Author Topic: Rent or Sell?  (Read 2910 times)

histblabber

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Rent or Sell?
« on: February 10, 2014, 01:05:19 PM »
Greetings!  Long time viewer, first time poster.

I need help in deciding whether to rent or sell my home.  Or rather, is seems smarter to keep and rent.

Currently owe = $120,086.12. Original loan = $124,900.  Closing costs and down payment = $0 - I used my VA loan, my bank (NFCU) and the seller paid all closing costs.  Mortgage = $775.  Interest = 3.375%.  We paid $1,300 (rent) when we first got here - savings of $525.  But we had to pay $4000 to break our lease (ouch).  That money, plus some, has been recouped from the $525 in savings.  But we also did some work in the crawl space = $5,000.  Definitely haven't recouped that, yet.  We met with a listing agent today and he would list at $130,000 and they charge a flat rate of $2,995 if their office is responsible for everything.  If buyer brings agent from another realty company we have to pay 2.7% to them and the $2,995 to our agent, which would equal $6,505 if we got full asking price.  This would give us a profit of $3,495.  But that's if everything goes right, and if we decide that is good for us, which we don't believe it is.  We live in a very established neighborhood with schools listed at the 10 (elementary), 8 (middle), and 9 (high school) on great schools.org.  The house is on roughly half an acre.  It is 1,249 sq ft.  No garage, no basement.  I think the house would rent for $1,000 easily.  Property manager seems to be 10%.  We will leave at the end of May or very early June after finishing graduate school.  I'm active duty Navy, enlisted, but will be commissioned in roughly two more years after I get licensed.  We don't plan on buying a house again until we decide on our forever home and location.  I'm in a Saint Louis suburb and will never come back here, as far as getting stationed here again.  17 years active duty and will be at 19 when I get commissioned an O2E and will owe the Navy 8 years for this training.  I will stay in until 30 years which will give me 75% of at least O3E pay, but most likely O4.  I will be 48 when I retire.

I'm not sure if you need this information, but it might help with advise:
TSP = $39,245 no more contributions
Roth IRA (wife) = $37,546.99 stopped contributing at the beginning of this year
Roth IRA (me) = $26,060.81 stopped contributing at the beginning of this year
529 (son - 7 years old) = $19,646.49 ($100 x month)
529 (daughter - 2 years old) = $8,575.76 ($125 x month)
Capital One = $3,625.13 savings for antimustachian 20 year anniversary vacation (6 more years) $100 x month
Ally = $1,237.14 just started contributing $600 month - plan to use this money for big purchases as they arise
Two CDs worth roughly = $25,000 that will mature in 2015
Emergency Fund = $6,000 - $231 x month
And $7,500 in investment account - $1,000 x month contributions (that's why our IRAs and TSP went to zero) - we plan to use this money for our forever house - we will most likely move the $25,000 in CDs here once they mature

The wife and I are 35.

Please let me know if you need any more information.
Thank you.

histblabber


phred

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Re: Rent or Sell?
« Reply #1 on: February 10, 2014, 01:12:10 PM »
managing real estate at a distance is a real hassle even with a prop. management service.  Also, a neighborhood can really deteriorate in thirty years.  Drive around your town and view some 30 year old neighborhoods comparable to your house (size, etc) Since you won't be able to drop everything at work if a real emergency comes up I would probably choose to sell.

I don't understand why you have to pay the buyer's realtor?

histblabber

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Re: Rent or Sell?
« Reply #2 on: February 10, 2014, 01:19:41 PM »
i was not thinking that long, maybe five years, but i understand your point.  we bought from a guy who flipped it so everything is essentially new to include the roof, outside and inside.

i believe the reason is that they charge a flat fee ($2,995), which is way below the typical 6-7% rates in these areas

so paying the buyer's realtor 2.7% and the flat fee is around 4.8%, but if they are also the buying agent, we only pay the flat fee.

does that make sense?

brandino29

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Re: Rent or Sell?
« Reply #3 on: February 10, 2014, 01:35:57 PM »
Could you give it a shot first at selling it yourself, or using something like Assist-2-Sell?  Some markets are more challenging than others to sell yourself but it may be worth considering. 

At $1,000/month in rent but monthly mortgage payments of $775 and a 10% property management fee, I think most everyone on here would find that to be a bad deal.  The general rule of thumb is 50% of your rental income over time will go to other costs (maintenance, unexpected repairs, taxes, etc).  You'd have a very narrow margin at the best and may even be cash flow negative after taxes are considered. 

Maybe try knocking the asking price up $5k?

brandino29

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Re: Rent or Sell?
« Reply #4 on: February 10, 2014, 01:38:02 PM »
Also, I meant to ask, how come you all stopped contributing to the tax-advantaged IRAs to divert that money to a taxable investment account? 

histblabber

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Re: Rent or Sell?
« Reply #5 on: February 10, 2014, 01:49:43 PM »
assist-2-sell is the agent we talked to this morning.  as far as selling ourselves... we've seen one house in the same neighborhood try this strategy, but it does not seem to be working.

i'm a bit confused about the taxes you speak of.  these are included in our mortgage?  i guess when we file taxes and now we have more income - that must be it?

yeah, we thought about asking for more but the agent feels it may not appraise for that much, but it is our call.  thanks.

as far as the IRAs.  we felt we had a descent amount saved up for retirement because i'll be getting 75% of my pay once i retire from the military at 48.  and we hope to buy our next (and final) forever home as close to cash as possible (we'll most likely buy overseas and i'm not sure if we can get a home loan).  using 2014s pay chart, retirement pay would be roughly $5,000 a month, and our retirement system is adjusted for inflation.  if our house is practically paid off, we can easily live off half our retirement income and still invest half of it.

brandino29

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Re: Rent or Sell?
« Reply #6 on: February 11, 2014, 08:24:46 AM »
i'm a bit confused about the taxes you speak of.  these are included in our mortgage?  i guess when we file taxes and now we have more income - that must be it?

I'm sure it varies by locale but our rental house is registered as a Class 4 property which has double the property taxes as opposed to the Class 2 of our primary residence (Class 3 here is commercial, I believe).  The rent you receive will also be earnings that you'll report when you file your taxes and you'll have to plan accordingly since it's not like payroll taxes which are withheld automatically.