Author Topic: Completely Torn!! Rent or Sell my house? Minneapolis.  (Read 1094 times)

Frugal Vegan Mom

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Completely Torn!! Rent or Sell my house? Minneapolis.
« on: May 29, 2019, 09:13:11 AM »
I am moving in with my fiancee this summer and have been debating for months whether to turn my house into a rental or sell it.  The basics:

Market Value: $180,000
Original Purchase price:  $114,000
Original Mortgage Amount: $91,200
Interest Rate:  5.125%
Mortgage Term:   30 yrs
Term remaining:   20 yrs
Amount remaining on mortgage: $68,000
Gross Rents: $1,400 / mo.
Principal and Interest (the P&I of your PITI - should match with the above info): $500 / mo.
Taxes and Insurance (the T&I of your PITI):  $245 / mo.
HOA costs:  $0

Additional Info:

-I've put numbers through NARPM rent vs sell calculator (https://www.narpm.org/members/resources/rent-vs-sell-calculator/) , they say if I rent it I'll have 20K more wealth after 5 years, 64K after 10, and 230K after 20 years.  (vs selling and investing profits at 6% return assumption)

-Neighborhood is Northeast Minneapolis.  I've lived here 10 years and know for certain both the rental market and sellers market are very strong.  It's a wonderful neighborhood, close to downtown, in past 5 years especially development is going nuts with many new condos, trendy restaurants, etc. 

-I am not handy.  I've never even painted a room.  The house is 100 years old and while I've had no issues with it in the past decade, I don't know much about the inner workings except that they are old.  Appliances older as well.  I'd look forward to doing the administrative work required to be a landlord, but would hire out the handy work. 

-There are some potentially major maintenance needed to get this place in shape.  Crumbling retaining wall that we're in the process of trying to figure out if it's ours or neighbors responsibility (we think neighbors, it's holding up their yard, but even if it is, then we need to get them to fix it?).  Just discovered this weekend large crack in concrete front steps, they were janky to begin with, but now is really a safety issue and need to be repaired.  South side of house badly peeling and needs repainting.  Many tiles in bathroom floor cracked, may be an issue with subfloor, needs repair.  Sometimes we hear noises in attic that sound larger than mice for sure...  are squirrels getting up there?  The above calculator figures $10K to get the house "ready", but is this just all too much?

-I go back and forth wondering if it's worth it.  Maybe after all the initial repairs, learning curve of getting started, getting a renter in here, it will be easier?  I know that's a gamble, depending on behavior of renter and unknowns with the house.  And then another voice in my head saying loudly "once you sell it's gone forever, you've lost this chance". 

We have spent hours talking about this, doing calculators, making pro and con lists.  Fiancee is supportive of either choice, this would be my undertaking.  So torn, any advice appreciated! 

JGS1980

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Re: Completely Torn!! Rent or Sell my house? Minneapolis.
« Reply #1 on: May 29, 2019, 09:27:17 AM »
You are getting a good return on your money keeping the home and renting. Even assuming 1 month per year of vacancy, adding 1% of value for yearly repairs, I'd say you are making about 6%/year ROI. This, of course, does not include potential appreciation. I'll let the mathematically inclined forum members help out with exact calculations.

You can learn to be handy, it's called YOUTUBE.

I'd keep the house for at least a year because you are moving in with your fiance. What if it doesn't work out? Then you'll need your place back.

Just try to rent it out WITHOUT repairs, if the market is so good locally, then renting out shouldn't be that hard. Do full background checks, however.

My 2 cents,

JGS

ANewLeaf

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Re: Completely Torn!! Rent or Sell my house? Minneapolis.
« Reply #2 on: May 29, 2019, 10:24:52 AM »
It sounds like all of the maintenance issues that you describe are all things you would have to do anyway in order to sell?  I don't think they should factor in.

(Not American) Do you have a window of years that you can not live in the house and then if you sell, still not pay capital gains tax?  If so, I would do the repairs, rent and see how you like being a landlord.  It's not for everyone, no matter what the returns can be. 

Papa bear

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Re: Completely Torn!! Rent or Sell my house? Minneapolis.
« Reply #3 on: May 29, 2019, 11:07:51 AM »
Where are you getting your 1400/month rental income number from? Do you have a potential tenant lined up or is this a Zillow rental estimate?

Im normally of the sell it camp, but I could see you going either way here. 

Sell: tax free capital gains, no landlord hassle, no need to deal with capital improvements

Rent: learn new skill, earn monthly income (reasonable, but not a home run rental), potential appreciation

If it were me, Id keep it, but Im a landlord and I wouldnt have any issues handling another property.

This really comes down to if you want to be a landlord or not. 


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ApacheStache

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Re: Completely Torn!! Rent or Sell my house? Minneapolis.
« Reply #4 on: May 29, 2019, 11:20:01 AM »
-Neighborhood is Northeast Minneapolis.  I've lived here 10 years and know for certain both the rental market and sellers market are very strong.  It's a wonderful neighborhood, close to downtown, in past 5 years especially development is going nuts with many new condos, trendy restaurants, etc.

If I had a house in Nordeast that was in decent enough shape to rent and renovate over time, I'd keep it and rent out it. Unless something drastic happens with the market or the pace of development around MPLS, I can't imagine you not making a healthy amount of passive income from this.

Villanelle

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Re: Completely Torn!! Rent or Sell my house? Minneapolis.
« Reply #5 on: May 29, 2019, 11:30:07 AM »
If you rent it, would you still be doing all these specific maintenance things you mention?  I'd certainly hope so.  Assuming that's the case, then those things are wash in the sell/rent consideration.  However, it sounds like there is a lot of deferred maintenance, in which case 1% seems awfully optimistic over the medium term.  For example, while the retaining wall and the squirrels probably need to be addressed either way, the appliances might not need to be replaced to sell, but it's a good bet that in the next few years, some or all of them will go.  Likewise, I get the overall impression that there hasn't been a lot of upkeep on things, beyond the obvious or critical, so you may have a lot of things catch up with you soon, but not before you sell. 

Also, do you *want* to be a landlord?  When the numbers are close, that's a major consideration.  Do you want to learn how to repair at least minor things?  Renters may do things like request a plumber if a shower head is leaking slightly.  You can show up with a wrench, a role of plumber's tape, and maybe a new washer, and have that fixed in >15 minutes.  Or you can pay someone $80+.  You don't need to learn how to rewire the house, or even install a new toilet, in order to save yourself some money.  If you have no interest, if might be better to just sell, even if the numbers on paper might come out slightly in your favor.  That's in part because if you are calling an expert for every lock re-key/replacement (between tenants) and wall painting, your maintenance numbers are going to be on the high side (even ignoring the age of the property and the deferred maintenance) of estimates, so those calculations my be off.  And it's in part because the work of being a landlord may make you unhappy, and for a fairly small profit and an increase in risk, it might not be worth it to you. 


Frugal Vegan Mom

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Re: Completely Torn!! Rent or Sell my house? Minneapolis.
« Reply #6 on: May 29, 2019, 12:36:59 PM »
That is a good question, do I *want* to be a landlord?  Well, having never done it, I can't be sure!

But if I wasn't strongly leaning towards "yes", I wouldn't be posing the question here.  I work part time so have some extra time to do the administrative work, scheduling repairs, learning how to do minor maintenance work myself.  It's extremely appealing to me to learn some of these skills, but have never had a great opportunity in the past (full time job, small children, husband and dad who are now gone who did everything for me). 

I would love to continue to improve this property and take some pride in it, it's a unique and charming little house.  As one poster guessed correctly, I haven't been great at maintaining it in the past (divorce with very small children threw life into upheaval).  But I'm in a much better place now. 

One reason I am probably hesitant is that I have been low income for many years and putting thousands of dollars into repairs makes me nervous.  Even though I have the cash, still running on a scarcity mindset.  Fiancee has high income and our new house is in both our names even though he funded most of it. 

J Boogie

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Re: Completely Torn!! Rent or Sell my house? Minneapolis.
« Reply #7 on: May 29, 2019, 02:56:47 PM »
St. Paul dweller here.

I think you're selling yourself and your property short. Nothing in NE mpls should sell under $200k right now unless something is significantly wrong. However, it sounds like managing this property that you have brought into your new marriage could be a source of pride for you and that is very valuable. Knowing that you have historically been low income and your new partner is higher income, that makes me think that the increased income you'll be able to provide your family with can help ensure a healthy relationship. Job loss is real and an extra ~$600/month that a family can depend on brings peace of mind value to your family.

I think with the improvements you're planning on making you could probably get a couple hundred more per month given the local housing market.

Cromacster

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Re: Completely Torn!! Rent or Sell my house? Minneapolis.
« Reply #8 on: May 29, 2019, 02:59:34 PM »
St. Paul dweller here.

I think you're selling yourself and your property short. Nothing in NE mpls should sell under $200k right now unless something is significantly wrong. However, it sounds like managing this property that you have brought into your new marriage could be a source of pride for you and that is very valuable. Knowing that you have historically been low income and your new partner is higher income, that makes me think that the increased income you'll be able to provide your family with can help ensure a healthy relationship. Job loss is real and an extra ~$600/month that a family can depend on brings peace of mind value to your family.

I think with the improvements you're planning on making you could probably get a couple hundred more per month given the local housing market.

Was going to say, if you are selling a house in NE for 180k send me a PM!

waltworks

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Re: Completely Torn!! Rent or Sell my house? Minneapolis.
« Reply #9 on: May 29, 2019, 05:58:59 PM »
It's probably not something I'd run out and buy as a rental, but it's not bad at all assuming maintenance isn't too bad over the long run. 100 year old houses can be really well built, or they can be falling apart, of course.

I'd give it a whirl for a year and see what you think. If calls at midnight from tenants and resulting stress are making you miserable, then sell it. If things are going great and you're learning new skills, keep it going.

-W

asiljoy

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Re: Completely Torn!! Rent or Sell my house? Minneapolis.
« Reply #10 on: May 30, 2019, 04:29:17 PM »
-Neighborhood is Northeast Minneapolis.  I've lived here 10 years and know for certain both the rental market and sellers market are very strong.  It's a wonderful neighborhood, close to downtown, in past 5 years especially development is going nuts with many new condos, trendy restaurants, etc.

If I had a house in Nordeast that was in decent enough shape to rent and renovate over time, I'd keep it and rent out it. Unless something drastic happens with the market or the pace of development around MPLS, I can't imagine you not making a healthy amount of passive income from this.

Agreed and I'm wondering if you're under-valuing? We bought here 3 years ago the pace of development/sales is just bonkers. Love this part of the city.

expatartist

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Re: Completely Torn!! Rent or Sell my house? Minneapolis.
« Reply #11 on: May 30, 2019, 08:21:04 PM »
This sounds like it could be an opportunity, try it for a year as suggested above. I really like the sound of your bringing in an asset and project into the marriage. Northeast is great! My brother & sister & dad all had houses out there, and loved it.

JLee

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Re: Completely Torn!! Rent or Sell my house? Minneapolis.
« Reply #12 on: June 14, 2019, 08:32:46 AM »
It sounds like all of the maintenance issues that you describe are all things you would have to do anyway in order to sell?  I don't think they should factor in.

(Not American) Do you have a window of years that you can not live in the house and then if you sell, still not pay capital gains tax?  If so, I would do the repairs, rent and see how you like being a landlord.  It's not for everyone, no matter what the returns can be.

You have to have lived in it as your primary residence for 2 of the last 5 years.   You will have to pay tax on the amount that has been depreciated during the rental process.

Fishingmn

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Re: Completely Torn!! Rent or Sell my house? Minneapolis.
« Reply #13 on: June 17, 2019, 06:04:46 AM »
Keep in mind that if you convert a private residence to a rental in Minneapolis you need to get a rental license and pay a $1,000 fee.

I do think it's quite possible you'll get more than $1,400/mo in rent. My 2/1 condo in Whittier (nice location/updates but small) gets $1,500/mo.