Author Topic: Rent or Sell  (Read 2569 times)

hwstar

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Rent or Sell
« on: July 31, 2014, 01:38:33 PM »

I have a vacation condo I'm considering selling or renting out on long term rental. Here is the relevant data.

Purchase price in 1998: $53000
Market estimate today: $115000
No mortgages i.e. Free and Clear
Homeowner's Assn. Fee $150/mo
Annual property tax: $750
Utilities: $20/mo.
Condo CC&R's prohibit short term vacation rentals but not long term rentals.
Vacation home is 360 miles from main residence.
Market rent is $950/mo.
About $10000 would need to be invested in improvements. Door replacement, Paint, Carpeting, appliances, new air conditioning unit and dishwasher.
A property management firm would take 7-10% of the gross rents. I could self manage, but since I've never been a landlord before, this could be ill-advised.

I can go three ways on this:

1. Sell soon.
2. Continue to hold the property for a few more years.
3. Rent it out to long term tenants.

Any Suggestions?




Field123

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Re: Rent or Sell
« Reply #1 on: July 31, 2014, 01:55:20 PM »
Seems like the math favors the long term rental...

If you sold the condo you would walk away with $115,000 ... invest this with 5% returns (after inflation) and your looking at $5750 a year or about $480 per month return.

If you rent your looking at a return of $717.50 per month ($950 - HOA, Tax, Utilities). On the 125,000 investment (because of the repairs), you're looking at an 7% return and this is inflation proof since its a property.

You probably won't do quite this well because there is always vacant periods and maintenance to consider but I'd say the math is pretty overwhelmingly in favor of renting. Good luck!
« Last Edit: July 31, 2014, 01:56:54 PM by Tank_Esq »

escolegrove

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Re: Rent or Sell
« Reply #2 on: July 31, 2014, 10:43:43 PM »
I personally would keep it. It's a condo so easy to maintain and another retirement basket for fire. We self manage our houses from across the country thousand of miles and have been very successful. Yes it has its moments but honestly what doesn't :) I am compiling some great resources that on my website reluctantlandlord.net. I started it as a pay it forward for our friend who have transient jobs and wanted to keep their house.

I would not recommend upgrading unless it is broken or so bad it would be a deterrent to your tenants.

hwstar

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Re: Rent or Sell
« Reply #3 on: August 01, 2014, 11:00:23 AM »
Thanks everyone for the suggestions. I have more questions.

What about landlord insurance? Any ideas on how to shop for this? I missed this in my original list. Right now a condo policy is costing me $200.00/yr.

If you don't live in the town where the rental is located. How do you show the place to prospective tenants if you are not physically
present, without using a property management service?


waltworks

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Re: Rent or Sell
« Reply #4 on: August 01, 2014, 11:41:39 AM »
Cincinnati (if they offer policies in your state) has very good deals on landlord insurance in my experience, but you should talk to your current insurance broker and get a quote (assuming you are bundling with other policies). Expect to pay a bit more (maybe 50%?) than you do now.

If you need to show the property to tenants who are unknown to you, and you're not willing to do it in person, then you will need to hire a management company. Just no way around it, unfortunately, unless you find a personal friend/relative for a tenant or something along those lines where they will essentially manage themselves.

-W

Thanks everyone for the suggestions. I have more questions.

What about landlord insurance? Any ideas on how to shop for this? I missed this in my original list. Right now a condo policy is costing me $200.00/yr.

If you don't live in the town where the rental is located. How do you show the place to prospective tenants if you are not physically
present, without using a property management service?

fxsts12

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Re: Rent or Sell
« Reply #5 on: August 01, 2014, 09:10:51 PM »
Rent or1031-like kind exchange are your options.  Rent until you can move in for a year and sell it or exchange it for another investment property without paying taxes.  This allows more flexibility to haves a rental closer to your residence or to become a future residence without tax recapture.

Mr Mark

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Re: Rent or Sell
« Reply #6 on: August 01, 2014, 09:49:25 PM »
Ok, havent read comments yet. But my take.

Look at the different cashflows.

1. Sell. Assuming 8% selling costs (commisions, etc) nets you $106,000. The question is, what do you then do with your 106k? Whats your marginal opportunity cost for equity capital? Ie if I just gave you 100k to put into your investment portfolio, what would it get in your plan? Lets assume a mixed 80/20 vanguard index, so plan on it getting you 9% nominal over next 30 years. So that would be, in a taxable situation, just under $10k a year near term.

2. Rent. Ok, you have to add, say, $9k vs selling to get into shape, so your net equity now is around $115k. Assuming your 950 gross comes to pass, some assumptions are needed to project cashflow. Assuming 10% property management take -$95,   HOA now -$150, Tax now -$70, and lets assume a residual ... hmmm. what for maintenance and long term capital ( like a roof, hvac in future)  say $200 (optimistic I'd say), that nets you... $435/m

but you'll get turniver, so lets say 1 tenant a year. PM usually take a month for new tenant process, screening, etc, and say a dekay in 1/2 month to swap tenants, ... so your actual annual net pre tax is 11.5 x $435 - $950 = $4050

Thats an unleveraged roi of just 3.5%. You just paid $10k to loose 6k a year (ok, maybe less posttax).

3. Keep it.
How often do you use it? What would it cost to replace this usage with rentals, plus some extra for the inconvenience?

sounds like maybe... $3k?

Subtract whatever this is from option 1 and 2 to then get balanced results ( all options then include 2 or 3 months there per year)

If you rent, it only cashflows because you aren't carrying a mortgage. This conceals the fact you would be slowly bleeding net worth.

So I would sell.

assumi

2.

hwstar

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Re: Rent or Sell
« Reply #7 on: August 02, 2014, 02:28:23 PM »
We did use it quite often, but the last 2 years, not as much. Reduced use is what prompted the question. I'm leaning towards selling.