I have recently purchased a home which will presumably be my long-term residence. I have not yet sold my original home, and I am trying to decide whether I should rent it out, or sell it.
The 1st home has a mortgage remaining of $175,000, with a 5/5 ARM at 2.5% The next adjustment is in 4 years, and the maximum it could go up to is 4.5% This home was purchased 10 years ago for $203,000 - just before the real estate bubble burst.
The home I just purchased has a 1st mortgage of $608,000 @ 4.25% for 30 years fixed. It also has a second mortgage of $76,000 @ 5.5% for 15 years.
I think I can rent out the 1st house for $1500, and after property management fees, take home about $435 per month. That is not including any additional taxes on that income, or deductions based on repair work, etc.
I think I could sell the first house for about $227,000 which after fees and loan payoff nets me $35000
If I sold the house, I could use my existing cash reserve and the net proceeds to pay off the 2nd mortgage. I could also pay off some, or none of the 2nd mortgage, and try to beat that 5.5% by investing the $35000
If I do not sell the house, I could use the $434 to almost pay off the 2nd mortgage per month/invest the $434 into an IRA or something, and try to beat the 5.5% over time.
According to this website, the S&P500 has gained 6.6% over the last 10 years, or 10.3% since 1970. At 6.6%, over 7 years, I would have $46,000 dollars in the account, which would be enough to make up the $35000 sale proceeds, and additionally cover any upcoming repairs to that house.
Should I sell the house now, or hold onto it and rent it out?