Author Topic: About to move -- rent or sell?  (Read 1151 times)

mrigney

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About to move -- rent or sell?
« on: April 07, 2014, 08:39:31 PM »
My wife and I are about to move across town (various reasons...now have two kids; can get an extra bedroom and more land for less cost, escape an onerous HOA, be near our friends so we're not always driving, etc). We have lived in our current house for 4 of the last 5 years. For the year that we were gone (job related), we rented the house out. We have the choice to either rent our house out or sell when we move. I've wanted to get into some real estate holding to diversify (and wouldn't mind managing several properties long term). However, I'm doubtful that the numbers work on the house we currently own. In fact, I'm pretty sure no one would buy my house as a rental. But I'm not sure if already owning the house + associated numbers w/a sale change things. Anyway, I would appreciate advice. On to the numbers.

Neighborhood: New development (builder is still building). Currently about 250 homes built in the last 5 years, about 80 lots left to be built out. No vacant lots near us (we are in Phase I, they are now building in Phase IV). Rapidly growing area w/significant new commercial development in one of the top school districts in the state. New high school, hospital, Target shopping center, Wal-Mart w/in 4 miles. New interstate interchange going on the interstate 2 miles south of the house. E.g. to some extent I'm afraid I'm going to sell and miss out on significant appreciation in the next 5 years.
House: 3BR, 2BA, 1530 sq. feet, SS appliances, ceiling fans, trey ceilings, etc. Nafco in bath/kitchen, 30 year architectural shingles.
Value of house: if you go buy all 3BR/2BA houses in the development sold in the last year (by owner and by builder), avg. price is $105/sq. ft. If you just go buy what owner's have sold, value is $103/sq ft. That puts us somewhere in the $158-161k range if we were to sell (most recent construction has been averaging about $108/sq. foot for 3BR/2BA, but we can't compete w/brand new construction...so we'd have to undercut that).

Owed: $148k

So, if we were to sell, we would be looking at basically breaking even. After paying realtors + some closing costs (again, looking at comps from the last year in our neighborhood, we'd probably be paying about $3k in closing). So we could probably walk away without having to pay anything...but I doubt we'd make anything. And pyschologically, that's a little depressing.

Renting
Rental Income: $1200-1500/month. Yeah, obviously that's a big range. I'm getting the guy who managed the property last time out here to run some numbers. We rented for $1200 last time, but since we've been back, a neighbor rented for $1495. Other houses listed for rent in the area are $13-1400. Obviously it might make a huge difference being on the low or high end of that.
Mortgage + taxes + insurance + PMI (e.g. the devil): $973
So if we ran #s for a year

Gross Income (pick $1300/month for now) @ 90% occupancy: $14300
Mortgage Expense: $12276
Maintenance (Assuming 1% value of house): $1600
Misc. Expenses: $400

Net Profit: $24

So yeah, that sucks. If you bump the rent up to $1500, #s get a little bit better. Net profit is $2500.

Here's what makes me tempted to hold onto it (and tell me if I'm crazy). If I can hold it and break even for the next 3-4 years (shouldn't be any major--e.g. roofing and HVAC--repairs) and get rid of stupid PMI ($108/month). My mortgage goes down to $865/month. Then numbers would look like

Gross Income ($1300/month - $1500/month) = $14300 - $16200
Mortgage: $10380
Repairs: $2000
Net Profit: $2,000 - $4,000

If I can rent for $1500, I almost meet the 1% rule.

Am I crazy for even thinking about renting?