To sell or to rent the house?
"So either scenario has about $10K upfront costs (either realtor/selling expenses or fixing up for rental). Furthermore, I'm sure that the buyers would want you to fix all these things anyway, or reduce the price accordingly, but let's ignore this. Let's also ignore the remaining mortgage, since it looks like you can comfortably pay it off. Assuming 10% property management and 10% average vacancy (check your market), and rental price at $1000 - you end up with these numbers: I took very conservative estimates both on the rent (lower than you expect) and the maintenance expense (although on average over the years ,since you need to have some reserves, this is probably quite reasonable). You end up with 2.7% ROI, which is not a lot for a rental. The rule of thumb your wife mentioned (1% of cash equity) is indeed usually for ROI of leveraged rental purchase. However, if rental prices in your area are rising, as it sounds like they are, you may end up there quite soon anyway. The downside is that the money is locked in. If you're confident in your ability to rent and are not loosing the tax benefit of selling since it sounds like you've not appreciated, you may take out some cash through a cash-out refi. To keep cash-flow near-0, you need to cash out so that the payments would be at or less than the $3200/year (i.e.: $266/month). That would make about $50K at 30/yr fixed 5% loan. What's best is up to you to decide, of course. Check whether ""you can always sell"" holds for you. I.e.: how stable is the market, what happens if one or two large employers disappear, etc."
"Some pros and cons to renting vs buying: Some advantages of buying: When you rent, the money you pay is gone. When you buy, assuming you don't have the cash to buy outright but get a mortgage, some of the payment goes to interest, but you are building equity. Ultimately you pay off the mortgage and you can then live rent-free. When you buy, you can alter your home to your liking. You can paint in the colors you like, put in the carpet or flooring you like, heck, tear down walls and alter the floor plan (subject to building codes and safety consideration, of course). If you rent, you are usually sharply limited in what alterations you can make. In the U.S., mortgage interest is tax deductible. Rent is not. Property taxes are deductible from your federal income tax. So if you have, say, $1000 mortgage vs $1000 rent, the mortgage is actually cheaper. Advantages of renting: There are a lot of transaction costs involved in buying a house. You have to pay a realtor's commission, various legal fees, usually ""loan origination fees"" to the bank, etc. Plus the way mortgages are designed, your total payment is the same throughout the life of the loan. But for the first payment you owe interest on the total balance of the loan, while the last payment you only owe interest on a small amount. So early payments are mostly interest. This leads to the conventional advice that you should not buy unless you plan to live in the house for some reasonably long period of time, exact amount varying with whose giving the advice, but I think 3 to 5 years is common. One mitigating factor: Bear in mind that if you buy a house, and then after 2 years sell it, and you discover that the sale price minus purchase price minus closing costs ends up a net minus, say, $20,000, it's not entirely fair to say ""zounds! I lost $20,000 by buying"". If you had not bought this house, presumably you would have been renting. So the fair comparison is, mortgage payments plus losses on the resale compared to likely rental payments for the same period." What do you see as the advantage of doing this? When you buy a house with a mortgage, the bank gets a lien on the house you are buying, i.e. the house you are buying is the collateral. Why would you need additional or different collateral? As to using the house for your down payment, that would require giving the house to the seller, or selling the house and giving the money to the seller. If the house was 100% yours and you don't have any use for it once you buy the second house, that would be a sensible plan. Indeed that's what most people do when they buy a new house: sell the old one and use the money as down payment on the new one. But in this case, what would happen to the co-owner? Are they going to move to the new house with you? The only viable scenario I see here is that you could get a home equity loan on the first house, and then use that money as the down payment on the second house, and thus perhaps avoid having to pay for mortgage insurance. As DanielAnderson says, the bank would probably require the signature of the co-owner in such a case. If you defaulted on the loan, the bank could then seize the house, sell it, and give the co-owner some share of the money. I sincerely doubt the bank would be interested in an arrangement where if you default, they get half interest in the house but are not allowed to sell it without the co-owner's consent. What would a bank do with half a house? Maybe, possibly they could rent it out, but most banks are not in the rental business. So if you defaulted, the co-owner would get kicked out of the house. I don't know who this co-owner is. Sounds like you'd be putting them in a very awkward position. "In the UK it all comes down to what HMRC will allow you to charge without taxing you on the ""rent profit"" and not hitting capital gain tax when you sell the house, it may not all count as your ""main home"" if some is rented out.   (http://www.accountingweb.co.uk/ is a good place to ask this type of questions in the uk)" does your sister agree to sell her share of the house?  Will you live in the house or rent it out?  In Australia if you rent out the house you can claim on expenses such as interest deductions, advertising cost, advertising to get tenants in, maintenance cost, water & sewerage supply charge, Land tax, stamp duty, council rates.  A percentage of these expenses can be used to reduce your gross income and therefore reduces your tax liability (called negative gearing).  Not sure how other countries handle investment properties. If you plan to live in the house and not rent it out and you have spare cash to buy outright then do so.  You don't want to be in debt to the bank The first question is low long will you wish to stray there? It costs of lot in legal changes other   changes plus taxes to buy and sell, so   if you are not going to wish to live   somewhere for at least 5 years, then I   would say that renting was better. Do you wish to be able to make changes? When you rent, you can’t change   anything without getting permission   that can be a pain. Can you cope with unexpected building bills? If you own a home, you have to get it   fixed when it breaks, but you don’t   know when it will break or how much it   will cost to get fixed. Would you rather do a bit of DIY instead of phone up a agent many times to get a small problem fixed? When you rent, it can often take many   phone calls to get the agent /   landlord to sort out a problem, if own   your home, out can do yourself. Then there are the questions of money that other people have covered. "If it was me, I would sell the house and use the proceeds to work on/pay off the second.   You don't speak to your income, but it must be pretty darn healthy to convince someone to lend you ~$809K on two homes.  Given this situation, I am not sure what income I would have to have to feel comfortable.  I am thinking around 500K/year would start to make me feel okay, but I would probably want it higher than that. 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. So this is why.  Given that your income is probably pretty high, would something less than $435 really move your net worth needle?  No.  It is worth the reduction in risk to give up that amount of ""passive"" income.  Keeping the home opens you up to all kinds of risk.  Your $435 per month could easily evaporate into something negative given taxes, likely rise in insurance rates and repairs.  You have a great shovel to build wealth there is no reason to assume this kind of exposure.  You will become wealthy if you invest and work to reduce your debt." "Verbal agreements are not legally binding. Unless you have signed a new lease agreement, you are not obligated to continue renting the property - you are free to go.  On the other hand, if you really like the place and want to stay, you should sign another lease agreement. This agreement will be binding on whomever owns the home - whether it is your current landlord, a bank or a new purchaser.  But, if you go this route, make sure that there is not a clause that says the lease agreement is void upon foreclosure (or something similar). This is a standard clause in lease agreements allowing the bank to cancel the lease. Another option, if you really like the house is to offer to buy the property. If the property is being foreclosed on, you could suggest buying on a short sale. Here is a link to an article I wrote entitled ""Buy Instead of Rent: A Recovering Real Estate Market"" that discusses the benefits of buying rather than renting." It sounds like you plan to sell sooner or later. If your opinion is that there is still room for the housing market to grow, make your bet and sell later. The real estate market is much less liquid than other markets you might be invested in, so if you do end up seeing trouble (another housing crash) you may be stuck with your investment for longer than you hoped. I see more risk renting the house out, but I don't see significantly more reward. If you are comfortable with the risk, by all means proceed with your plan to rent.  My opinion is contrary to many others here who think real estate investments are more desirable because the returns are less abstract (you can collect the rent directly from your tenants) but all investments are fraught with their own risks. If you like putting in a little sweat equity (doing your own repairs when things break at your rental) renting may be a good match for you. I prefer investments that don't require as much attention, and index funds certainly fit that bill for me.