Calculation Help - Sell Current House or Keep as Rental?

My family is moving in about 6 months, and I’m trying to figure out if I should sell my current house and use the equity to buy a new home, or keep the house as a long-term rental and rent a place for a few years while saving up for another house. The calculation is complicated, and I’m hoping someone can help or point me to a good calculator.

Current House I Own:

  • Estimated Home Value: $875,000

  • Current Balance: $459,431.33

  • Interest Rate: 2.75%

  • Monthly Payment: $2604.07

  • Maturity Date: 10/01/2050

  • Home Equity Loan Balance: $85,337.98

  • Interest Rate: 4.4%

  • Monthly Payment: $585.82

  • Maturity Date: 06/01/2042

  • Estimated Rental Income: $3800/mo (would need a property manager)

Potential Future House Purchase:

  • Estimated Home Cost: $650,000
  • Estimated Interest Rate: 6.9%

OR

Potential Future Home Rental:

  • Estimated Monthly Cost: $2400/mo

It really depends on your situation. Do you have rental experience? Is the location desirable for renters? Your current home might generate some rental income, but after property manager fees and other expenses, it won’t generate substantial income. The main advantage is the potential appreciation in value (which you’d also get by selling and buying a new home).

There’s also stress with owning a rental, even with a property manager. A few months of vacancy can hurt your rental income. The only reason I would keep the home as a rental is if my income was strong enough to cover both the mortgage on the current house and a new mortgage.

If it were me, I would sell and use the proceeds to buy a new home, or invest the proceeds elsewhere if you don’t want to use all of it for another home. Hope this helps!

@Ember
Additionally, you could walk away with about $275k if you sell your current home. If you put $250k towards the new home purchase, your loan would be $400k, and your principal and interest payment would be around $2,634.40/month (not including taxes and insurance).

@Ember
Very helpful, thank you. It’s in a desirable location in Seattle, has a lot of character and charm, and I’ve even thought about turning it into an Airbnb. I know it could be unreliable income, but it could probably rent for $250-$400/night.

Appreciate your thoughts.

@Darwin
It’s definitely an opportunity cost, and you can’t really go wrong either way. Think about your current job and how managing a rental (which can be like a part-time job) might impact it. Also, talk to a local lender; they know the area much better than us!

Look up the Dinkytown mortgage calculator. It will give you an amortization schedule for the new loan and estimated payments based on interest rates. Also, keep in mind potential capital gains tax on your current home. If you’ve lived there for 2 of the last 5 years, IRC Section 121 applies, allowing you to shield up to $250k in gains per spouse on the sale of your primary residence.

Don’t forget about transaction costs for selling (like real estate commissions) and be aware of origination fees. Make sure to get quotes from multiple lenders to avoid damaging your credit score. Good luck!

I would suggest staying put for a little longer if you can. The down payment you’re planning won’t make much of a dent in the mortgage for the new property. With high interest rates, your monthly payment could end up being higher than what you’re paying now. If you rent it out and move into an apartment, you might be able to break even.