Author Topic: Sell my house at a loss or rent it out?  (Read 3091 times)

ENL

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Sell my house at a loss or rent it out?
« on: October 18, 2014, 04:41:02 PM »
I'm currently in the process of trying to sell my house since we had to relocate for my husband to find a job.  We are in a situation where what we owe on it is about what we can hope to get selling, meaning that closing costs would have to come out of pocket.  Response to the house has been underwhelming so we just agreed to a price reduction.  The price reduction may help, but so far no offers have been made and I am worried that the house might be worth less than we anticipated.  I'm now wondering if trying to sell it is stupid and if it makes more sense to rent it out instead.

House
Current asking price: $119,900
Original Purchase Price: $130,500  (Thanks, housing bubble)
Estimated rental value: $1000 per month

Mortgage (refinanced)
Original Loan Amount: $122,400
Term: 30 year
Interest rate: 3.99%
Balance: $114,614
Maturity date: 02/01/2042
Monthly payment (P/I): $583.65
Monthly payment (escrow): $239.89

Other notes:
House is a 3 bed / 1 bath in a city that has higher housing prices than nearby areas, and is desirable because of the awesome schools.
Our new location is about a two hour drive from the house.
We do not have any previous landlord experience, so I'm concerned about our lack of experience.
House is mostly is good shape, everything is working.  My main concern is that it may need new siding in a few years.

Basically, I'm wondering if renting would be profitable for us.  If it is, it seems like that would be a better idea than trying to sell right now which, after commissions and closing costs, is going to cost us thousands of dollars at closing.

waltworks

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Re: Sell my house at a loss or rent it out?
« Reply #1 on: October 18, 2014, 06:22:49 PM »
Renting will be break-even in a fairly worst-case scenario (well, ok, asteroid impact/zombie apocalypse excluded) so IMO if you can't get anything or even will have to bring money to closing, rent it out. You don't make the 1% rule on your original purchase price but you're darn close on the actual value of the place and you already have it...

Yeah, find a decent management company and hang onto it, assuming you can verify that you can get $1k/mo for rent and that you won't run into problems securing housing at your new location because of it. In a year if you aren't happy with being landlords, you can sell it and maybe break even or even profit a couple bucks.

-W

escolegrove

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Re: Sell my house at a loss or rent it out?
« Reply #2 on: October 18, 2014, 09:38:15 PM »
While it doesn't meet the investing rules, I would DEFINiTLY rent it out.  My parents started out for the very same reason you mention 25 years ago. By keeping the house and renting it out it was a great source for them over the years.

 You are close enough that you can totally self-manage. We own 5 houses. One of our houses has a really tight margin after the mortgage is paid because it came up at a really bad time. We self manage and still have done very well. Even though the cash flow is high we get a tax break because we show a book loss.

KevDolan

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Re: Sell my house at a loss or rent it out?
« Reply #3 on: October 18, 2014, 10:34:34 PM »
We used to live in our one rental and didn't have any experience as landlords. It's been six years and it's worked out great.

MoolahLula

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Re: Sell my house at a loss or rent it out?
« Reply #4 on: October 19, 2014, 05:59:30 AM »
Try renting it out or a year or 2 and then see what you can do.  I've been trying to sell my condo with no luck, you're not alone! 

ENL

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Re: Sell my house at a loss or rent it out?
« Reply #5 on: October 20, 2014, 06:07:17 AM »
You don't make the 1% rule on your original purchase price but you're darn close on the actual value of the place and you already have it...

What is the 1% rule?  See, I don't have any experience with this.  :-)

[...]and that you won't run into problems securing housing at your new location because of it.

This is a concern.  We are currently staying with family since we want to get everything settled with the old house and save up some money first.  I'm not sure how having a house already that I'm renting out would affect my ability to be approved as a tenant or for a mortgage.  My husband is a teacher and I stay at home so our monthly income isn't exactly high at the moment.

waltworks

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Re: Sell my house at a loss or rent it out?
« Reply #6 on: October 20, 2014, 07:01:53 AM »
The 1% rule just says that the monthly rent should equal 1% of the purchase price/value of the house (in your case I'd use the likely sale price minus commission/fees). It is a VERY conservative rule, which means that in your shoes you should pretty easily break even, and in fact you're very likely to make halfway decent money - especially compared to getting zero for it by selling it.

If you are looking to rent a place at your new location, you should be fine regardless. Sign up for CreditKarma or something and see if the house is affecting your credit score, but IMO it won't be an issue for renting.

It *probably* is a problem if you want to buy a house in the short (next year or two) term. After that, your rental income will be established and it will make it *easier* to qualify for a mortgage.

So hang onto it, many good things are likely to happen if you do. Build up an emergency fund, though, so that if something breaks you won't be in trouble.

-W