Author Topic: Underwater House: Sell it or rent it out?  (Read 3690 times)

DumbTax

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Underwater House: Sell it or rent it out?
« on: April 03, 2014, 10:53:35 AM »
Hi everyone. Long time reader. First time poster.

Need some advice on how to proceed from here. And thank-you in advance for reading my long winded story. Unfortunately money is always more than just financial...it is also personal...

I want to leave my current neighborhood (bad schools...) and move to another neighborhood (better schools). I want to move by next Spring/Summer 2015. My oldest son will be starting middle school and I want to move by the beginning of middle school to give him a chance to meet new kids. Schools in my area have like 5 elementary schools per town and then they all go to the same middle and high school. I figure by moving then he will be better off.

Bought my current house in 2006 in the top of the housing bubble. Paid $375K for it. Tried selling it 2 years ago for $310K and would not go. Been talking to realtors and researching and I think the "real" number I can get for my house is $260K. By spring of next year I will owe about $275. With realtor, closing cost, lawyer plus a few thousand to get the house up to snuff to put to market, I will have to bring about $30K to the table. Renting out this home brings in about $1000 less than my mortgage including taxes and insurance. So I would lose about $1000 plus another other major thing that comes up. On the other side of this idea is "losing" $30K to bring to the closing table is 30 months of loss from the $1000 if it is indeed rented out every month. Or about 10 months of vacancy. My rental market is very strong in this area. Homes/apts are rented quickly.

Other info:

-I have enough cash flow to pay two mortgages if someone doesn't pay.
-Even after buying the new house, I will have 6 months of mortgage for two homes.
-Due to my new income, I think I can completely pay off house in 2017 assuming the house is rented the entire time.
-Yes, I "have" to move.
-I really don't want to sell the house not due to sentimental attachments but because house selling while still living there WITH kids is so hard!
-Spoke to lender and says if I want to qualify for two mortgages and rent one out, I have to pay my current mortgage down 30% of market value and or loan amount (not there currently...trying to decide what to do with money saved). If I do this, it will cut into the new house down payment (which would be 20%).

And please people, I already know how stupid I was to buy the house so be kind! I am just trying to clean it up :)

I have a good idea what the realist thing to do here is. But maybe then again I think I need a cold hard slap in the face.

Thegoblinchief

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Re: Underwater House: Sell it or rent it out?
« Reply #1 on: April 03, 2014, 11:06:43 AM »
What direction does the market look like it is going? If it seems to be rebounding, I'd take the cash flow hit for a year or two to recoup capital, then sell.

If it's a wash then sell now in case you lose even more value or get stuck with a long vacancy despite the hot rental market.

Renting out a house will be more of a PITA than selling with kids, in my opinion.

DumbTax

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Re: Underwater House: Sell it or rent it out?
« Reply #2 on: April 03, 2014, 11:16:05 AM »
Def up. I think that if I made it past the 2 year point with this house being rented out, I wouldn't sell it at that point. I would just keep it as a rental. As by then the home would hopefully be completely paid off. It all depends on if the renter pays every month for the next two years and I don't have a vacancy.

On the other hand if I didn't currently own this house I would not buy it for investment (renter) purposes.


AccidentalMiser

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Re: Underwater House: Sell it or rent it out?
« Reply #3 on: April 03, 2014, 11:23:15 AM »
Love your username, btw.

I would (and did) sell it as soon as possible.

We bought a wonderful house that we thought we would be in forever in 2006 for 169k.  We sold it in 2010 for 149k.  Best financial decision we ever made.

Swallow the loss and move on.  If you've got enough income to cover both mortgages, you've got enough to swallow the bitter pill. 


DumbTax

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Re: Underwater House: Sell it or rent it out?
« Reply #4 on: April 03, 2014, 02:14:17 PM »
Yes, this username will be what my nearly $150K mistake is....lol.

I have been thinking, maybe even leaning towards selling and moving on.

We've been very blessed that we've been able to more than double our income after coming out of the recession. It got really shaking during the last couple of years. We finally "got smart" after all this money starting coming in. And I do think it might be one of those doors we need to shut and move on.

La Bibliotecaria Feroz

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Re: Underwater House: Sell it or rent it out?
« Reply #5 on: April 03, 2014, 05:47:03 PM »
The conventional wisdom seems to be not to go into the rental business unless you really want to be a landlord. Like if spending time on vetting renters, arranging for plumbers, etc. sounds like a good way to earn money, a job you'd want to have. (Obviously you wouldn't really make money at first, but might in the long run.)

Otherwise, sell. I agree that renting is not really going to be easier than selling--while living there with your kids, you would still need to make certain spiff ups, have people in and out to look at it, etc.