Author Topic: (Vacation)Rent or Sell  (Read 2729 times)

Unum

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(Vacation)Rent or Sell
« on: September 11, 2014, 09:54:50 AM »
Without getting into a huge case study I'll try to give everyone the abridged version and I promise not to leave out anything important.

Necessary background:  The housing market in Seattle is stupid.  Our home which was purchased for 299k in 2011 is now comfortably worth 500k.  While I realize no one can predict the housing bubble it is showing no signs of slowing here. Construction is in full swing and with many huge companies investing a lot in staying and growing within the city. Rather than renting out my house in a traditional sense which would rent for about $3150 a month, I believe that vacation rentals would yield a higher profit. After speaking with 2 other owners in the neighborhood who have done this I reached out to 3 companies all of which landed in the area of us netting $36,000 a year after expenses, I did my own back work on this and found this number to be quite realistic.  managing a vacation rental on my own is not in the cards right now. 

Reason for renting... Housing market continues to grow, home helps pay for all the loans below, and property become passive income as well as a foothold in the Seattle market.  We see where the market goes; this also leaves the option to sell on the table and at virtually anytime.  Ideally the home just becomes a cash cow.
Problems: We continue to pay about 4k a year in interest (albeit quite a bit is a tax write off), the market could, although unlikely, completely crap out and we miss out on the funds we could have gotten at one point.

Reason for selling.. We would have 0 debt and we walk with about 90k after all is said and done and paid off.
Problems: We still need to buy a home.  I work in the heart of downtown Seattle and my wife on the Eastside anything in a reasonable distance from both of our work is pricey.

Expenses       Monthly    Interest   Maturation Date            Total due
Mortgage            $1,800    4.13%   2043                            $274,782.00
Equity Loan   $563.07    3.49%   11/1/2023                    $52,400.00
Chase Loan   $140.72    3.25%   11/21/2030            $21,253.00
Car Loan           $250.97    1.95%   11/1/2016                    $9,939.00
Sallie Mae Loan   $221.23    6.30%   10/1/2027                    $10,873.00
Sallie Mae Loan   $74.34    6.15%   4/1/2021                    $16,043.00

TOTAL LOAN DEBT $385,XXX

No CC debt and the equity loan was purely to refi my wife's student loans to a much lower rate.

Other stats:
Investments/ savings= $28,xxx
Household income=$113,xxx

What would you do? 

MandyM

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Re: (Vacation)Rent or Sell
« Reply #1 on: September 11, 2014, 10:06:37 AM »
Sooo...are you going to live in the house and vacate when it is rented? Or are you going to rent an apartment?

[also...facepunch for all the loans you are carrying.]

Unum

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Re: (Vacation)Rent or Sell
« Reply #2 on: September 11, 2014, 10:12:21 AM »
We'd live either with friends or my parents for 3-6 months. 

The loans don't make me happy whatsoever, all of them aside from the car and mortgage are student loan based.

SunshineGirl

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Re: (Vacation)Rent or Sell
« Reply #3 on: September 11, 2014, 10:13:29 AM »
Gosh, unless you love the house, I really think selling and paying everything off would generate the greatest sense of happiness over the short and long term. I would not, however, buy right away. Instead, I'd happily rent and enjoy your debt-free-ness.

Having recently visited Seattle and looked for a vacation rental, I know homeowners can demand top dollar.

If you like your house and decide to stay, I would also consider turning a portion of your house into rentable space - i.e. putting a cute trailer out back, or building an in-law flat. But I'd do this after you get some of that debt paid off. 

SunshineGirl

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Re: (Vacation)Rent or Sell
« Reply #4 on: September 11, 2014, 10:16:22 AM »
I just saw your post that you could stay with your parents.

An option would be to rent out your home only during the summer, when you can command the best price.

BTW, we took Lyft and Uber while we were there, and both drivers were making a TON of money. Maybe you guys could both be drivers for a few hours on the weekends to help pay down your loans? Seriously, they were bringing in $250/day after expenses. But the cool thing is, you can drive whenever you want, even for an hour at a time. 

frugaliknowit

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Re: (Vacation)Rent or Sell
« Reply #5 on: September 11, 2014, 10:20:30 AM »
Your net worth is minimal with all of those loans.

You definitely need to restructure if you want to build serious wealth.  Renting out the house is not the answer, because it does not restructure your assets.  If you want a "foothold" in the Seattle market, sell, then buy as small of a property as possible.

former player

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Re: (Vacation)Rent or Sell
« Reply #6 on: September 11, 2014, 11:33:29 AM »
So, your concern is that you have $100K in student loan debt.  Just under $17K of that debt has an interest rate over 6%. 

You have a household income of $113K per annum, meaning a gross monthly income of $9.4K.  You are suggesting renting out your house for extra income, but here is your facepunch: lack of income is not your problem.

A mustachian savings rate of 50% or more would have you two high interest loans paid off within five months.