Author Topic: Sell or Rent?  (Read 3041 times)

Random Gibberish

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Sell or Rent?
« on: June 11, 2014, 08:39:39 AM »
Bought house, lived in it for 10 years. Been renting it for the last 6 years. Both renters were acquaintances before renting. Don't like being a landlord.

Bought for $60K. Best guess we can sell for $67K now. Zillow says $60K. Midwest bigger city metro area.
Paid it off long ago. Fairly nice and modern inside (for the neighbourhood) since it was our house for a decade.

Latest renter just moved out.

Neighbourhood is a mix of blue collar, young white collar and retired folks.

Last renter paid $600/ month. Zillow says we can get $800.
Insurance is $1200
Taxes are $1300

We've been paying the water and sewer, since we were told those unpaid can get a lien put on the house.
Sewer is $25 a month. $300 year.

Water is $50 a quarter. $200 year.

Repairs haven't cost much so far. Paint, replaced a toilet, had the drains snaked, etc. Done almost all the labor myself.

Hoping that some of you who have been in the rental game at a higher level can give me some advice on either to sell and be done with it or how to automate some of the hassle factor.







skunkfunk

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Re: Sell or Rent?
« Reply #1 on: June 11, 2014, 09:58:31 AM »
I vote sell. One thing my grandparents-in-law have done is carry the note. They require 20% down and give 7% interest currently. 40 houses, only 1 has defaulted. They have them agree to terms where if they default for 90 days the house reverts to them and any money paid is considered rent. 7% interest  guaranteed for 15 years is pretty good.
« Last Edit: June 11, 2014, 10:00:51 AM by skunkfunk »

SunshineGirl

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Re: Sell or Rent?
« Reply #2 on: June 11, 2014, 11:08:17 AM »
What is your payment and what is your cash flow and what do you owe?

Are you willing to try a management company before deciding to sell?

Random Gibberish

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Re: Sell or Rent?
« Reply #3 on: June 11, 2014, 12:12:31 PM »
SkunkFunk,

Hadn't thought to carry the note. I like the idea. Who would you hire to draw up the paperwork so it is watertight? Realtor? Lawyer?

SunshineGirl,

House is paid off. Don't owe anything.

Just borrowed the cash flow calculation from about.com

Rent income - Vacancy Loss - Payments - Expenses = Cash Flow

For the renter who just left (stayed many years)
(600 * 12 - 0 - 0 - 3000) / 12 = $350 per month in positive cash flow (treating my labor as free?)

Zillow numbers going forward in time
(800 * 12 - 576 - 0 - 3000) / 12 = $518 per month in positive cash flow (using the 6% vacancy from about.com and still treating my labor as free)

I'm willing to try a management company if the numbers make sense, but don't have any experience with them. Guess I had assumed management companies were for once you had multiple properties.

skunkfunk

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Re: Sell or Rent?
« Reply #4 on: June 11, 2014, 12:44:52 PM »
SkunkFunk,

Hadn't thought to carry the note. I like the idea. Who would you hire to draw up the paperwork so it is watertight? Realtor? Lawyer?


I honestly don't know where they got the paperwork to begin with. My gut instinct is lawyer. Are you interested enough that I should ask them?

gimp

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Re: Sell or Rent?
« Reply #5 on: June 11, 2014, 05:57:10 PM »
I vote sell. One thing my grandparents-in-law have done is carry the note. They require 20% down and give 7% interest currently. 40 houses, only 1 has defaulted. They have them agree to terms where if they default for 90 days the house reverts to them and any money paid is considered rent. 7% interest  guaranteed for 15 years is pretty good.

That's incredibly favorable for your grandparents-in-law. It's like a rent-to-own arrangement, which is a horrible deal for the person taking it. Where do they find people agreeing to this?

skunkfunk

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Re: Sell or Rent?
« Reply #6 on: June 11, 2014, 06:28:46 PM »
I vote sell. One thing my grandparents-in-law have done is carry the note. They require 20% down and give 7% interest currently. 40 houses, only 1 has defaulted. They have them agree to terms where if they default for 90 days the house reverts to them and any money paid is considered rent. 7% interest  guaranteed for 15 years is pretty good.

That's incredibly favorable for your grandparents-in-law. It's like a rent-to-own arrangement, which is a horrible deal for the person taking it. Where do they find people agreeing to this?

An example - I helped them move out a bunch of stuff from a house they sold with those terms last weekend. The family that bought the home helped as well and let them leave behind anything they didn't want. They brought cash for the down payment and will be paying all of their payments in cash. They seem financially responsible, but do not have the means to get a traditional loan, I would guess. I don't even know whether they have a bank account. So that might give you an idea where they find these people to agree to this.

I do recall that as they do not like recalculating amortization, they only allow one extra payment per year. They require proof of insurance and to remain in good standing. I'm sure there are other terms that I don't know about that are favorable to the seller as well.

ohyonghao

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Re: Sell or Rent?
« Reply #7 on: June 12, 2014, 11:30:09 AM »
I can see why people would want that, I worked 1099, then w-2 temp with a 3 month at a time contract for 1 and a half years.  No bank wanted to touch me even though I had 20k and a work history of 8 years with no breaks.  It's a huge pain in the ass as a 1099 to get a loan, it's possible, but it is a huge pain in the ass, and once I went w-2 temp it was off the table.  It wasn't until I got moved from w-2 temp to w-2 outsourced was when a bank would finally loan me the money. 

I had extra incentive at the time because the landlord had raised our rent over 10% after the first year.  Not being a landlord myself I don't understand why this would be justified, I thought it was a little absurd.  We declined the offer to "set the rate" for the next year by signing a lease which offered no incentive, a landlord who would raise the rent in less than a year after raising it over 10% isn't exactly one I want to be staying with.

Blindsquirrel

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Re: Sell or Rent?
« Reply #8 on: June 12, 2014, 07:44:53 PM »
 a reasonable ROI but not stunning as a rental, given that it has been a rental for a fair bit, I would calculate your cost to the tax man for a nasty, nasty portion of the tax code called recapture of depreciation. You will lose money on the sale vs your purchase price after that given the value and amount taken as depreciation in the long span as a rental. Tax man gets you for recapture of depreciation whether you claim it or not. I would keep and turn over to a mgmt co as the yield is decent.  If you really hate being a landlord, sell the house, take the tax hit and walk. Really your call. If you can pick up $518 a month off the 40-50K you net after sales cost and the tax mans cut (much less if you sell yourself which is easier than you think),by all means hit me up as that is not a bad yield for a non RE investment as far as cash flow goes. tax hit just for recapture of depreciation is 6 years x 1/27.5 of cost basis added to income. BTW.  That does not include any tax on the gain.