Sell or keep our old house - advice from the hive

We bought a new house. Do we keep the old and rent it out, or do we sell? Short term fun or long term investment? Lower our risk or aim for potential profit?

EDIT: Relevant input - I live in Sweden - The Swedish house market is a bit different from the US. 

I'm going to start with the really cool stuff: We bought a smaller house 2011. It has been great and we have really enjoyed it, but we are ready to move to something larger. My parents are getting old and the whole family (I have 3 siblings with families) are in that phase where we are moving Xmas and such to our houses, instead of our parents. So, after years of keeping an eye on the market, we (me and my wife-not the siblings!) finally found our dream house: Country-side but still 15min from our jobs. 2min from good daycare. Small town feeling, in the nicest kind of way. built 1924 with 1 large garage and 1 large "stall-building" which will become my forever-shop. We get the keys sept 1 and could not be more excited. 

Status: While we lived in the US (for 3 years) we kept our old house rented out. It is very well suited for it: robust small house, brick facade, efficient and fully automated heating. Not a fancy house, but very reliable and efficient. We have currently listed it for sale and reached the end of the bidding. The sale price has reached almost the level we set as "OK to sell" but not quite... 

We paid what is the Swedish legal standard: 15% cash, into our new house with our savings. The bank is very happy with us. The two mortgages we have for the houses are the only debt we have. So we don't HAVE to sell the old house. If we sell, we will get a nice profit + of course the 15% cash payment of the original sales price from 2011. After taxes, broker fees and crap, we will get approx $80K in the bank. Very nice, since the purchase of the new house almost cleaned out our accounts (not including pensions and my sons long term accounts, of course.)

We are right on the limit between keeping the house for a few years, getting a monthly income from it - or selling it and putting money in the bank. On this market, houses always go up in value, year by year. Our houses are built to last (this one is from 1957, yet not considered an "old house"). The natural value increase year over year on the house have been ~3% per year, since 2011. 

Keeping it just got a lot more interesting, since one of the bidders wants to sign a long term rental agreement with us. She is pretty much a perfect tenant candidate. 

I calculate that we, including putting away cash for maintenance, will make a profit of about $500/month from the house. If we add the natural value increase, we can expect ~$11000 per year. I'm very tempted to just keep it for a few years and cash out later. But I'm also tempted to lower our financial risks (and workload) by selling it. 

Input, please. 

And just because I'm excited about it: here are some pics of our new house:

If you don't see any obvious high dollar  maintenance issues that will need done in the next few years and don't need a lump of cash now, I would keep it and rent.  Can you afford it if she bails after a year and it takes 3 months to find another renter?

I agree, kinda wish I would have kept my old house when i moved cause the value has went up a good bit in my area.  If you can afford about 6 months of mortgage on it without a renter I would just keep it.

Man, that is an awesome looking property.  Congrats!

Assuming you will have a rental company handle the maintenance on the house in Sweden, are there any tax concerns with having the rental income in Sweden?  Is that worth the relatively small amount of additional income?  If part of the reason for keeping the house is to also provide an "emergency" home to return to from the US, I could see keeping it, but otherwise I'm not sure.

Is the house appreciating?  If values are stable and you're only going to net a small amount a month from it I'm not sure it's worth the hassle.

In reply to Ian F (Forum Supporter) :

All taxes and fees are included in my calculation.

In reply to docwyte :

As I wrote, it is steadily going up in value of at least 3% per year. Has done so since 2011 - will continue to do so. All houses here do. 

I guess I was a bit unclear in my post: We have already moved back to Sweden. Both houses are in here in "Småland", just 15min from each other. 

Its all about how risk adverse you are personally. 

 Some people accumulate a lot of wealth by buying rental property and paying the notes off from tenant's rent money.  Do this for 30 years and when you sell you are a multimillionaire.       

Other people cannot stand the stress of risk.    

What would make you more money? 

Renting for 3 years, cashing out and investing the proceeds? 
Or just cashing out now and investing?

I constantly try to remove stress from my life, so I'd likely cash out, throw it in an investment account and have one less thing to worry about.

jharry3 said:

Its all about how risk adverse you are personally. 

 Some people accumulate a lot of wealth by buying rental property and paying the notes off from tenant's rent money.  Do this for 30 years and when you sell you are a multimillionaire.       

Other people cannot stand the stress of risk.    

Absolutly, I fully agree. We approach this in mindset of "What is the house worth for us sold?" - "What is the house worth for us if we keep it?" 

We have a set amount that we sell over and don't sell under. Making more money is nice, but one must also not forget that making money now is better than making money later. If we sell, we will be placing most of the cash in some long term investment, which also is a way of building for the future. 

Advice from my dad: "Sell it! Live! Build that dream shop. You like racing and cars, not house-maintenance." And he is right. 

Advice from my older brother: "Keep it! It is an asset, why would you sell it? You don't need the money, so make the money become more money, with minimum work!"

They are both right...

In reply to z31maniac :

Keeping the house would be a better deal at the end of 3 or 5 years... assuming the post-Covid-19 world doesn't include fun E36 M3 like a house market crash or similar. So ar, we see no signs of that, but who knows?

The house costs us very little, like under $150/month, if it's just sitting empty. But the rental market here is very strong for the landlords, so I don't have any concerns there. The risk is really if the tenant loses her job, for example, and I have to spend a load of time  and effort on kicking her and her kids out of the house (sounds like fun, right?).

Ah yes, both houses in Sweden changes things. 

From what you've hinted, renter protection in Sweden is pretty strong? Does the govt offer financial protection to the landlords? 

You say profit of $500 a month. What are your monthly expenses per month? How long do renters usually stay in the house in your area? 

I'd say rent it. There are a lot of unknowns here for me in terms of it being Sweden and not the US, I just don't know the market, how your rental profits would be taxed, and what your alternative investment options are. So I'm taking some big assumptions with the following SIMPLIFICATION. But I basically view it like this: 

• If you sell, you get $80k. If you invest that in the stock market (US knowledge here, not sure what you would invest in) and get the 7% expected return, you get $5,600 in returns for year 1. At the end of 10 years, that would be about $157k. 
• If you rent it, assuming that it is rented 24 months at a time and it with a 1 month break every renter, and it costs you $1,500 when it isn't rented, you would have earned $52k in profit and your $80k, appreciating 3% each year, is now $108k. Total net worth of the enterprise is $159k. 
  • This is undercounting it, because your $80k goes up by nature of getting more equity in the home
  • It is also undercounting it IF you re-invest the $500 profit, or at least a portion of it
  • It does NOT include the value of your time. So be sure to factor that in. 

It sounds like you've already put the pencil to paper and done your own analysis, but in case you haven't, you need to do so. I think this sounds like a good opportunity to rent. 

EDIT: Just saw your $150 a month if it sits empty. WOW. That changes things to $57k in profit and total enterprise of $165k. I'd go for it. 

Ian F (Forum Supporter) said:

Ah yes, both houses in Sweden changes things. 

From what you've hinted, renter protection in Sweden is pretty strong? Does the govt offer financial protection to the landlords? 

Yes, the law protects the renter pretty well. But, there is still a super-strong market for landlords. There is a housing shortage and many are more struggling to find a place to rent, rather than picking a place to rent. Also (sorry, all Americans): people are generally much more responsible tenants and most take well care of the houses and apartments, at least compared to NC where we lived. It is common to ask earlier landlords for recommendations. So if you mistreat one place as a tenant, you are screwed to find a good place to rent after that. 

It sounds like a deal where I would keep the house. My question is if your tax situation changes once the house gets rented? In the States any profit from the sale of our personal home is tax free up to $250K if you are single, $500K if you are married.  If we make it into a rental for a few years and then sell it the profit is taxed as normal capital gains.

So will you make a profit each year and end up giving it to the Gov't in the form of taxes if you sell it later?

jgrewe said:

It sounds like a deal where I would keep the house. My question is if your tax situation changes once the house gets rented? In the States any profit from the sale of our personal home is tax free up to $250K if you are single, $500K if you are married.  If we make it into a rental for a few years and then sell it the profit is taxed as normal capital gains.

So will you make a profit each year and end up giving it to the Gov't in the form of taxes if you sell it later?

All taxes and fees are included in my profit calculation. Our version of the IRS (Skattemyndigheten) has nice web-based functions to help people with this stuff. You just feed in all the numbers and get an answer on what your yearly tax will be and any effect on your salary based taxes. So that is all included in my calculation. We will, of course, pay a profit tax on the profit on the house. But I have included that as well. 

I haven't run your numbers, but watch property taxes. 

That said, if they are reasonable, I think the world is about to plunge into an inflationary period, and owning property is a good hedge. If you still owe money on a mortgage, even better.

My recommendation is to make sure you can swing both payments on your own however.

SOLD SOLD SOLD !!

It looks like our broker sort of did the decision for us. He took a serious talk with the highest bidder, explaining that we didn't need to sell and simply wouldn't sell unless we got a higher price. No games, no strategy, just the truth. 
 

So, the seller raised the bid to where we are in the "we sell" section of our plan. Going to sign the papers now. Last day in the house will be Oct 30.

Cheers,

/T.

I can't speak for Sweden, but around here (at least during non-covid times) it is pretty wise to keep the old house and rent.  Rent is usually higher than a mortgage payment in these parts.  A typical mortgage on a house like mine is about $600, but I could rent it for around $900.  Each market varies.  Just 30 miles down the road in my hometown, house prices have gone up and the rent market is below saturation, so you might actually not cover your mortgage with what you make in rent.

Right now (at least in my neighborhood) purchase prices on real estate are stoopid high... like up 30-40% in the last 8-9 months.

Congratulations on the sale. For some foreshadowing I am eagerly awaiting a call from our notary and he will tell us the amount for our bankers draft for the new house that entails an overseas move.

Thing about real estate, they are not making any more of it.  Great way to accumulate wealth

In reply to Curtis73 (Forum Supporter) :

The market is much more stable here. Perhaps it is because our houses last so long? We don't have the quick fluctuations up and down in price, but rather a steady climb by a couple of % year by years. Prices vary drastically between "large" cities (as if we had any of those) and countryside, but rural estates are typically considered safe investments. 

Warning: Deep philoph.. philosof... (How the hell do you spell it? This isn't even my language...) things ahead: 

If the decision was purely a financial one, I would have kept the house. But it's not quite that easy. We (my wife and I) have always lived intentionally below our means and saved money for the 15 years we have been together. We buy used stuff, used (but cool!) cars with no payments, we lived in a modest house, I repair and maintain our cars myself, etc. Don't get me wrong, I have also been club-racing in different series and we have lived well, but we have always been quite careful with how we spend money. They say "money won't make you happy", but we have both seen what a lack of money can do to people. 

Well, I'm 42 now and my wife is 35. My son is 3,5 and we won't be having any more kids. We just bought our dream house, we have money to do fun stuff like travel, racing and such... so my dads question: "What are you saving up for?" is very relevant. Right now, things like hours with my son, hours on the race track, tinkering with cars in my shop or walking my dogs in the woods, are very valuable. My daily is from 2008 with 230Kkm on it - it would be nice to have a daily driver I didn't have to wrench on. Stuff like that. 

We didn't get quite what we had hoped out of the house. But we did make a nice profit and we did get pretty close. Now that we finally signed, I'm happy we did.

(I'm thinking about getting a car and run a few folkracing-events, btw. I've taken my son to watch a few events and it looks like sooo much fun!)

I'm in the sell it column. We kept our last house for 6-7 years as a rental. I really didn't like being a landlord. The pain in the ass wasn't worth the money made off the rental.

The only way I would do it again is through a management company and then the numbers are even worse.