence?

[stevema]

Hi, we own a condo in an upper middle class suburb of NYC and we are trying to decide if we should sell it or rent it out. We're around 40 y/o with 2 young kids and have lived here for the past 5 years. The building and unit was brand new so there is minimal upkeep needed. We purchased it for about $1.2mm and have a current mortgage balance of $830k. The mortgage/taxes/maintenance payment is about $5700 a month. The going rate for rent right now is between $6300-6500/month. The units are in high rental demand and usually rent out within a few days of listing it. I could likely sell it for at least $1.25mm (potentially up to $1.3mm), but that will be offset with $50-60k of real-estate commission and closing costs. I hate spending so much cash on paying an agent but it's difficult not to. We've lived in it for 5 years, so we have 2 more years to sell it with tax free profits.

I have a 7/1 ARM at 2.75% that can adjust up to 4.75% in March 2025, up to 6.75% in March 2026, and a max of 7.75% in March 2027. That means the payment can move up from $5700 to $6560, to $7465, and to $7930, respectively. But this assumes mortgage rates stay elevated through this time period and I have no ability to refinance. If I can refinance to a 30y fixed at a <5% rate in the next few years, I would do that. We should be able to deduct a decent amount of interest/tax/maintenance expenses plus depreciation, which should get a decent tax benefit of 8-12k a year. This leaves the rental option producing a gain of around $1500 a month, less any expenses that come up and dealing with any time it is unoccupied. I'd likely build up an emergency fund for any property expenses, and then start putting all profits into principal payments on the loan.

We purchased a house to live in farther away and plan on doing a $300k renovation to it. We have some cash, but not enough to do it all without some sort of debt or borrowing. We could get a construction loan to handle it, or I could take a 401k loan, or a heloc or home equity loan from this property. The rates for this are not easy to stomach right now though.

It does feel like selling the place is the quick common sense decision here, but I would really love to keep this property and own it as we get older. We're emotionally attached to the place as well. At some point it will be paid off, and it's still an asset in a high demand area, that we believe will continue to be a high demand area forever given its proximity to NYC and easy commute, great views, and easy lifestyle for young professionals.

What would you do in this situation? Are there other things I haven't thought about? Thanks.

[TXDoc21]

I think the part where you say that you don’t have enough cash saved for the renovation of the new place is all you need to read to say it’s time to sell. That’s a big mortgage. I would sell just to minimize my debt/risk. You can use that money to not have to take out a loan or raid 401K.

[Harry Livermore]

If you have a flexible schedule and the will to basically be concierge to your tenants for the next xx years, go for it. We rented our former residence for 11 glorious years. But I am self-employed and live 5 minutes away. I'm handy and polite and confident. But it's always there, if you get my meaning. At any moment, there could be a minor (or major) issue. We sold last fall, and I still get a momentary uneasy feeling when my phone vibrates with a text (what's wrong over there NOW???) and then I remember, well, it can't be the tenants! It was a good moneymaker, put the kids through college. And we wanted to try our hand at it. All in all, not a bad experience... but not without some minor drama.
From a financial standpoint, it sounds like a lukewarm deal. If the rate on your mortgage adjusts upwards, it's a money-loser for sure. Then you are simply counting on appreciation to make you money someday... which may not happen. Are common charges included in your $5700 number?
I assume renting your unit is OK with management/ condo board. But you should double check that.
Sandtrap and others (wombat?) who are more experienced landlords will probably weigh in... listen to them.
Cheers

[chassis]

Hi, we own a condo in an upper middle class suburb of NYC and we are trying to decide if we should sell it or rent it out. We're around 40 y/o with 2 young kids and have lived here for the past 5 years. The building and unit was brand new so there is minimal upkeep needed. We purchased it for about $1.2mm and have a current mortgage balance of $830k. The mortgage/taxes/maintenance payment is about $5700 a month. The going rate for rent right now is between $6300-6500/month. The units are in high rental demand and usually rent out within a few days of listing it. I could likely sell it for at least $1.25mm (potentially up to $1.3mm), but that will be offset with $50-60k of real-estate commission and closing costs. I hate spending so much cash on paying an agent but it's difficult not to. We've lived in it for 5 years, so we have 2 more years to sell it with tax free profits.

I have a 7/1 ARM at 2.75% that can adjust up to 4.75% in March 2025, up to 6.75% in March 2026, and a max of 7.75% in March 2027. That means the payment can move up from $5700 to $6560, to $7465, and to $7930, respectively. But this assumes mortgage rates stay elevated through this time period and I have no ability to refinance. If I can refinance to a 30y fixed at a <5% rate in the next few years, I would do that. We should be able to deduct a decent amount of interest/tax/maintenance expenses plus depreciation, which should get a decent tax benefit of 8-12k a year. This leaves the rental option producing a gain of around $1500 a month, less any expenses that come up and dealing with any time it is unoccupied. I'd likely build up an emergency fund for any property expenses, and then start putting all profits into principal payments on the loan.

We purchased a house to live in farther away and plan on doing a $300k renovation to it. We have some cash, but not enough to do it all without some sort of debt or borrowing. We could get a construction loan to handle it, or I could take a 401k loan, or a heloc or home equity loan from this property. The rates for this are not easy to stomach right now though.

It does feel like selling the place is the quick common sense decision here, but I would really love to keep this property and own it as we get older. We're emotionally attached to the place as well. At some point it will be paid off, and it's still an asset in a high demand area, that we believe will continue to be a high demand area forever given its proximity to NYC and easy commute, great views, and easy lifestyle for young professionals.

What would you do in this situation? Are there other things I haven't thought about? Thanks.

Has it been your life dream to be a landlord? If yes then rent the property.

[BuckeyeAaron]

, but that will be offset with $50-60k of real-estate commission and closing costs. I hate spending so much cash on paying an agent but it's difficult not to. We've lived in it for 5 years, so we have 2 more years to sell it with tax free profits.

Just do a For Sale By Owner (FSBO) and avoid at least half of that commission. We have sold our last two houses on our own and its really not that difficult. If your buyer has an agent (which is likely) you would still have to pay their commission but even that amount could be negotiated in some circumstances (and for a property as valuable as yours it seems reasonable that they may take less 3%). Just some food for thought.

[toddthebod]

When you go to refinance, you might discover that mortgage rates on rentals (i.e., non-primary residences) are typically 1%+ higher than otherwise.

[mesaverde]

I've been in your shoes and there's no way I would rent your (old) home out, mainly for these reasons:
1. If you sell you can put the equity in your new home (preferred) or passively invest it.
2. There is a list of significant risks you take on as a landlord. Not to mention the time you'd need to put into being a landlord.

You can sell the home yourself (if you're willing to put time into it) to save a substatial amount of money. It sounds like a seller's market, which makes that easier. You could pay a flat fee to a real estate attorney to handle the paperwork.