The $11,500 Question: Why Keeping Your Starter Home as a Rental Might Be Your Worst Investment

With a 3.5% mortgage they'll never see again and $80,000 in equity, they're asking whether to keep their starter home as a rental while upgrading to a $1.2 million property. The math alone should terrify them—$11,500 in monthly mortgage payments—but the real dangers lurk in the details.

The Numbers That Should End the Debate

Let's start with the brutal math. The homeowner's current mortgage payment is $3,500, and comparable rentals in their Puyallup neighborhood fetch $3,000-3,500. Even in the best-case scenario—maximum rent with zero vacancy—they're breaking even on paper. But as one commenter bluntly calculated, "once you account for vacancy, repairs and CapEx you'll lose ~$1,000 a month."

This isn't investing; it's subsidizing someone else's housing at your own expense. Yet the allure of that locked-in 3.5% interest rate creates a powerful psychological anchor. In an era of 7% mortgages, letting go of such a rate feels like financial sacrilege. But emotion isn't strategy.

The Washington State Landlord Nightmare

Perhaps the thread's most valuable insight came from those familiar with Washington's rental laws. "Washington is not a landlord friendly state," warned one commenter. "It can be very difficult to evict someone even if they are destroying your property or harassing you."

Another former Washington landlord was even more direct:

"The number one reason we didn't rent there... is the complete hostility towards landlords in that state/area. One bad tenant could absolutely devastate you financially and the system there will support it and laugh in your face while doing so."

This isn't hyperbole. Washington's tenant protection laws, while well-intentioned, can trap landlords in expensive legal battles lasting months or even years. For a couple stretching to afford $11,500 in monthly payments, one problem tenant could trigger financial catastrophe.

The Hidden Costs Nobody Calculates

First-time landlords consistently underestimate the true costs of property ownership. Beyond the mortgage, the expenses pile up:

One experienced landlord shared their reality check:

"I became frustrated with how much we had to spend to keep our faraway rental in shape when we couldn't afford to do the same kinds of upgrades in the place I lived in."

The Tax Trap Few See Coming

Here's where the math gets truly punishing. The IRS allows homeowners to exclude up to $500,000 in capital gains (for married couples) when selling their primary residence—but only if they've lived there two of the last five years.

The Opportunity Cost Nobody Discusses

While the homeowner worries about letting go of their 3.5% mortgage, they're ignoring a crucial calculation. That $80,000 in equity, if invested in a basic S&P 500 index fund, would historically return 7-10% annually with complete liquidity and zero midnight maintenance calls.

"You'd be losing money monthly on the existing home... why exactly would you want to keep it?" asked one bewildered commenter. The answer often lies in the psychological difficulty of selling an appreciating asset, even when holding it makes no financial sense.

The Stress Factor: Your Marriage or Your Mortgage?

Perhaps most concerning is the couple's admission that losing one job would put them "in hot water" with $11,500 in monthly obligations. This isn't just financial stress—it's relationship dynamite.

"I felt so much better able to sleep at night after we sold," shared one former long-distance landlord. "I wasn't worried about finding good new tenants, and I was able to rebuild a healthy savings cushion."

The strain of managing a rental property while maintaining a primary residence, especially with both spouses working demanding jobs, can fracture even strong relationships.

The Professional Consensus

The thread's verdict was nearly unanimous: sell. From seasoned investors to real estate professionals, the advice was consistent.

The Exceptions That Prove the Rule

Only two scenarios might justify keeping the property:

1. Significant Value-Add Potential: Can you add an ADU? Convert to multifamily? Without increasing cash flow potential, holding makes no sense.
2. Extraordinary Appreciation Expectations: If you genuinely believe the property will double in value within five years, the negative cash flow might be justifiable. But this is speculation, not investing.

The Smarter Path Forward

For this couple, and thousands like them, the answer is clear:

The Bottom Line

The dream of building wealth through rental properties is legitimate—when the numbers work. But keeping a starter home that loses money monthly, in a state hostile to landlords, while stretching to afford a new primary residence, isn't investing. It's gambling with your financial future.

Sometimes the hardest investment decision is admitting when not to invest. For this couple, letting go of their 3.5% mortgage might feel like a loss, but keeping it could cost them far more than money—it could cost them their financial security and peace of mind.

The $11,500 question has a simple answer: Don't do it. Sell the house, take your tax-free gains, and build wealth through investments that don't require midnight plumbing calls or eviction attorneys. Your future self will thank you.