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Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: Mr.GrowingMustache on August 16, 2017, 08:25:48 AM

Title: Rent my house? Case study
Post by: Mr.GrowingMustache on August 16, 2017, 08:25:48 AM
Hi all,
So about 7 years ago I bought my first house for $220k. I do think I overpaid, and needed a flood insurance. I estimate $200k for current value (market hasn't been very good for me hehe), or at best $220k.

1180 sq/ft, 3 bed, 1 bath

7 years later, making extra payments and one refinance later in 2016 (30yr @3.75%). My monthly payments are about $1220, and looking at comparable rental listings I can rent it out at $1650-$1750.




Rent Expenses                         mo    yr
Rent                                $1,650.00   $19,800.00
PITI                               -$1,219.67    -$14,636.00
Rent Insh (addl)                   -$17.00       -$204.00          -increase in insurance because of converting to rental
Vacancy (6% of rent)           -$99.00    -$1,188.00
Maintenance (6% of rent)   -$99.00    -$1,188.00
Sewer                           -$29.17       -$350.00
NOE                              -$1,463.83     -$17,770.00
NOI                                  $186.17       $2,234.00

1% Rule      0.7755


I feel like I have already taken a hit with the house not appreciating or staying the same price (even with some improvements), and the only way to really get anything out of it is to wait more time. Also I get to dip my feet into landlording and can maintain the house myself since I will be local.

Wife and I have been saving for a downpayment on a new house and would like to get a bigger house (1500sqft+, 2 car garage, 2 baths) in the next year. We are also ok living in the current house for a few more years, but we have about $70k for a downpayment/closing sitting in a very mixed cash/bonds/index allocation (index funds are about 10%). So that $70k is not doing anything at the moment.


So what are your thoughts?
Title: Re: Rent my house? Case study
Post by: alexpkeaton on August 16, 2017, 09:20:36 AM
I feel like I have already taken a hit with the house not appreciating or staying the same price (even with some improvements), and the only way to really get anything out of it is to wait more time.

There may be reasons for and against renting it out, but this shouldn't be one of them. The house is worth what the house is worth. If it has declined in value that's a sunk cost and shouldn't affect your future decisions.
Title: Re: Rent my house? Case study
Post by: alexpkeaton on August 16, 2017, 09:28:35 AM
I should add that, I did rent out my old house after the housing crash. The value declined pretty significantly, and I tried to sell it, but prices fell enough that it was far more worthwhile to rent it than to sell. At my lowest offering price the cap rate on the house as a rental would have been > 10%! I rented it for a year before an investor bought it from me.

Sadly, I should have held on as prices recovered quickly after I sold, and the investor has probably done pretty well. But I had no interest in managing a rental property from a different state.
Title: Re: Rent my house? Case study
Post by: snacky on August 16, 2017, 09:34:18 AM
Those wiser than I will weigh in on the numbers, but I have experience doing this.
I had a little house, and I bought a new house, moved, and rented out the old place. It has worked well for me because I know that house inside and out in a way that I wouldn't be able to know a place that I had bought just to rent out. I know the neighbours and they text or facebook me if anything is going on at the house.
These aren't huge benefits; lots of people landlord without them, but I appreciate them. Slightly easier landlording is a perk to consider when making your decision.
Title: Re: Rent my house? Case study
Post by: Mr.GrowingMustache on August 16, 2017, 02:50:31 PM
thanks!

And yes I can relate that I also know the ins and outs of the house. Hoping that the AC unit lasts a year or two more hehe.

Title: Re: Rent my house? Case study
Post by: tralfamadorian on August 16, 2017, 03:21:46 PM
Your vacancy and maintenance numbers are low.  Rule of thumb is 10% each.  CapEx was also left out entirely- that should be another 10%.