Hi,
My family and I bought our townhouse in a HCOLA in MD in 10/18. We are extremely unhappy here, and we are wondering what we can do at this point to mitigate losses. Obviously, it would have been better for us not to buy at all, but that ship has sailed. We would like to move out summer 2020 or sooner if able. Does this property make sense as a rental, or is it better to sell and take the financial hit? We are prepared to take the hit on closing costs, etc, but probably couldn't sell it much below what we bought it for. If we had to, we could stay longer I guess, but we really don't fit in here.
Market Value: Zillow says 339299
Original Purchase price: 334999
Original Mortgage Amount: 334999, VA loan, no PMI
Interest Rate: 4.0
Mortgage Term: 30 years
Term remaining: 29.5 years
Amount remaining on mortgage: 330,994; payment 2015/month
Gross Rents: unsure, other rentals in the area seem to do ok, hoping 2300
Principal and Interest (the P&I of your PITI - should match with the above info):1600
Taxes and Insurance (the T&I of your PITI): 415
HOA costs: 1500/year but 1000 is included in escrow T&I above
Deferred maintenance notes: older roof
Anything else special or unique in regards to the numbers of the property (not the property itself; things such as city assessments, back taxes, special costs due to unique features of the property, etc. etc.): VA loan so could limit our ability to borrow again if kept as rental as VA loans are capped at a specific dollar amount
Specific questions:
1. Does this make sense as a rental at all?
2. How much would rent need to be to make this worthwhile for us? I am aware of the 1% rule, but I know there is some controversy surrounding it. We plan to move locally so we would be nearby to address property concerns as needed initially at least.
3. Should we refinance it now (if kept as a rental)? We are getting mailings for 3.0%. Are there rules surrounding this (i.e. must live in property for a year after refinancing)?
4. Is there a best time to move if you are going to buy another place? Our realtor told us it was best to sell in spring/early summer, but I assume that means it's also harder to buy at that time as there is more demand.
5. Anything else that might be helpful to think about?
Thank you so much for your feedback. I have learned so much from this community.
1. Does this make sense as a rental at all?
No. Unless you expect to have crazy appreciation over the next 2 years. But we call that speculating. May as well buy bitcoin or beanie babies.
2. How much would rent need to be to make this worthwhile for us? I am aware of the 1% rule, but I know there is some controversy surrounding it. We plan to move locally so we would be nearby to address property concerns as needed initially at least.
The controversy comes from people who think they are real estate geniuses because they got lucky that their house doubled in value even with a monthly cash loss on the rental. The 1% rule works because it’s math. It’s not a hard and fast rule, you can still make money at .8%, but the opportunity cost of your time and money starts to make it look better to sock it in the market.
3. Should we refinance it now (if kept as a rental)? We are getting mailings for 3.0%. Are there rules surrounding this (i.e. must live in property for a year after refinancing)?
If you are going to use this as a rental for 5+ years, then yes, refinance. If this is a short term solution, your loan costs will overcome any savings on your interest.
4. Is there a best time to move if you are going to buy another place? Our realtor told us it was best to sell in spring/early summer, but I assume that means it's also harder to buy at that time as there is more demand.
Not really.
5. Anything else that might be helpful to think about?
The house is a sunk costs. You can only look at what the best option is moving forward. That is not a good rental. You wouldn’t buy it as a rental. Maybe spruce it up and put in some trendy paint colors to get a few extra thousand on the sale.
You also need to look at tax implications. Selling now for a gain, you will pay cap gains taxes, since you are less than 2 years in the house and without a qualifying life event. If you go rental, you will depreciate the property, which is good for taxes, but when you sell, you have a lower basis and will have to pay depreciation recapture.
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