Financing in Morrison>Question Details

dcorym, Home Buyer in Denver, CO

Sell rental to buy new house or keep renting?

Asked by dcorym, Denver, CO Wed Apr 10, 2013

Fairly complex situation. Wife is finishing school in August. She has @ $70K in student loans @ 9% interest. We own a rental house that is netting @ $300/month profit, and we have @ $65K in equity in that house. We would like to buy a new house, $350K range. I can barely qualify for such a mortgage on my own salary. We have about $25K in savings for down on new house, without selling the rental. When wife starts working in Fall that should almost double our monthly income.

So, should we 1) sell the rental and pay off her student loans, 2) sell and increase down payment in new home, or 3) keep rental and just pay off loans as quickly as possible, along with PMI due to low down payment on new house?

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This is the OP "answering" my own question with additional details - I don't see another way to post a general response. Please let me know if there's a better way.

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Wow, thanks for the thoughtful answers! The consensus seems to be we should keep the rental.

I was probably too brief in my OP - especially as I did leave out the reasons we are looking to buy our new house soon. We are currently living in a very small cabin I jointly own with my siblings - need to get out of here! We also want to relocate to the Western Slope as our permanent/long-term home. We have two girls just beginning elem. school and want to get them "rooted", as we've moved twice in the last few years. So, we would like to buy/move sometime in the June/July timeframe - August at the latest.

I was originally almost certain I wanted to sell the rental house, but now am almost as certain I want to do the opposite. I did talk to a financial planner (through USAA), who started out encouraging us to hold onto the rental, but ended up saying either choice was a reasonable one. He was not a "mortgage guy", so he couldn't/didn't answer the distinction between 1 and 2 in my original post.

So, it sounds like if we can swing the deal on the new house without selling the rental, we should do that, even if we have to pay PMI. I really HATE being in debt, and would like to pay off the student loans ASAP, but I guess I can suck it up and pay that high-interest debt for a few years if it works out better in the long run.

Again, thanks for the responses, and let me know if the additional data makes any difference in your opinions.
0 votes Thank Flag Link Thu Apr 11, 2013
Dcorym,

this is a good question for your accountant or financial planner. Good answers and thoughts below. I like the fact that you are close to having all of your best options available when your wife starts to work in the fall. You may be better off to wait until then to purchase the new home. That way you will not be stretched on your qualification and monthly budget. Then you can more easily keep your profitable rental and the equity in that home. That sounds like a good option. It would be interesting to get you financial planner's take on this. Best of all, you have several 'good' options. take you time to make sure you take the best option for you current and future benefit. Good success to you.

Robert McGuire ASR
Realtor/Consultant
Your Castle Real Estate
Direct - 303-669-1246
http://about.me/robertmcguire33
0 votes Thank Flag Link Wed Apr 10, 2013
I agree with Sean. Multiple streams of income is always a good thing, and $300 a month isn't just pocket change. Take the $300 and apply some of it to the principle on the rent house. Get that paid off and you'll have a good source of income.

My husband finished school with $100K in debt. Good profession - we paid that off. You are used to living on your salary alone. Keep your lifestyle until you have a good nest egg to do as you please!
0 votes Thank Flag Link Wed Apr 10, 2013
If I was in your shoes, I would want to keep the rental, but we have a few things to think of. First, do you need to purchase a home now? If not, I would wait til late summer to try to figure out if there's anything out there to consider purchasing. I would then start looking, if you qualify, and consider purchasing then. Main reason, if you are able to have 2 properties appreciating, that you'll be "earning" more money towards retirement.

Once your wife gets her position, you can start paying down her student loans, and once that's paid off, maybe you can pull some money off your rental to purchase other rental homes, which you can also afford the payment for, since you no longer have the student loans to pay off.

Just my 2 cents. Best of luck to you!
0 votes Thank Flag Link Wed Apr 10, 2013
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