Author Topic: WWAMD - What Would a Mustachian Do? Sell or Rent house quandary  (Read 887 times)

Cashonda

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WWAMD - What Would a Mustachian Do? Sell or Rent house quandary
« on: February 24, 2018, 11:13:16 PM »
Hello all! I have a question for you wise Mustachio-ed folks.
I am trying to decide whether to sell or rent out my apartment. I will give some rough figures to illustrate my points.

Why I want to sell/rent? I am semi-FIRE (I work for myself online) and have the major itch to slow travel and visit friends around the globe.

I own a small apartment in a small city, the real estate market here is hot at the moment.

I own the apartment free and clear. Let's say my contribution is $200K and it is now worth $250K.

I could rent it for let's say $1300/month (maybe more but rent is controlled) and my estimated expenses would be approximately $600/month not including unforeseen repairs or maintenance. Expenses include HOA, utilities, insurance, property taxes, etc.

I think I could sell it for $250K making a profit of $50K and allowing me to put the $250K approx into interest earning savings or investments at rates of up to 8%.

I dont know if I would want to move back to the apartment in the future. At the moment I feel I would not, but I don't know if that is just my itchy feet and in two years I would be craving the stability of my own home again. It is an unknown. I am having a hard time making a decision because I feel emotionally conflicted about it. I like my living situation and yet I have this urge to flee, and then again I am hesitant to leap into the unknown yet feel completely stuck in a rut. I think the emotion of it is making me unable to think logically or to be decisive.

Every single one of my friends says to rent it out. When I do the math it seems a no brainer to sell it. Why? The interest I could earn seems to be higher than the rent profit without the hassle of a renter.

Am I clueless and missing something? I wonder if my friends' advice is just their own emotional projection or are they correct?

I hope I explained this ok. What would you do in this situation?

Thank you for reading! :D

joonifloofeefloo

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Re: WWAMD - What Would a Mustachian Do? Sell or Rent house quandary
« Reply #1 on: February 24, 2018, 11:25:46 PM »
A few considerations:

1. Assume that even your well-diversified funds will dip, fall, have long stretches of gains much lower than 8%. Because they likely will. Investing the MMM way is for the long haul. 8% can't be expected year after year, consistently. We plan for more like 4-6% (depending on calculation factors) on average, after a long period, at which point we might secure it to begin withdrawing.

2. Slow travelling and working online, would you have enough from your work to cover all expenses, taking nothing from the stash?

3. What are the rental laws in your region? Do they favour landlords or tenants? Are any laws being considered for change? What are the regulations in the building? Are you allowed to rent it out (you probably checked that already)? Are there limits on how many owners can rent out their units, or for how long?

4. Do you have someone local that would be take care of managing the tenancy? For what fee? $0? More than $0?

5. If you wanted to return, would it feel important to you to own again, or could you be happy renting there? (Costs of buying there may go up or down in the meantime, ditto the cost of renting.)

6. Are you a person who would feel nervous having someone controlling your major investment? Some people do; some don't. (I usually do, so sold.)

Cashonda

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Re: WWAMD - What Would a Mustachian Do? Sell or Rent house quandary
« Reply #2 on: February 25, 2018, 07:40:10 AM »
Hi jooniFLORisploo, thank you for your considered responses and questions.

1. Yes I agree. I do currently have an investment that pays 8% consistently so I would put the funds there. But it is not a permanent 8%, probably only will get returns that high for 5-10 more years. So I agree the general ongoing interest would be lower.

2. Do you have enough from your work to cover all expenses, taking nothing from the stash? Yes and no. Since living in the apartment means free rent my costs would go up if I sold it and had to rent other lodgings. So I either have to increase my monthly income to cover rent elsewhere or use some of the monthly returns from the sale money to supplement my monthly costs. However if I rented the apartment the extra monthly income after expenses would not fully cover rent in most places I would travel.

3. What are the rental laws in your region? Do they favour landlords or tenants? Are any laws being considered for change? What are the regulations in the building? Are you allowed to rent it out (you probably checked that already)? Are there limits on how many owners can rent out their units, or for how long? Yes I can rent it out with really no restrictions although something like airbnb would not be very nice for my neighbors. However the city has rent control based on apartment size and amenities so I cannot really charge whatever I want. If the rent is too high the tenant can file a claim with the city and get the rent lowered to crazy crazy low amount. Then the laws favor renters so it is almost impossible to get them out. It's not a common situation but yes, the laws favor renters.

4. Do you have someone local that would be take care of managing the tenancy? For what fee? $0? More than $0? I would have to pay a fee to a management company since I would be traveling overseas. There are not a lot of options in the area, I estimate the cost would be approx $50/month not including any repairs or services. This is included in my estimated monthly costs of $500-600. I have rented it in the past using friends as the local emergency contact which has been very stressful for me.

5. If you wanted to return, would it feel important to you to own again, or could you be happy renting there?  I would be fine renting/subletting if I returned.

6. Are you a person who would feel nervous having someone controlling your major investment? Some people do; some don't. (I usually do, so sold.) YES. haha. I think that is my biggest fear. I don't like not having any control and being far away. It makes me nervous.

Thanks again for your questions.

I feel like I am leaning toward selling, but I am nervous to do so...I think partly due to the emotional baggage and stress and hassle of moving and selling.

I guess in my dream fantasy world I would like to keep it empty and come back if and when I pleased, whether that was every few months or once every 3 years. But that is not at all realistic or financially intelligent.

I hope my quandary might help someone else who is weighing the pros/cons of real estate. In hindsight I wish I had just continued to rent, but rents here are much more expensive than buying due to low mortgage rates. So I thought I was making a smart move. If I stayed here for many many more years it would continue to be a great low cost lifestyle and the best plan ever! Except now I have itchy travel feet hah. Oopsies.

joonifloofeefloo

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Re: WWAMD - What Would a Mustachian Do? Sell or Rent house quandary
« Reply #3 on: February 25, 2018, 07:54:52 AM »
You're welcome, Cashonda :)

Quote
Since living in the apartment means free rent my costs would go up if I sold it and had to rent other lodgings.

Right now you do have monthly shelter costs:

*lost opportunity on the capital
*HOA
*utilities
*maintenance
*insurance
*property taxes
*whatever else

Add all those up and consider that the "rent" you're paying now.

Often you can pay less while slow travelling. The last seven years, I've been paying $450, $500, and $800/mo to rent lovely apartments in extremely HCOL areas. Without a kid travelling with you, you'd have far more options than I've had, too!

joonifloofeefloo

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Re: WWAMD - What Would a Mustachian Do? Sell or Rent house quandary
« Reply #4 on: February 25, 2018, 08:23:49 AM »
Quote
I do currently have an investment that pays 8% consistently so I would put the funds there. But it is not a permanent 8%, probably only will get returns that high for 5-10 more years.

This one worries me a bit. It sounds like you currently have two investments -the condo and one other. I don't need to know anything about the other, but wanted to mention that if you do have the rest of your money in just one other "stock", I would reconsider putting your condo money into that one too. We want to be much, much more diversified than 1-2 stocks. (See book The Millionaire Teacher Second Edition by Andrew Hallam.)

Cashonda

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Re: WWAMD - What Would a Mustachian Do? Sell or Rent house quandary
« Reply #5 on: February 25, 2018, 08:37:29 AM »
Hi jooniFLORisploo, Oh yes, good point! I just meant that I have an investment in one place and I would add the funds to that investment since it has nice returns. But don't worry I have other investments as well, plus retirement accounts. :)

I like that you say you find well priced rentals in HCOL areas. That is my concern as I will be mainly traveling in North America and Europe for the next few years with some stints camping and traveling in cheaper Latin America. But there are deals to be found! And you are right, as a single person it can be easy to find small low cost places. Although as a couple there is an advantage to splitting those costs. :) Probably not the kid though.. haha.

Thank you so much for your advice and feedback.

joonifloofeefloo

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Re: WWAMD - What Would a Mustachian Do? Sell or Rent house quandary
« Reply #6 on: February 25, 2018, 08:42:08 AM »
:)