When upgrading to a new home, should you sell your old home or simply rent it out instead?

I think the better question is, “Is this a good investment for your particular situation?” To keep your existing home as a rental property, there are a number of things you should consider in advance. Here is my blueprint for determining if a property is better suited for selling or renting out.

The first question I ask is, “Will it generate cash flow?” If you decide to leave your home as a rental, what will the rent be and how much are your expenses? Factor in mortgage taxes, insurance, and property management fees if you’re going that route. If there is cash left over after all that, that’s a good start.

The next thing will be to determine the actual rate of return on the investment. Every investor has a different appetite for ROI. My rule of thumb for single-family homes is a ratio of 1:1. In other words, if I buy a home for $200,000, I want the rent to be approximately $2,000 per month. If you buy a home for $300,000 but the area only commands $1,200 in rent, it’s not a great investment.

Finally, you need to see if you can qualify for another mortgage. If you can’t, you’ll likely be forced to sell. If you can, however, and the property passed all the previous tests, I would call it a very sound investment.

If you have any more questions for me, don’t hesitate to give me a call or send me an email. I look forward to hearing from you soon.