I've been wrestling with this decision for a couple months and I just can't seem to decide what to do so of course I come to Reddit for answers.
I just bought a new home. Mortgage is at 2.875% so it's not nearly as beneficial to try to pay it off early as it is at a more typical rate in the 4.5% range. I can afford the new house without the revenue from the sale of my current house which brings up the question of whether I should rent it out or sell it and invest the proceeds from the sale.
Current (old) home was purchased for $182k 12 years ago, current value is around $290-$300k. Still owe about $70k on the mortgage, will be paid off in a little over 6 years if I don't pay any additional principle between now and then.
If I rent the house out, I think it could bring $1800/month. Taking into account the mortgage ($1500) and expenses to maintain the house and I'll likely break even over the next 6 years until the mortgage is paid off. After that, it's free money (minus expenses). So lets figure $1500 per month. That's $18,000 per year and $432,000 over the next 30 years. Who knows what the home value will be in 30 years. Best guess based on yearly appreciation for this area (5%) is it will be worth around $1.1-$1.2 million. So the rental path could earn about $1.5-$1.6 million over the next 30 years (ignoring inflation and taxes and remodeling between now and then to keep the house up to date). One thing I don't know how to figure out here is how much the monthly rental fee will go up over time as the house appreciates, inflation occurs, etc.
Now onto the other option, selling the house, taking the $200k or so in proceeds that are left after selling fees and the mortgage are paid off, and invest this in something that tracks the S&P500 with an annual return (average) of 10%. If my math is right, a 200k investment at 10% per year appears to earn $3.97 million over 30 years (ignoring inflation and taxes).
This seems like the "easy" option and it appears to be much more lucrative. However, there is a third option that I also came up with.
Assuming I can continue to afford my new home's mortgage without needing to use the rental proceeds, what happens if I invest the rental profits for 30 years in the same fund that earns 10% annually? If my math is correct, a $1500 per month investment at 10% annual return over 24 years (because I can't start investing until the mortgage is paid off in 6 years) will earn $1.8 million, plus I'd still own the home which at 5% appreciation would still be worth $1.1-$1.2 million. So now this option's total value is about $3 million over 30 years (ignoring inflation and taxes and remodeling between now and then to keep the house up to date).
The downside to renting is I'm self-employed, busy, have young kids I'd rather spend time with than dealing with a rental property, etc. I could hire an agency to handle it all for me but I worry about not having any idea what is happening in the house until they move out (and potentially find it trashed and needing $50k in repairs). If I handle the rental, I can do maintenance which will get my eyes in the house every couple months to hopefully identify if the renters are trashing the place before it gets too out of hand. So the "easy" option is to sell it and move on.
So the summary of the financials after 30 years (if my math is right, and I'm not forgetting to account for something major):
Rent and then sell in 30 years could earn about $1.5-$1.6 million.
Rent, invest proceeds monthly, and sell in 30 years could earn about $3 million.
Sell and invest at 10% annual could earn about $4 million.
How will taxes affect these 3 options?
Am I forgetting to account for anything that will significantly change these calculations?
Any feedback is appreciated as I've got to make this decision in the next couple weeks. I can answer any questions you may have after I wake up in 7 hours. Thanks.
Submitted September 16, 2021 at 05:30AM by JimmyNeutron2300 https://ift.tt/39bs6SZ
