Author Topic: First House & Relocating - to rent it or sell it  (Read 4189 times)

angelsteps51

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First House & Relocating - to rent it or sell it
« on: April 27, 2014, 11:35:08 AM »
Hello,

My questions is, financially, should we rent our house out or sell it.  We are moving to Colorado this summer from Oklahoma.  We have to do something with it.

-If we sell, we think we will break even.
-Worth 160k, payments are $1250 including tax/interest/escrow, interest rate is 5.5%
-Owned it only 3 years
-Hot rental market due to oil field, would rent for $1500 or maybe a hair less
-We will be renting in our new location, Colorado, for at least a year
-We will be managing remotely, but have family to keep an eye out for us as well as handymen to fix things that might go wrong (house is less than 20 yrs old)

What would you do?

Thanks in advance for all your help.

stevesteve

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Re: First House & Relocating - to rent it or sell it
« Reply #1 on: April 27, 2014, 12:09:47 PM »
I'd sell unless you want to be a landlord.  Things can always go wrong with attempting to time your sale.  I knew a guy who had the same decision during the bottom of the stock market.  He didn't sell the home he bought for $220k since he could only get $200k.  Now it's worth $180k and he's been a remote landlord for 4 years.  It's a huge pain and he would have made a ton more money having taken out the equity even with a loss.

Maybe your luck will be better.  I wouldn't gamble on it unless rental housing is a business you want to be in.

bearkat

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Re: First House & Relocating - to rent it or sell it
« Reply #2 on: May 07, 2014, 11:34:31 PM »
I think a lot of it depends on how much you can count on your family and that handy man friend of yours. We have friends that moved down from Nor Cal to LA, and they choose to rent out their old house instead of sell. It seems like they're always dealing with something from their rental, and driving up there 1x month (and complaining about it). They don't have anyone there they can really trust to handle it for them, so your experience might be better.

One note though, if you do decide to rent and then realize you need a property management company to handle it, there goes most all of your positive cash flow ...

SnackDog

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Re: First House & Relocating - to rent it or sell it
« Reply #3 on: May 08, 2014, 04:25:19 AM »
Rent it.  Even if all your "positive cash flow" disappears to maintenance and property management, the renters are paying the mortgage and taxes for you. You get to depreciate the property on your taxes. You can raise the rent with inflation.  In the end, you get the house!  Just be aware you have some cash tied up in the house now which you won't be able to access or invest.

waltworks

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Re: First House & Relocating - to rent it or sell it
« Reply #4 on: May 09, 2014, 12:57:38 PM »
I would go ahead and rent it out. You are very close to making the 1% rule.

You probably won't see much cashflow in the short term but you're not going to get anything from selling it either, and unless the market craters you stand to get a little appreciation in either home prices or rents or both as time passes.

On the depreciation front, keep in mind that those tax savings will have to be paid back when/if you sell the house.

-W

GrayGhost

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Re: First House & Relocating - to rent it or sell it
« Reply #5 on: May 09, 2014, 06:32:51 PM »
Honestly, I'd sell it.

If you're barely going to break even, you have a strong chance of spending precious time on something that's flowing little, if any, cash. And there's also a strong chance of seeing your small profit margins disappear to expenses, bad tenants, et cetera. You might well fatten the pockets of local handymen, but if you get your relatives in the area to check up on them, they might not appreciate it, as they've got their own lives, too.

On the other hand, it could give you surprisingly little trouble, you could have great tenants, and after seeing a couple decades of small but steady paychecks, you could own the place free and clear.

It's a matter of opinion in the end, but I'm a conservative guy when it comes to business deals, and this seems like it's too close to being an unprofitable pain to me. I'd just get rid of it, bag the cash, and move on. Landlording just one place from afar doesn't seem like much fun.

Thegoblinchief

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Re: First House & Relocating - to rent it or sell it
« Reply #6 on: May 09, 2014, 07:53:29 PM »
No clear right answer. Others have made good points for both sides.

You have family in OK. Would you ever move back? If you did, would you like having that house already owned?

That's the other reason to hold onto cash-neutral rentals.

waltworks

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Re: First House & Relocating - to rent it or sell it
« Reply #7 on: May 09, 2014, 08:42:31 PM »
But I think the OP mentioned that a sale would result in, um, no cash to bag at all, right?

-W

bag the cash, and move on.

Bearded Man

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Re: First House & Relocating - to rent it or sell it
« Reply #8 on: May 10, 2014, 11:05:08 AM »
That's not even really breaking as a rental. Keep in mind you will have to turn the place when tenants move out, and that's going to cost you money for labor and materials. The rental would, after expenses for maintenance, etc. be a loss. Oklahoma appreciation isn't high enough to justify holding onto the property either IMO. That is a lot of headache for little return.

Then consider that one bad tenant can cost you tens of thousands of dollars in repairs. Why would anyone keep a property as a rental if it is really a loss after all expenses, appreciation is so low that it's barely keeping pace with inflation, and the risk of one bad tenant turning it from a loss into a severe loss is very real?

bearkat

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Re: First House & Relocating - to rent it or sell it
« Reply #9 on: May 12, 2014, 05:37:14 PM »
Angelsteps51, just curious, now that it's been a few weeks, are you leaning one way or the other?

zurich78

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Re: First House & Relocating - to rent it or sell it
« Reply #10 on: May 14, 2014, 06:52:52 PM »
That's not even really breaking as a rental. Keep in mind you will have to turn the place when tenants move out, and that's going to cost you money for labor and materials. The rental would, after expenses for maintenance, etc. be a loss. Oklahoma appreciation isn't high enough to justify holding onto the property either IMO. That is a lot of headache for little return.

Then consider that one bad tenant can cost you tens of thousands of dollars in repairs. Why would anyone keep a property as a rental if it is really a loss after all expenses, appreciation is so low that it's barely keeping pace with inflation, and the risk of one bad tenant turning it from a loss into a severe loss is very real?

Just curious, people keep talking about breaking even and relying on certain percentages to determine if renting a house out is a good idea, but there is something I don't understand.  So, my mortgage is $2,400 including property taxes and insurance (no HOA).  It's a 4 bedroom in Southern CA, and I can easily rent it out for let's say $2,500/month for a profit of $100/month (less maintenance of course which would likely put me at cashflow negative).

Even if I'm taking a slight loss now, I'm having someone else make my mortgage payment and when the mortgage is paid off, every incremental month of rental income is pure profit.  Wouldn't those profits, offset the sum of the small losses I took while I still had the mortgage?  Additionally, the property could be yielding me $3,000/month by the time the mortgage is paid off which would help in a retirement scenario, no?

waltworks

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Re: First House & Relocating - to rent it or sell it
« Reply #11 on: May 14, 2014, 07:04:07 PM »
You are ignoring maintenance costs, vacancy/eviction costs, damage done by tenants which isn't covered by a deposit, increased insurance costs due to not being owner occupied, management costs (yes, you can do it yourself - but your time is worth money), etc. The 1%/50% rules are pretty solid when you take a detailed look at how owning a rental works. You *can* do ok with a property that doesn't meet those requirements through luck with tenants and maintenance and/or appreciation, but it's not super likely.

-W

Just curious, people keep talking about breaking even and relying on certain percentages to determine if renting a house out is a good idea, but there is something I don't understand.  So, my mortgage is $2,400 including property taxes and insurance (no HOA).  It's a 4 bedroom in Southern CA, and I can easily rent it out for let's say $2,500/month for a profit of $100/month (less maintenance of course which would likely put me at cashflow negative).

Even if I'm taking a slight loss now, I'm having someone else make my mortgage payment and when the mortgage is paid off, every incremental month of rental income is pure profit.  Wouldn't those profits, offset the sum of the small losses I took while I still had the mortgage?  Additionally, the property could be yielding me $3,000/month by the time the mortgage is paid off which would help in a retirement scenario, no?

AccidentalMiser

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Re: First House & Relocating - to rent it or sell it
« Reply #12 on: May 14, 2014, 07:12:58 PM »
Let's assume you can get out at even money, as you stated in your post.

There are only two questions you need to answer.  1) Will you ever move back to OK? (Hat tip to GoblinChief)  2) If you didn't own it now, would you purchase it at your break-even price for the sake of having a rental property?

If the answer to #1 is yes, then you MAY want to consider holding it.

If the answer to #2 is no (which it is or you wouldn't even ask), then sell it forthwith.  The hassle of selling is less than the hassle of being a long-distance landlord (I own two houses in two different states, each over 800 miles away, so I know what I'm talking about here.)

Also, the "hot" oil field may cool down, which would leave you in a bad spot.

zurich78

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Re: First House & Relocating - to rent it or sell it
« Reply #13 on: May 14, 2014, 07:24:32 PM »
You are ignoring maintenance costs, vacancy/eviction costs, damage done by tenants which isn't covered by a deposit, increased insurance costs due to not being owner occupied, management costs (yes, you can do it yourself - but your time is worth money), etc. The 1%/50% rules are pretty solid when you take a detailed look at how owning a rental works. You *can* do ok with a property that doesn't meet those requirements through luck with tenants and maintenance and/or appreciation, but it's not super likely.

-W

Just curious, people keep talking about breaking even and relying on certain percentages to determine if renting a house out is a good idea, but there is something I don't understand.  So, my mortgage is $2,400 including property taxes and insurance (no HOA).  It's a 4 bedroom in Southern CA, and I can easily rent it out for let's say $2,500/month for a profit of $100/month (less maintenance of course which would likely put me at cashflow negative).

Even if I'm taking a slight loss now, I'm having someone else make my mortgage payment and when the mortgage is paid off, every incremental month of rental income is pure profit.  Wouldn't those profits, offset the sum of the small losses I took while I still had the mortgage?  Additionally, the property could be yielding me $3,000/month by the time the mortgage is paid off which would help in a retirement scenario, no?

True, and good points.  Regarding vacancy/eviction, even if there are periods of time where I am not renting it out for whatever reason, it's not thrown away money right?  I mean, a percentage of my mortgage payment is still going to principal.  But I guess what you're saying is ... if you add it all up and compare it against all of the net profits you'll enjoy when the mortgage is paid off.... if you can't get to this 1%/50% rule, you're likely going to be net negative by the end of your life?

waltworks

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Re: First House & Relocating - to rent it or sell it
« Reply #14 on: May 14, 2014, 08:58:28 PM »
The 1%/50% rules are ways to determine if the rental is competitive with other investments, not whether you'll eventually get something out of the house. Yes, at the end of the mortgage period, you'll end up with a house free and clear. That's great - but if you had $100k in equity you could have stuck in another investment, you need to compare the expected results at the end of your chosen time frame.

*In general* if you don't make the 1% rule, you should sell the house and invest in something better - that could be a rental(s) that does meet the 1% rule, stocks, bonds, watermelon futures, whatever.

-W

True, and good points.  Regarding vacancy/eviction, even if there are periods of time where I am not renting it out for whatever reason, it's not thrown away money right?  I mean, a percentage of my mortgage payment is still going to principal.  But I guess what you're saying is ... if you add it all up and compare it against all of the net profits you'll enjoy when the mortgage is paid off.... if you can't get to this 1%/50% rule, you're likely going to be net negative by the end of your life?