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Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: CalireD on March 19, 2015, 03:05:23 PM

Title: Another sell or rent advice needed post
Post by: CalireD on March 19, 2015, 03:05:23 PM
We are contemplating selling our condo in HCOL.  We will need to move in 2 years anyway (schools and space) but are thinking now might be a good time to list our home based on current sales in our building and neighborhood.   We would rent until we find a place to buy.  The town we would like to move to is a very tough market with little inventory.   There is limited supply in our neighborhood and demand is very high.  There will be more inventory in 2-3 years when new buildings are completed around us.

Our original plan was to continue to save (currently have 98k in DP fund) and pull equity from this place in 2 years to buy a home in a new town while holding on to this condo.

Our home is valued at around $850k.
We bought for $530K in 2010.
We owe 371k on our mortgage.  Interest rate is 3.5%.   We refinanced 2 years ago and have 28 years left.
Current mortgage (including taxes and HOA fee) is $2700/month.
Rental income should we choose to rent it out is around $3600
What we would rent and live in ourselves is something between 3-4500k/month.

We have no other debt.  We earn a combined income of around $270k/year.  Will potentially go up another 52k once 3 year olds are in school and I go back to work full time. I'm currently part time.  Childcare cost is around $3k/month.   Our next home will most likely be in the 1.2-1.6 million range.  Paying the mortgage on a home that price now will be a bit tight with the preschool and nanny cost which will go away in 2-3 years.

What are people's thoughts on the following:

A. Sell now while inventory is low and demand high before supply increases.  Rent until finding a home to buy.  This will either make home cost remain the same or go up slightly depending on the price of what we rent.

B. Sell now and buy a home if we find one. Use some of profits from the sale to fund the DP on new house and use some of the profit to pay a percentage of the mortgage each month for the next few years.

C. Stay in our home for another 2 years and then attempt to sell and buy a home

D. Stay in our home another 2 years and then proceed with finding a home to buy using equity in current home.  Keep current home as a rental property.

E. Other?

I'm new at this and trying to learn so please be kind in your responses but tell me if anything I have written is crazy :) 
Title: Re: Another sell or rent advice needed post
Post by: waltworks on March 19, 2015, 04:30:58 PM
If you can rent a home that you like for $3000 a month, you would be batshit insane to buy one for $1.2 million. If you get up over $4k in rent it starts to be a wash depending on your assumptions about investment returns. Check out the NYT buy vs. rent calculator, it's fun.

To the original question: sell your place. It's a terrible rental. If you expect lots of appreciation in the next couple of years, you could make an argument for holding onto it, but I don't know anything about your market. It sounds like the new inventory will keep any big appreciation from happening, in your judgement, so that would be a reason to just sell the place now, rent a place indefinitely and buy if you find something you like and that makes sense.

Really, though, this decision should be made in the context of your future financial goals and situation. You guys have a money volcano. You are spending most of it on housing and childcare. If you want to quit forever, assuming you have *some* other investments, you probably can, you just have to leave NYC/SF/whatever HCOL place you are.

Title: Re: Another sell or rent advice needed post
Post by: CalireD on March 20, 2015, 06:45:25 AM
Thanks, Waltworks. 

I think a more realistic price for a rental that we would move into is 4k/month.  That price would be the same if we moved to the suburb we want and rented there.  We would just get more space :)

Can you elaborate on why our place is a terrible rental?  What makes a good rental property?

Our long term plan is to move to the suburb to avoid paying private school tuition and to get a little more space for our boys to run around.  We don't really want to move now because we aren't quite ready to leave the city and I love their preschool. I wish this seller's market was happening 2 years from now.  It would make selling a much easier decision.

Everyone we have spoken to (financial planner, mortgage broker, former real estate agent who no longer works as an agent) has told us to sell since we are planning a move in a couple years anyway and the market is in our favor now.   The tricky part is finding a place to live once we do sell.  I also love our home.  We also had originally planned to keep this property as a rental/investment property but that was before we realized how much it's value had appreciated.

But, I think the best financial decision is to sell. I just want to hear more rationale :)
Title: Re: Another sell or rent advice needed post
Post by: waltworks on March 20, 2015, 08:30:43 AM
Go read some other rent vs. sell threads here and you'll learn all about it. Suffice to say that under most circumstances, your equity will do much better invested elsewhere. Google the "50% rule" and "1% rule" (note that for a high-end property like yours you could use a 35 or 40% rule, problaby, for expenses).

A quick calculations says that under ideal circumstances, you'd break even in terms of cash flow and principal paydown. So that $450k is doing basically nothing for you. Invested in some fairly aggressive stock/bond fund, you'd expect to make more like $30k/year.

Title: Re: Another sell or rent advice needed post
Post by: bizzy on March 20, 2015, 08:45:14 PM
Hello CalireD. I am also in a similar position as yourself. I have a home that I purchased two years ago that is on the high price range around here, about 900k. I am thinking if I should rent it out or sell it since I want to move back to my smaller house close to my parents that I still own.
The advice I can give you as being a landlord is that its not for everyone. Ever since I rented out my house I had really bad experience for a year. I could not sleep for a whole years due to bad renters. I did my diligence and on paper the renter looked excellent but it went bad since he moved in other people and the house was getting destroyed. anyhow, eventually I kicked them out and now I have a good renter with no problems. Bottom line is that it is very stressful to rent out your house and to my opinion if you are financially ok I would not recommend it.
My current house seems like it will be a tough sale since I live near a busy street and in my area the people are willing to pay big bucks and my house seems like a tough sale. So I am considering moving back to my smaller home because I want to be closer to my parents and closer to work.
Bottom line, coming from a current landlord I think you will trade peace of mind for money if you decide to rent out your house.