Author Topic: Rent / Airbnb / sell?  (Read 4136 times)

justinabrahms

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Rent / Airbnb / sell?
« on: July 18, 2014, 03:45:29 PM »
Hey folks.

I have a 2BR/1BA house in Portland, OR. My mortgage is $1525/mo. I'm hoping to move into a shared living situation for ~4-500/mo. The question then is what to do with the house.

Option 1: Sell it.  I bought the house last year, but now being post-marriage, I don't need/want that much space or responsibility. I would also likely lose some amount of money given that I have only owned it for a year, haven't done much to update it and it was renovated before I purchased it, so it was probably at the top of its value (not to mention, even then it sat on the market for a while).

Option 2: Rent it. I think I could get 1500-1600/mo for the place, according to a property management company I spoke to today. They take a 10% fee, meaning I would need to pay ~$100 mo given this option (assuming I use a property management place).

Option 3: Get a roommate. This would presumably bring my rent payment to ~$800/mo. This is more expensive than the rent it option, as I should be able to find a reasonable place to stay for ~4-500/mo.

Option 4: Airbnb. Similar to renting it. I spoke to a friend of a friend who does airbnb stuff in PDX. She said it's very seasonal, with summers being popular. This would likely require an upfront investment in furniture (especially as I'd want to get a second bed for the other bedroom to maximize rentable rooms) and social capital of finding a friend who can help me make it look nice. A theoretical maximum of booking would be ~3k/mo. Guessing, I'd estimate more like $1.5-2k/mo in the summer and $0.5k/mo in the winter. I don't have a strong basis for this, though.

My initial leaning is rent it, paying ~$100/mo to keep an asset on hand while someone else pays the mortgage, thereby saving me ~$1k/mo.

There's also the option of personally managing the property myself (maybe using something like https://www.cozy.co/ ). I have worries around placing people in the house (marketing the property), eviction things, dealing with maintenance and housing damage, screening tenants, etc. I'm not sure if this is worth $150-160/mo. It seems like the upfront investment for me will be higher (figuring it all out) but there is minimal cost going forward. That said, every month I don't move out and rent it is $1k wasted (or 8 months of their service). I think it might make sense to let them rent it out up front, learn about renting things and then take it over in a year or so.

Thoughts? Does my leaning towards renting this out w/ a property management service sound like a financially sound, Mustachian decision? Any options I haven't considered?

justinabrahms

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Re: Rent / Airbnb / sell?
« Reply #1 on: July 18, 2014, 03:51:33 PM »
Update: Just found this questionaire.

Market Value: 288k (zillow)
Original Purchase price: 300k
Original Mortgage Amount: 240k
Interest Rate: 4.875
Mortgage Term: 30y
Term remaining: ~29y
Amount remaining on mortgage: 236k
Gross Rents: 1525 mortgage, will move to a place 500
Principal and Interest (the P&I of your PITI - should match with the above info): assuming monthly payments? $308 principle, $960 interest
Taxes and Insurance (the T&I of your PITI): $257
HOA costs: N/A
Deferred maintenance notes:  N/A
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.):  N/A

waltworks

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Re: Rent / Airbnb / sell?
« Reply #2 on: July 18, 2014, 04:16:04 PM »
Obligatory facepunch: did you read *any* of the other sell/rent threads before posting?

You do get half credit for at least noticing the sticky.

Your house is a terrible, terrible rental. Using normal assumptions about vacancy/maintenance/overhead you will be losing lots of money. It's not an "asset" for you at this stage, it's an anchor around your neck. Sell it, even if you have to come to the closing with cash. Or keep living there and get a roommate if you really, really don't want to sell it.

-W

justinabrahms

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Re: Rent / Airbnb / sell?
« Reply #3 on: July 18, 2014, 04:48:44 PM »
I read two. I could have done better. :-/

maintenance cost is ~3k/yr (1%).

vacancy rate is ~3% in Portland and my place is in a desired area of town. I don't know how to turn this into a monetary amount.

overhead: 10% = 1800/yr

Meaning that I should have in excess of 4800/yr in profit from the rental, assuming perfect occupancy, bringing my original "100/mo loss" to 500/mo.

Does that sound right?

waltworks

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Re: Rent / Airbnb / sell?
« Reply #4 on: July 18, 2014, 05:37:40 PM »
Most RE investors will use much more conservative assumptions, ie:
-Assume 10% vacancy (gaps between tenants, costs of potential eviction, etc - so this will cost you $150/mo)
-Assume 10% management costs (in your case, $150 a month or so)
-Probably assume more than 1%/year in maintenance unless you have awesome tenants. But stick with that number if you want, so $250/mo.
-Insurance costs will probably be higher if not owner occupied but we can leave that out for now.

In many cases, it's easiest to just say that overhead will be 50% of gross rent (so $750) - hence the "50% rule".

So your net rent, before paying the mortgage, will be somewhere around $750-950/mo. The interest portion alone of your payment exceeds that, not even counting the taxes/insurance. So you will be losing a big chunk of money every year if you keep the house. If you use really optimistic assumptions maybe you could convince me that you could break even.

-W

I read two. I could have done better. :-/

maintenance cost is ~3k/yr (1%).

vacancy rate is ~3% in Portland and my place is in a desired area of town. I don't know how to turn this into a monetary amount.

overhead: 10% = 1800/yr

Meaning that I should have in excess of 4800/yr in profit from the rental, assuming perfect occupancy, bringing my original "100/mo loss" to 500/mo.

Does that sound right?

justinabrahms

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Re: Rent / Airbnb / sell?
« Reply #5 on: July 18, 2014, 05:58:00 PM »
And here I was thinking this was a reasonable plan. So much to learn. :-/

Suppose I'll start soliciting recommendations for real estate agents. If you had any particular links that you think would be helpful on the selling a house front, please share. :)

Thanks!

defenestrate

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Re: Rent / Airbnb / sell?
« Reply #6 on: July 22, 2014, 10:08:21 PM »
I would recommend trying out some of your ideasand see how it goes. Selling the property has a high transaction cost, and so exploring some of your options for several months may be worthwhile.


For instance, perhaps you could airbnb one of your rooms out for awhile and "see what traction you get. I suspect you will get more value by renting out one room and living in another than you would renting out the entire apt/house on aibnb. If you do get traction, you may then move out of the home to an apartment for $500 a month. If it does not work, you could go ahead and sell the home and move on.

escolegrove

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Re: Rent / Airbnb / sell?
« Reply #7 on: July 26, 2014, 09:49:40 PM »
Are you able to self manage the house out? I would be hesitant against selling it. Does it have alot of deferred maintenance? Do you the money from the house that you put into it as a downpayment? Since you won't have a huge "emergency" fund are you able to cover any "oshoots" that exceed you small emergency fund.

It will probably cost you roughly $28k to see the house (6% realtor fees and 3.5% closing cost assistance). So you will loss 40k compared to what you paid for the house. That is a rough hit.

If you manage it yourself you will have $75 a month different ($900 a year). If you allow pets you might be able to recoup a $50 pet rent so a $150 a month. We own 5 houses. My total expenses for all my houses have been about $1000 a year for 5 houses when you ignore the 2 ac's that I replaced (I knew about when I bought the house).

My website/blog reluctantlandlord.net is about how to rent out the house yourself. If you willing to deal with the house over time it could become a nice little nest egg. At a minimum I hate to see you lose 40k.  Plus your house is a great deduction.

waltworks

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Re: Rent / Airbnb / sell?
« Reply #8 on: July 26, 2014, 10:18:10 PM »
Yes, listen to the person with the nonexistent incoherent placeholder page blog, who posts the same thing on EVERY thread - that you should keep your house and read his/her blog.

It's a dog of a rental. Period. When you're at the 1/2% rule you are just losing money every month and gambling on appreciation. As long as you're cool with that, go for it. But I'd sell it (or rent out a room and stay) in a hot second, as would every other RE investor I know.

-W

lpep

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Re: Rent / Airbnb / sell?
« Reply #9 on: July 27, 2014, 03:02:41 AM »
You should read this: http://affordanything.com/2014/05/27/the-airbnb-experiment-how-much-did-i-make/


An AirBnB experiment from Afford Anything. Conclusion: it's providing a service, not a commodity, so it's a lot of work. BUT - depending on your location in Portland - could be extremely profitable.

Good luck.

escolegrove

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Re: Rent / Airbnb / sell?
« Reply #10 on: July 27, 2014, 11:50:18 AM »
Waltworks sorry you feel that way. You are right it is a placeholder because it is not ready yet!  I am sorry if I seem pushing my blog. That has  certainly not been the purpose. Feel free to sign up and I will send you the link when it is ready. I would appreciate your constructive feed back on my business model.

I have been reading Mr. Money Mustache for over 1.5 years. It was through this website I found biggerpockets where I am an active member on real estate advice. Another amazing resource full of great information. I have started posting because I am TIRED of people thinking that if they don't meet the 1%, 2%, or 50% rule that they should sell. He is going to have a 40k loss. He breaks evens at best if watches his bottom line. Even if he has a $200 a month loss (maybe) it would take him over 16 years to equal the loss that he would take now.  Since he put it down as a down payment he wouldn't have to bring money to the table. On the other hand there goes all that money he saved. Plus right now he is in moving into a shared situation due to a divorce. What happens in 2 years when he gets a girl friend or wants a house again. In my experience the economy is recovering, interest rates are going up along with home prices. So now he took a 40k loss AND he has to buy another house at a higher cost. He should just rent it out right now, take a breather after the divorce and see how life is going.

Real Estate is NOT Black and White!!!!!!!