Author Topic: Is it crazy to rent out our current house?  (Read 3307 times)

BoulderTC

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Is it crazy to rent out our current house?
« on: April 08, 2014, 06:40:29 PM »
Hello... and thanks in advance for reading this.

My husband and I own a house in a super hip and trendy neighborhood in Denver. We have had it about 1.5 years. We bought it for $382k at 3.625%. Our monthly payment is about $1750. Our realtor ran comps for us about 6 months ago and estimated it's now worth about $410k, but it all depends on what else is on the market at the time, so that's fuzzy. It is about 1500 sf, 3 beds, 2 baths, accessible to downtown, close to shops and restaurants, a small yard, corner lot, no garage, has nice finishes inside. So a pretty standard nice, single family home in a good neighborhood.

We are getting tired of our commutes and want to move closer to work. We have been casually searching for a house and we'll probably pull the trigger within a year. We were thinking that owning a house in a trendy neighborhood with a low interest rate is a good position to be in, so we are floating the idea of potentially renting out our current house. There's literally nothing else in our neighborhood available for rent on Craigslist, and I see signs that have 2 bed/2 bath houses for rent for $2500, so we thought maybe we'd try for $3000/month. However, we just don't know the answer to the question...

Do people rent out nice single family homes like ours? Is this worth our while at all? Even at $3000/month, would we make any profit?

Thank you kindly in advance for offering your wisdom to our situation! Please let me know if this is a terrible idea.

GoldenStache

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Re: Is it crazy to rent out our current house?
« Reply #1 on: April 08, 2014, 07:37:24 PM »
How are your finishes?  Did you upgrade things in the house and have some very nice trendy tiles/floors/kitchen?  I have found that nice things get worn down fast by the hip/trendy crowd. 

List it for $3k on craigslist and see if you get any hits. You might be able to get someone lined up with a contract signed to help speed along your smaller commute. 

thesinecure

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Re: Is it crazy to rent out our current house?
« Reply #2 on: April 08, 2014, 09:29:37 PM »
sounds like you're kind of flat from a value perspective - if you were to sell, after commissions you're basically break even ($410k less 6% = $385ish)

at $3k a month, you could probably get cash flow positive (at least for awhile assuming no major improvements or replacements required)

from a pure investment perspective, $3k rent doesn't hit the 1% mark so that's not good.  figure you'll net $1k a month after mortgage and other expenses (probably less actually but we'll use $1k a month for now), so there probably is cash flow but it's not great - $12k on $400k value is only 3%

HOWEVER, if that $12k is on your actual cash investment (which is basically the downpayment at this point, which i'm assuming was 20% of purchase price), then that's closer to 15-16% which is ok.  that return actually goes down over time though since the mortgage payments INCREASE your investment (equity is going up due to principal reductions but then there's the opportunity cost of those dollars if you were to just sell it)

do you need the equity to buy something else, or can you afford to rent in the meantime?  and is it worth the hassle and risk for $1k a month max?

BoulderTC

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Re: Is it crazy to rent out our current house?
« Reply #3 on: April 09, 2014, 09:20:03 AM »
Thanks for your insights!

Our finishes are nice in the kitchen (cork floors, honed granite, stainless steel, nice layout) and bathrooms (good tile work, "floating" shower door). Other rooms are pretty standard. The house is a Victorian built in 1890 so it has some unique touches like original hardwood floors on the main floor. We haven't put any work into the house since we got it beyond standard upkeep and getting things the way we like it.

We don't really need the equity from this house in order to buy another because we figure we can save enough in the next year or so to make up a down payment for another house. I think we really need to decide if it is worth the hassle and risk for a $1k/month maximum profit, as you point out.

This gives us a good starting place for guiding our decision about what to do with our house if/when we decide to move. Thanks for your help, and more feedback is welcomed! =)

SunshineGirl

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Re: Is it crazy to rent out our current house?
« Reply #4 on: April 09, 2014, 09:53:45 AM »
Is this an area you would want to live in again someday? If so, I'd actually try to get jobs closer to where you live. 

Angie55

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Re: Is it crazy to rent out our current house?
« Reply #5 on: April 09, 2014, 10:02:09 AM »
I rent a single family home in downtown Denver for about half of that... 1890's, 1000 sq ft, with 2 car garage. Layout and finishes are definitely not as nice as what you are describing though. $3000 rent seems a bit steep but you just might need to wait to find the right renters that's all. A few of my friends rented out their "luxury" townhouse for about the same amount but I believe have it rented to multiple roommates on one lease. If you are only looking to have a couple or small family rent it then your rental pool is going to be much lower.

FrugalZony

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Re: Is it crazy to rent out our current house?
« Reply #6 on: April 09, 2014, 11:22:02 AM »
Hello... and thanks in advance for reading this.

My husband and I own a house in a super hip and trendy neighborhood in Denver. We have had it about 1.5 years. We bought it for $382k at 3.625%. Our monthly payment is about $1750. Our realtor ran comps for us about 6 months ago and estimated it's now worth about $410k, but it all depends on what else is on the market at the time, so that's fuzzy. It is about 1500 sf, 3 beds, 2 baths, accessible to downtown, close to shops and restaurants, a small yard, corner lot, no garage, has nice finishes inside. So a pretty standard nice, single family home in a good neighborhood.

We are getting tired of our commutes and want to move closer to work. We have been casually searching for a house and we'll probably pull the trigger within a year. We were thinking that owning a house in a trendy neighborhood with a low interest rate is a good position to be in, so we are floating the idea of potentially renting out our current house. There's literally nothing else in our neighborhood available for rent on Craigslist, and I see signs that have 2 bed/2 bath houses for rent for $2500, so we thought maybe we'd try for $3000/month. However, we just don't know the answer to the question...

Do people rent out nice single family homes like ours? Is this worth our while at all? Even at $3000/month, would we make any profit?

Thank you kindly in advance for offering your wisdom to our situation! Please let me know if this is a terrible idea.

Could you rent it on AirBnB or VRBO?
You'd have more vacancy, but also higher potential returns (a bit more work cleaning etc as well)
Are there big employers in the area, that would pay temporary furnished housing when relocating employees?

Johnny Aloha

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Re: Is it crazy to rent out our current house?
« Reply #7 on: April 09, 2014, 11:31:05 AM »
When I evaluate a property's rental potential, I like to put an ad on CL.  Take some pictures and write a nice advertisement, boasting about the things you think are good.  If you are loaded with emails at $3k, you might even be low.  If you get little response, you are definitely too high.

One thing about tenants who pay $3k/month: they are generally easy to deal with and won't trash you house.

From what I understand about Denver (and Colorado in general), there is great job and population growth.  You might be willing to sacrifice some initial cash flow for the diversification, benefits of a low 30 year fixed loan (as long as you don't pay it off early), mortgage paydown, and potential appreciation.

tryan

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Re: Is it crazy to rent out our current house?
« Reply #8 on: April 09, 2014, 11:40:07 AM »
Not sure why someone with 3k a month would want to rent when they can own for 2k/mo.

Need to test that rate via CL or a realtor.

TomTX

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Re: Is it crazy to rent out our current house?
« Reply #9 on: April 10, 2014, 05:25:27 AM »
Not sure why someone with 3k a month would want to rent when they can own for 2k/mo.

Need to test that rate via CL or a realtor.

Because houses are an illiquid investment, and for the average buyer, it will cost them ~$35-40k to buy and resell that house. Perhaps someone doesn't intend to stay there more than 1-2 years, or their credit is shot due to a divorce, or whatever. Or they just don't want the hassle of upkeep/taxes/etc. Lots of reasons to not buy a house.

tryan

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Re: Is it crazy to rent out our current house?
« Reply #10 on: April 10, 2014, 09:18:57 AM »
Quote
it will cost them ~$35-40k to buy and resell that house. Perhaps someone doesn't intend to stay there more than 1-2 years,


Good call .... ironically this is exactly where the OP is.

I have found there is "cap" on rental rates ... this is unique to location (obviously).  Point being where are these tenants working that they can pay 36k / year to lease?  That rental rate is reserved for the top 10% of wage earners ... pretty slim market.