Author Topic: Accidental Landlord - sell or keep house?  (Read 4001 times)

Bill76

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Accidental Landlord - sell or keep house?
« on: May 31, 2013, 06:41:09 AM »
When my wife and I got married in 2011, we instantly needed a bigger house.  We were both living in relatively small homes, and with two kids, one more planned within a year, and plans to adopt two more, we went out looking for a new place.  We found it, and everything was great... except we couldn't sell my old house.

After six months on the market (and about that many showings), we decided to rent it out and have had a reliable tenant since November 2011.  Now those tenants are moving out at the end of June, and I'm debating whether or not to keep or sell.

Here are the stats:

Home value = $180,500 (according to Zillow... I think it's likely to sell for closer to $170k)
Mortgage = $128,900 @ 4.375% -- 28 years left (we refinanced to improve cash flow when we turned it into a rental)

Monthly rent = $1300
Monthly mortgage payment = $838 (includes taxes and insurance)

Tenants are responsible for all utilities, and the current tenant has taken care of the lawn as well.

There are a few small repairs and maintenance things I need to do whether we sell or get a new tenant.  I'm guessing they'll cost around $1,000.

We don't have any other debt besides the mortgage on our primary home and a zero percent auto loan (from pre-mustachian days, and I have the cash available to pay it off any time we want).

So the monthly cash flow is good, and the neighborhood is pretty stable.  A month or two of vacancy will hurt our savings rate, but won't make us go broke either.  On the other hand, I never really intended to become a landlord, and I could get a little bit of cash out of a sale that could go into other investments.

What do the real estate experts here think?

ncornilsen

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Re: Accidental Landlord - sell or keep house?
« Reply #1 on: May 31, 2013, 07:59:22 AM »
Assuming 2 months vacancy this year, and $1000 in upkeep/maint costs, you earn 8.5% on the $42000 of equity you have in the house.  ($462/month*10mos-$1000)/42000

If you can afford to feed it for the two months you think it will take to replace the tenants (which I think is conservative), and don't think you can earn more than 8.5% on your money elsewhere, and want to deal with being a landlord, it seems to pencil... 

arebelspy

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Re: Accidental Landlord - sell or keep house?
« Reply #2 on: May 31, 2013, 09:01:13 AM »
Pretty close to break even or slightly better, probably worth keeping unless you have a better investment for it.

The answer will depend more on you than the numbers at this point.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
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danzabar

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Re: Accidental Landlord - sell or keep house?
« Reply #3 on: May 31, 2013, 09:19:06 AM »
I think people are assuming your mortgage payment includes property taxes...does it?
If so, I need to move!
Edit I need to work on my reading skills it does, that is ridiculously cheap. I vote keep it.
I have a rental with similar cash flow but much higher property taxes

Another Reader

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Re: Accidental Landlord - sell or keep house?
« Reply #4 on: May 31, 2013, 09:32:25 AM »
The rent and mortgage numbers are similar to a couple of my rentals in the Phoenix area.  If the property is newer and needs few repairs, you should at least break even or be on the positive side a couple of hundred a month.  If the house is going to need major capital improvements, it will be tough to recover the cost unless rents rise substantially.  I'm looking at selling one of mine that will need a roof in the next 3-5 years for exactly that reason.  In my case, I can use the proceeds to pay off a high interest rate mortgage on a long term hold, which is even more motivating for me.

freelancerNfulltimer

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Re: Accidental Landlord - sell or keep house?
« Reply #5 on: May 31, 2013, 09:52:33 AM »
I would talk to a Real Estate agent about what they think the house would sell for. Zillow estimates are all over the place.

Bill76

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Re: Accidental Landlord - sell or keep house?
« Reply #6 on: May 31, 2013, 11:05:15 AM »
Thanks for the feedback, everyone.  It sounds like most of y'all are leaning towards keeping the house for a while longer.  When I looked at the numbers, it seemed like a 50/50 choice, so I guess it's mostly a question of whether or not I want to keep being a landlord.

My estimate of two months vacancy was taking into account that I already collected the final month's rent back at the beginning of the lease, so there won't be a check coming for June.  As for the property taxes, the trick is to live just outside the city limits in a southern state.  The county has the house appraised at 205k (wayyyyy high), and the annual tax bill is only $1400.  Insurance runs about $700/year.

I'll get in touch with my realtor for a market analysis to get a better picture of the sell side of the equation, and then make a decision.

SnackDog

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Re: Accidental Landlord - sell or keep house?
« Reply #7 on: June 01, 2013, 08:18:31 AM »
To do the numbers properly you need to consider all the tax implications of the rental.  I suggest running your 2012 taxes in turbotax (if you can) with and without the rental factored in to see what the final tax implications are for your specific situation (e.g. if your other income is high  you may be limited on the depreciation you can deduct).   A CPA could advise you if it makes any sense to incorporate as a small business for tax reasons.

Nords

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Re: Accidental Landlord - sell or keep house?
« Reply #8 on: June 02, 2013, 02:18:08 PM »
What do the real estate experts here think?
I don't know about the experts, but I think you need to use your cashflow luxury to read up on rental property and formulate an exit strategy.  Otherwise you'll have trouble deciding whether it's worth your effort and when it's time to sell.  Or maybe you'll go the other direction and buy 3-4 more of them...

Bill76

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Re: Accidental Landlord - sell or keep house?
« Reply #9 on: June 17, 2013, 09:40:45 AM »
Here's the latest update.  I posted the house on my company's intranet classified ad board and had a new tenant within 48 hours.  An engineer and his wife transferring in from another city want to rent for a year while deciding where to buy/build their more permanent home.  So now I can enjoy the cash flow for another year while studying the real estate business to figure out a long term strategy.

Thanks again for the feedback, everyone.

arebelspy

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Re: Accidental Landlord - sell or keep house?
« Reply #10 on: June 17, 2013, 10:02:27 AM »
Awesome, that makes it easy.

Try to take a long term view.. if you hit very little expenses in the next year, you'll think landlording is the greatest thing on earth (as you'll incur much lower than average expenses, so gross income will be close to net).  If the water heater and A/C goes out, you'll think it's terrible (as you'll incur much higher than average expenses).  Evaluate how you feel as a landlord and how you will address issues, and get some decent books on landlording in the meantime to decide your long term prospects.  For now, having in a high quality tenant paying you is a terrific way to start.
« Last Edit: June 17, 2013, 10:04:21 AM by arebelspy »
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.