In a bind regarding what to do with my house

[afictor]

I have owned my home since May of 2008, and am moving to another city in the first quarter of 2014.

To give some context for the situation: I bought the house for $265k, and I owe $246k, with a 4.5% interest rate. My monthly mortgage payment is $1,820.

I was planning to rent the house out, since I am a bit emotionally attached to it and did not want to sell. However, the more I think about it realistically the more I realize renting will probably not be in my best interests. I will likely be breaking even or hovering just above the break even point, and obviously there would be all the added overhead that comes with renting a property. I do not want to pay for a property manager, I have heard they don't add much value and given that I would be breaking even I can not justify the cost.

I talked to a listing agent this week to see what he thinks the market is like and what I could list the house for. He thinks I can list the house in the 260-280k range. It looks like I would be netting about $10 grand in cash if I sell the house for $280k. This is after subtracting all the broker fees and settlement costs. I was slightly disappointed with this assessment. I suppose I had over-valued my home and thought I could list for around $300k.

Now I should mention that I have sunk about $35k into renovations including a roof deck, two new bathrooms and a master suite with a walk-in closet. I paid for all of that in cash and have no outstanding debt for any of the work that was done. Maybe I am foolish but I thought I would be able to recover that cost, with the market having appreciated a bit and with buying for $265k. The neighborhood is a very attractive place to live and is regarded as one of the best areas in the city.

Now I find myself struggling with what to do. Should I sell and cut my losses on the money I sunk into the house? It would be rough to swallow but also a great lesson learned. Is renting really such an awful idea? I still owe about $30k on the principle before I qualify to get PMI removed. I suppose one drastic option would be to cover that in cash now, remove the PMI & refinance to get down to a better interest rate/lower payment, then rent for a surplus.

Any advice would be appreciated.

[arebelspy]

I still owe about $30k on the principle before I qualify to get PMI removed. I suppose one drastic option would be to cover that in cash now, remove the PMI & refinance to get down to a better interest rate/lower payment, then rent for a surplus.

You have some hard numbers for the sale (break even), now you need some hard numbers for this scenario.  What will it rent for?  What will your payment be after refs without PMI?

What has your market been doing and what are the projections going forward?

Based on the limited info, it sounds like a sell to me, but more facts are needed.

[Argyle]

Presumably you'd be renting it with an eye to selling it later when house prices have risen?

Keep in mind that renters will cause wear and tear, and possibly actual damage, so the house may not be in as good sellable condition after renting as it is now.

[brandino29]

Is there any chance you'll be moving back to your current city in the future and want to reoccupy the same house?  If that's a definite, or almost definite no, then I would think that your best bet would be to sell. 

Even though the listing agent recommends $260-280, maybe you should try listing it at 295 or 299 and if you don't get any bites in the first 30-45 days, go ahead and bring it down closer to $280k.

[ritchie70]

Now I should mention that I have sunk about $35k into renovations including a roof deck, two new bathrooms and a master suite with a walk-in closet. I paid for all of that in cash and have no outstanding debt for any of the work that was done. Maybe I am foolish but I thought I would be able to recover that cost, with the market having appreciated a bit and with buying for $265k.

Based on no personal expertise, but merely fooling around online and watching various silly HGTV shows, it seems to me that on average over all improvements, you recoup maybe 50% on sale assuming it was done in a manner that meets current design sensibilities.

You've sunk 35K, half of which is 17,500. 265 + 17.5 = 282,500. So don't feel too bad about selling at 280.

It's a matter of what the market is really like and how quickly you want to get out from the ongoing costs.

Don't forget to factor carrying costs into the equation. I'm going to guess that 1500 of your payment is going toward interest. If it's a newish loan it's probably even more. Based on that, you would be better to sell it for $8,000 less the first month than $8,000 more six months later - and that doesn't factor in insurance, taxes, and utilities required to keep even a vacant house going.

[tryan]

You're not going to get out of this without a financial hit.  Question is do you want to bleed slowly or all at-once.

Given that the market is improving in most of the country,  I would bleed slowly and rent.