Sell or rent in Denver?- moving to Saint Louis

[babytuckoo]

Hello Everyone,

I am new to the forum and have been reading the website for a few months. This sounds like a great community and a lot of folks replying here have tons of experience.  I’m hoping to get some input on my situation. Thanks in advance.

I live in Denver and my wife recently relocated to St. Louis for a job and is renting an apartment there. She is 36 years old, I am 40 and we don’t have kids.  I would like to join her this summer and I will be able to leave my job in Denver this summer. My basic question is do we sell our house here or rent it out with a management company?  My inclination is to sell, mainly because I don’t want the hassle of being a landlord from another state and I think we could get good value from the house by selling.  However, our long term plan is live back in Denver, though her job could keep us in STL for the next 2-4 years.  The housing market in Denver is a bit crazy right now and we don’t know what we can afford when we move back if we want to buy, but forcasting out a few years is tough.

We refinanced our house this past year to a 15 year fixed mortgage thinking we were going to stay here, but we learned about the work move after we refinanced.  We both have very low interest student loans (2.5%) so we would use the value gained from the house towards the loans and add the rest to savings.

I really don’t know how to make a sell vs rent decision on a house (our primary residence). I think we would just rent a house in STL until we get things figured out and decide where we will live long term. I know we would lose the opportunity to build equity if we sold our current house and rented in STL, but the flexibility will be nice until we are sure of our future location.  Thanks for any advice!

Market Value: 360,000
Original Purchase price: 245,000 (new build in 2005)
Original Mortgage Amount: 195,000
Interest Rate: 3.375% (recent refinance)
Mortgage Term: 15 year (refinanced from 30 yr at 4.8%)
Term remaining: 14 year
Amount remaining on mortgage: 169,000
Gross Rents: Assume we would get $1750 month for rent, our mortgage is currently $1415.
Principal and Interest (the P&I of your PITI - should match with the above info): $1219 per month
Taxes and Insurance (the T&I of your PITI): $195 per month
HOA costs: 0
Deferred maintenance notes: 0

The house was a basic new construction in 2005 and my wife bought it while still in graduate school. It has a main level which is 1100 sq feet and an unfinished basement (also 1100 sq feet). 3 BR and 2 bath, upcoming neighborhood, but not the most sought after currently. We xeriscaped the yard and built 2 raised garden beds and a patio (no grass, but park is nearby). We also put in a high efficiency wood burning stove in the house. Thanks again!

[zephyr911]

SELL.

$160K or more in tax-free proceeds, invested elsewhere, will earn you way more than the paltry few thousand a year in profit you'll see on this - if you even see it, after property management, maintenance, etc.

Earning equity is by no means guaranteed, and this is a great opportunity to lock in your gain and get that equity working for you.

[JZinCO]

This is getting into timing but I gotta throw it out there.
Last year, Denver home prices appreciated 13%. Zephyr says returns on other investments would make more sense...maybe, maybe not...

edit: Throwing a graph up. Zillow says Denver homes rose ~14.5% last year and predicts growth to really slow down to 5% next year. I think home prices will slow but not to that extent. Maybe getting out now is a successful buy low sell high so I'm again on the fence.

[KCM5]

1) What are the chances you're going to move back to Denver?
2) If you do move back to Denver, would you want to live in your current location?

The way I look at it, buying and selling houses is expensive. Like, it's probably going to cost you almost $20k to sell your house (assuming Realtor's fees). You could try selling without a realtor and save some money, maybe. But selling is going to cost you money. Buying a house in 2-4 years when you move back is going to cost you money, too.

So, if you think there's a pretty good chance you're going to move back and if you did move back you'd like to live in the house, keep it and rent. If not, sell. And you can always sell it in the future when you realize STL is the bee's knees and you're never leaving (or not, whatever).

[therethere]

I'm not sure what neighborhood OP is talking about specifically and I think that could make a big difference. If its up and coming now, it means its not the most desirable. I think right now every suburb and neighborhood in Denver could be classified as up and coming depending on your definition just from the shear volume of new, young people buying. Up and coming neighborhoods have generally seen the same % in price increases over the past few years. However, I would view prices in those areas as less sustainable in general and more subject to the price being inflated. I would expect these areas to stall out at a certain price point once the market calms down. I would sell and get out while the market is hot. Unless you're in a very hot area (which you don't appear to be) then I wouldn't expect the price increases to continue on the same scale they have been the past year. It really depends what's going on there outside of housing. Is the actual area improving with anything like shops, bars, restaurants, light rail, etc? Or is it just a neighborhood where more people are buying than have been in the past?

For instance, in what used to be a cheap neighborhood across 25 from downtown, 3 years ago you could buy a newly remodeled house for 160-170k. Now, houses that haven't been updated since the 80's or 90's are being listed for 250k+. There have been no improvements in the nearby area. But people are classifying it as up and coming even though they really just mean a lot of people are buying in the area. Even though prices are actually affordable in that neighborhood, I'm skeptical to buy because I think at best the neighborhood could maintain value not increase at amounts to offset other costs.

Please take this with a grain of salt. It is just my personal opinion from living in Denver for the past 5 years and continually watching home prices hoping to buy. Prices have outpaced my savings so I've all but given up. One main reason is the thought of losing out on appreciation.

[babytuckoo]

Hi everyone,

Thanks for the quick and very well thought out comments.  Useful information indeed. Here is some information to clarify:
-We do have a very high likelihood of moving back to Denver and calling it home. My wife and I both grew up here and we have family in town.  Given her job, I think the earliest we would move back is about 2 years and may be as long as 4-5 years.  Things are a bit up in air for now.
-I think ideally neither of us would live in the exact same house.  This probably answers all of our questions.  The house has been great, more than enough space and affordable for us.  We made the changes that we wanted (gardens, stove) but its not "perfect", yet "good enough".  For those who know Denver, we live in East Montclair.
-I agree with other posters that many neighborhoods are considered "up and coming" in Denver. For us, the past 10 years have shown us a different mix of people moving in (not quite gentrification), but rather a much younger crowd, not necessarily a lot more affluence. Perhaps this is a bubble in the neighborhood.
-From the advice so far, I think selling makes sense (it just so happens we bought low and will be selling high). A lot can happen in 2-4 years when we move back and it does sound nice to be debt free, putting more away in savings and then getting to choose between options. 
-Thanks for the advice so far and I will continue to read the forums- a LOT of good advice here.

[zephyr911]

This is getting into timing but I gotta throw it out there.
Last year, Denver home prices appreciated 13%. Zephyr says returns on other investments would make more sense...maybe, maybe not...

edit: Throwing a graph up. Zillow says Denver homes rose ~14.5% last year and predicts growth to really slow down to 5% next year. I think home prices will slow but not to that extent. Maybe getting out now is a successful buy low sell high so I'm again on the fence.

Appreciation is very difficult to forecast. All I can evaluate is the cash flow analysis.

OP, this really should factor in some maintenance. A house built new in 2005 has probably treated you GREAT... so far. In the next few years, the odds of major systems failing will rise substantially. If you need a new HVAC system, there goes an entire year's cash flow and then some. I don't know what kind of roof you have, but when it needs replacement, that's a couple years' worth of profits gone. See how sketchy this gets when you factor in the unknowns?

$160K or more is a huge amount of equity to leave locked up here. Yes, your value could go up... and it could plateau or drop too. Historical real estate appreciation = inflation. Historical average stock returns = 7% after inflation. If you want your money in real estate, put it into a cheap multifamily in another town. ;)

[JZinCO]

Appreciation is very difficult to forecast. All I can evaluate is the cash flow analysis....
$160K or more is a huge amount of equity to leave locked up here. Yes, your value could go up... and it could plateau or drop too. Historical real estate appreciation = inflation. Historical average stock returns = 7% after inflation. If you want your money in real estate, put it into a cheap multifamily in another town. ;)

True. If I were considering moving, the home would move to the investment bucket. I have a hunch that Denver's RE market will continue to appreciate faster than paper assets in the next year or two, hence my earlier suggestion. There's risk in that situation.Never the less, it is worth a consideration. I didn't mean to come off as a champion of that strategy.
Also, OP wants to move back to Denver eventually, OP needs to also consider closing/buying costs upon leaving and returning. My hunch is that in returning in just two years, the optimal strategy would be to retain the home, even if net cash flow neutral. It would take an unlikely drop in home values to make it worth selling and then rebuying a few years later. Definitely worth spending the time crunching numbers of a few what if scenarios.

[babytuckoo]

There are some good points that I didn't consider- a 10-11 year old house and the need for maintenance and repairs if I do decide to rent it.  I guess I'm also have a hard time putting a "monetary" value on the idea of owning a property out of state and leaving it up to a management company to handle.  It seems stressful and I'm not sure I can put a price on the luxury of not having the stress.  Perhaps the posters here have a lot of experience with tenants and a management company, but it just sounds like a huge hassle to me.  As with any investment, all the future assumptions are just that- assumptions.  So here is what I have come up with so far:

-Keep the house as a rental: After management company fees I'm lucky to make about $150 per month. I do build equity in the house, but it sounds stressful to be out of state and have someone else manage it.  I can't keep an eye on it and I'm not sure how motivated these management companies are. Assuming future rents is like assuming future property values- who knows.

-Sell the house: Get back about $160K and now its liquid.  Interestingly enough, a simple calculation shows the return to be about 3.8% per year over the past 10 years (bought for $240K and assume market value is $360 as multiple websites indicate). I know the past 10 years is a small snapshot and a lot happened, but this return is just a bit above historical inflation rates.  From what I have read, this is the historical return on real estate.  I could use the 160K to pay off student loans and invest elsewhere. I would have no debt at all and net worth would grow. Even if I move back within 2 years I know I have the closing costs of selling and buying to deal with again, but the freedom of money back from equity and no mortgage sounds nice.  VERY nice. If we just keep saving, the next house will have a larger down payment and smaller mortgage.

If its not the house I see myself in long term, I think it makes the most sense to sell it....or at least that is what I have convinced myself of for now!

[clarkfan1979]

If your desire to return to Denver is large, then you need to find a way to overcome your unwillingness to rent the house. Even if renting the house turns into a disaster you will still be fine with an emergency fund. Landlording typically doesn't go well for people who do not want to be landlord. However, if you can convince yourself that it's worth it, so you can return to Denver, that would be different.

[adamcollin]

According to my opinion you should sell your house as it will be beneficial for you in the long run.