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What to do with that old Primary – Keep as a rental or Sell it?

March 31, 2012

I had an old neighbor and good friend call me a while back and asked what I thought he should do with his rental property. He was calling as it was becoming vacant again and he was pondering whether he should sell it or rent it out again?  He and his wife lived in the home for over 15 years and they are within 5-6 years of having it paid off.

This rental is a Class A property that he rents for around $1,500 per month. It is in a great Dallas suburb, good school district, and centrally located to parks, major highways, business and shopping, etc. The home is a standard 3-2-2 and almost 2,000 square feet. The neighborhood is mostly owner occupied and rentals seem to rent quickly. ARV’s in this area are around $165-$175k. This is not my ideal sweetspot but I have an old primary with similar numbers myself.

There is no right or wrong answer to this question. It really depends on where you are and what your goals are. On a pure return basis it would make sense to sell this property and use the equity to purchase a higher yielding property. He is just so close to having it paid off and the reduced hassel of a Class A property combined with the appreciation potential just makes it worth holding in my mind.

It is really tough to answer this question without asking several more questions:

  • Are you planning to sell because you need the equity for something else?
  • Do you ever think you might want to move back into the property at some point in the future? Are you emotionally attached to the property?
  • What is your objective for holding the property? Would it cashflow if you rented it out? If not, can you afford the negative cashflow each month?
  • Do you like being a landlord? How far away would this rental be to your new primary? Do you have time to manage it?  
  • Do you have a safety net of cash? Are you prepared with a backup plan in case the worst occurs?

I also advised him there are alternatives to selling the house today or renting. You could rent to own or sell with owner financing. Ultimately, answering the question of whether to keep an old primary or rent it can’t simply be made on the mathematics and ROI %. Your end goal and appetite for being a landlord should be center stage in this decision.

For me, it’s simple – I would not sell any primary. I would sign up for as many 3.5% owner occupied loans as I could, then convert them to rentals. Even if I had to feed the mortgages – I would keep all old primary homes. Inflation will catch up, rates are insanely low, rents continue to increase, and appreciation will someday return.  

Related Post:

ROI, CAP rates, Rent Ratios – Do we sometimes get caught up in the analysis?

From → General

  1. tsx15 permalink

    Very good article.

    My question is why would he consider selling it now when he could wait a year or two and get a much higher price?

    Unless, of course, he is just tired of being a landlord, or if the house has bad karma.


  2. I suppose I need to give the final results. He decided to rent it out again. They have had good luck with the property to date and live very close to it now.

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