Author Topic: Moved to new city - rent or sell old house???  (Read 2952 times)

TGod

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Moved to new city - rent or sell old house???
« on: September 11, 2013, 03:07:02 PM »
We’ve just started on this mustachian journey and if I’d found this site 7 months ago, I probably would have made a different decision, namely stay put where we were and achieve financial independence a bit sooner. But I decided to take a job in a new city, lateral financial move, but to a city with more culture, easy access to beaches and a better overall vibe and more expensive housing, my husband did an easy lateral transfer as well. The new city is about  1 &1/2 hrs away from our old digs. In doing so we had to put our much loved and renovated home on the market. We did this about 2 months ago and while we’ve had interest and good feedback, there’s been no bites, even though we are priced low relative to other properties.  We went ahead and bought a house in the new city and have been making the extra mortgage payments for the last couple of months. We just recently dropped our price on the house, but if it sells for around that price we will still walk away with about 60K. But 2 months in we are now at a cross-roads, I don’t really feel like carrying both mortgages for the next 6 months if the house doesn’t sell before the market quiets down for winter, but my husband is very adverse to renting. I’d much rather rent and start investing our extra money than keep throwing it at this house.  My parents live up the street and my dad is super handy and is willing to be the on-call guy should any emergencies arise if we did get tenants, so it wouldn’t all fall on my husband.  My job back there had been a contract position with a company that I definitely did NOT want to be staff with, but the writing was on the wall and that is the way it was heading, for less pay. So I jumped ship, so reversing this decision would be difficult as good paying jobs are hard to come by there. I would appreciate any sort of feedback/ideas on how best to handle this situation. Here’s some #s.
House #1 For Sale: $319,000
Mortgage #1: $240,000 (we owed $140,000, but took out $100,000 to put down on our new house) @ %2.84 for 3 years
Mortgage Payment#1: $1000/mth + $180/mth (insurance & property taxes). $560 = interest, $440 = principle
Potential Rental Rate: $1300 ( I know pretty low, but it’s not a bustling town…which is one of the reasons we wanted to move…that and it rains 10 mths out of the year)
Basically break even if we rent it.

House #2: Bought for $360,000
Mortgage #2: $255,000 @ %2.99
Mortgage Payment#2: $1400 + $290/mth (insurance & property taxes)

In my mind it makes sense to find a reliable renter for next month, start covering our costs on that house and start throwing the $1300 into index funds which would give us $50500 in 3 years (assuming 5% IR) PLUS $15840 paid off on the principal on House #1.
We could get lucky and our house sells in the next month in which case we have $60,000 to invest right off the bat which would give us $69,500 in 3 years.  A bit more than scenario 1 BUT, we could end up sitting on our house for the next 6 months or having to reduce our asking price again.  About the only thing that I feel in control of regarding this whole situation is my ability rent it out given that anything else depends hugely on the real estate market. Thoughts?

KingCoin

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Re: Moved to new city - rent or sell old house???
« Reply #1 on: September 11, 2013, 03:49:45 PM »
$1300 rent on a $319,000 property? This is an absolute loser as a long term rental. At the risk of sounding harsh, you probably should have never bought it in the first place. As painful as it is to bleed $1180/mo, you need to sell this property and move on. Renting it is just delaying the inevitable.

Basically break even if we rent it.

It's important to realize that with ongoing maintenance, vacancy, and even things like legal costs if you need to evict, you'll probably only be netting $650-850/mo. That means you'll still be bleeding $330-530/mo on this property, potentially for much longer than the time it takes to sell it.

In my mind it makes sense to find a reliable renter for next month, start covering our costs on that house and start throwing the $1300 into index funds which would give us $50500 in 3 years (assuming 5% IR) PLUS $15840 paid off on the principal on House #1.
We could get lucky and our house sells in the next month in which case we have $60,000 to invest right off the bat which would give us $69,500 in 3 years.  A bit more than scenario 1 BUT, we could end up sitting on our house for the next 6 months or having to reduce our asking price again.  About the only thing that I feel in control of regarding this whole situation is my ability rent it out given that anything else depends hugely on the real estate market. Thoughts?

Wait, isn't $1180 of that $1300 in rent going to cover the mortgage/costs (and probably more for ongoing maintenance)? How is that all available for an index fund?

Is the house still furnished? If so, you might be able to rent it short term, either month to month or on an AirBnB type site. This would generate some income without tying up the house long term.

TGod

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Re: Moved to new city - rent or sell old house???
« Reply #2 on: September 11, 2013, 04:04:57 PM »
I know, definitely not an ideal situation.  We actually bought it about 10 years ago for $107K and dumped about a $100k into it bringing it up from a dumpy little house on 5 acres to a nice and bigger house on 5 acres. We  renoed it to live in it, not to flip it.  We had a bank assessment done on it when we recently remortgaged and they are the ones that put the $319K ticket price on it and the realtors listed it at $329k. Before we bought out new home we only had $140K to pay off, but decided to pull out the $100K in equity to put down on our new house. 

TGod

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Re: Moved to new city - rent or sell old house???
« Reply #3 on: September 11, 2013, 04:08:53 PM »

Quote
Wait, isn't $1180 of that $1300 in rent going to cover the mortgage/costs (and probably more for ongoing maintenance)? How is that all available for an index fund?

The 1300$ is the money that we currently pay out of pocket to cover the mortgage and expenses. If we had renters paying the $1300, our cash would be left over to invest.

escolegrove

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Re: Moved to new city - rent or sell old house???
« Reply #4 on: September 12, 2013, 11:29:07 AM »
Since you can't sell it I would rent it. While Investors will argue it is not a good investments, thats not your point. I would find a nice stable long term type of renter. I would manage it yourself since you are only 1.5 hours away. My husband is in the military. We have too date been able to succeed on low margins. Since our houses are in great area with low rentals (they are not great pure investments) there are not alot of rentals available. Therefore our houses have gone fast and to date we haven't lost a day of rent (knock on wood, :))

Since you area already paying out of pocket so much, any rent is a positive. Plus since your house is such a large value. You can use the depreciation to help on your taxes as long as you make less than 150ksh combined married. I have known alot of people who have rented and than the renter bought the house. Take your time find a great renter and rent it out.

KingCoin

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Re: Moved to new city - rent or sell old house???
« Reply #5 on: September 12, 2013, 12:00:55 PM »

Quote
Wait, isn't $1180 of that $1300 in rent going to cover the mortgage/costs (and probably more for ongoing maintenance)? How is that all available for an index fund?

The 1300$ is the money that we currently pay out of pocket to cover the mortgage and expenses. If we had renters paying the $1300, our cash would be left over to invest.

Fair enough, but you have to compare it to a scenario where you sell it, even if it takes a number of months and even if you have to cut the price, not a scenario where you eat the full mortgage for 3 years.

Since you can't sell it I would rent it. While Investors will argue it is not a good investments, thats not your point. I would find a nice stable long term type of renter. I would manage it yourself since you are only 1.5 hours away. My husband is in the military. We have too date been able to succeed on low margins. Since our houses are in great area with low rentals (they are not great pure investments) there are not alot of rentals available. Therefore our houses have gone fast and to date we haven't lost a day of rent (knock on wood, :))

Since you area already paying out of pocket so much, any rent is a positive. Plus since your house is such a large value. You can use the depreciation to help on your taxes as long as you make less than 150ksh combined married. I have known alot of people who have rented and than the renter bought the house. Take your time find a great renter and rent it out.

I honestly think this is the wrong advice. It's nice to hope for a great tenant and minimal ongoing maintenance, but that's not good financial sense. It's much better to assume a slightly below average result (netting 50% of rent or less) rather than hoping everything goes perfectly. This is the type of situation where the optimism gun is best left holstered.

Think of it another way. Let's say you have to drop the price to 300k to move this property. Ask yourself this: would you buy this property for 300k as a rental investment if you didn't already own it? Would you even pay $150k for it (the 1% rule indicates that you shouldn't be willing to pay more that $130k for it as a long term rental)? I think the answer is a very clear no. Therefore, you have no business owning it. You need to sell and release yourself from what could become a serious financial ball and chain.

If you can find ways to stem the bleeding, by all means do, but I think renting through a long term lease is just trading short term pain for longer term problems. Consider the following possibility: rates rise considerably over the next couple years putting serious downward pressure on housing prices. Now you're bleeding every month on the rental AND you have 0 or negative equity in the home. Not necessarily a base case scenario, but certainly a possibility you have to be prepared for.

TGod

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Re: Moved to new city - rent or sell old house???
« Reply #6 on: September 12, 2013, 01:45:29 PM »
Thanks for the feedback! My man and I had THE discussion last night as to how low we are willing to go to sell. It sucks to think about dropping down to 300K, and then taking off another 12K for realtor fees, but we'll go there if we have to, because even at that price we are still making some cash for investing. At the end of the day we'd like to let go of the property and not have to worry about it. We did have a tenant approach us regarding a rent-to-own scheme, which is an option if we get desperate, but really i'd just like to sell it, and if it means I walk away with 10K less in my pocket, but no more worries about the property, so be it.
This 1% deal is killer! I'm on Vancouver Island, and the house we're selling is in a city with historically low house prices, but I would be hard pressed to find a house for 100K that would rent for 1000/mth. A 300K house is pretty average, so we'll do our best to sell and stay out of the rental market. We definitely didn't see the huge drop in property values that you folks down in the states saw. What prime time to pick up cheap investment properties....if you were able to come through the market drop relatively unscathed.