Author Topic: Sell, Rent, Drop Rental Price, or AirBnb?  (Read 1772 times)

kristyj004

  • 5 O'Clock Shadow
  • *
  • Posts: 4
Sell, Rent, Drop Rental Price, or AirBnb?
« on: January 20, 2018, 02:13:21 PM »
I'm brand new to the MMM forum and brand new to being a landlord (or at least trying to be). My husband and I bought a different house for our primary residence, and we are hoping to keep the old place as an investment property. The investment property is in great shape and doesn't need any work- major perk of being married to a handyman!

Market Value: perhaps $175,000 - $185,000ish?
Original Purchase price: $154,000
Original Mortgage Amount: $123,200
Interest Rate: 3.25%
Mortgage Term: 30 yr
Term remaining: 25 yr
Amount remaining on mortgage: $104k-ish
Gross Rents: currently asking $1500/mo
Principal and Interest (the P&I of your PITI - should match with the above info): $550/mo-ish
Taxes and Insurance (the T&I of your PITI): $250/mo-ish
HOA costs: 0 (yay!)
Deferred maintenance notes: it'll probably need a new roof in about 10 years

3 br, 2 ba, 2 car attached garage, townhouse, golf course neighborhood. It's been up for rent for about a month with no interest whatsoever. It's listed on MLS through a realtor (and thus all sites pulling MLS data), Zillow, & Craigslist. Since we live in a Midwest college town, leases here usually run August - July, so we could just be hitting the season wrong.

Do we hang in there asking for $1500/mo? How do we know when to drop the price?

If renting isn't a good option, is doing an AirBnb potentially worthwhile? We'd probably have to spend ballpark $1000-2000 to get it adequately furnished, and it could probably rent out for about $120-150 a night. I am personally not leaning this direction since cleaning an AirBnb could get annoying, and I'd rather just have a renter pay a flat monthly rate. I also think we could potentially make more of a profit selling the house & investing and save ourselves lots of booking/cleaning/AirBnb work.

Otherwise, is the easiest answer to just sell?

waltworks

  • Walrus Stache
  • *******
  • Posts: 5653
Re: Sell, Rent, Drop Rental Price, or AirBnb?
« Reply #1 on: January 20, 2018, 04:10:01 PM »
If you're getting no interest, your price is indeed too high. Lower it by a couple hundred bucks and see what happens (assuming you're ok with getting a lesser amount of rent). It does not sound like the place is a fantastic rental property, to be honest.

On the AirBnB question: we just decided to convert our basement apartment (we live at a ski resort) back to a long term rental. AirBnB is great, but:
-You end up doing a ton of work, unless you hire people to clean. Hiring reliable/trustworthy people to clean on short notice is NOT cheap or easy (people randomly flake out and you're stuck rushing home to spend the afternoon mopping and doing laundry).
-$120/night sounds great, until you realize that the place will be empty 30-50% of the time (depends on where you are, of course).
-If your average guest stay is less than 1 month, you will *owe self employment taxes* (FICA times two) on the income. That's a 15% haircut.

To make AirBnB work, you need to be *killing* it and in a really highly desirable location. It is a significant PITA and has a ton of overhead costs that you need to consider before jumping in. It can work for some people, but it's better thought of as a side job than passive/rental income, IMO.

I'd sell the house, personally, while you still have the capital gains exemption.

-W

Tobias

  • 5 O'Clock Shadow
  • *
  • Posts: 31
Re: Sell, Rent, Drop Rental Price, or AirBnb?
« Reply #2 on: January 23, 2018, 02:07:02 PM »
I wouldn't recommend doing AirBnB unless you are excited about it. In addition to the cleaning, you have to stay on top of your rental market to attract guests and deal with high maintenance guests.  You'd have to be booked at a high capacity to make more than you would with permanent tenants, and that can be hard to achieve if you don't live near a major tourist attraction.

(I host off and on, and make a nice amount, but it is definitely a part time job, as Waltworks describes, and I live in a popular location.)
« Last Edit: January 23, 2018, 02:11:39 PM by Tobias »

Roboturner

  • Pencil Stache
  • ****
  • Posts: 535
  • Age: 35
  • Location: MCOL
  • No Snacks, Just Math
Re: Sell, Rent, Drop Rental Price, or AirBnb?
« Reply #3 on: January 23, 2018, 02:38:14 PM »
You could consider a short-term lease assignment (6mos or so) at a low price to get back into the high months

Xlar

  • Bristles
  • ***
  • Posts: 264
Re: Sell, Rent, Drop Rental Price, or AirBnb?
« Reply #4 on: January 23, 2018, 04:15:17 PM »
What are comparable rentals going for in your area? How did you come up with $1500 per month as a starting place? Have you used a site like https://www.rentometer.com/ to check the going rate?

If other houses are being rented for a similar amount: How long do they typically stay on the market for? (You should be checking and keeping track of other listings!) Are these rentals including anything in the rent that you are not? i.e. do they include some or all of the utilities?

jwright

  • Bristles
  • ***
  • Posts: 269
Re: Sell, Rent, Drop Rental Price, or AirBnb?
« Reply #5 on: January 24, 2018, 01:24:52 PM »
We've had rentals in areas where the majority of the tenant base is students.  We usually lower the rent a good bit and do a short term lease until August 1 and then start a 12 month lease with actual market rent.  It really shoots you in the foot to be off of the school year schedule.

cchrissyy

  • Handlebar Stache
  • *****
  • Posts: 1045
  • Location: SF Bay Area
Re: Sell, Rent, Drop Rental Price, or AirBnb?
« Reply #6 on: January 24, 2018, 01:49:10 PM »
Quote
We usually lower the rent a good bit and do a short term lease until August 1 and then start a 12 month lease with actual market rent.

yes do this

Rich on Money

  • 5 O'Clock Shadow
  • *
  • Posts: 23
  • Location: Seoul, South Korea
  • I'm a blogger and real estate investor.
    • Rich on Money
Re: Sell, Rent, Drop Rental Price, or AirBnb?
« Reply #7 on: January 25, 2018, 04:49:01 AM »
Market Value: perhaps $175,000 - $185,000ish?
Original Purchase price: $154,000
Original Mortgage Amount: $123,200
Interest Rate: 3.25%
Mortgage Term: 30 yr
Term remaining: 25 yr
Amount remaining on mortgage: $104k-ish
Gross Rents: currently asking $1500/mo
Principal and Interest (the P&I of your PITI - should match with the above info): $550/mo-ish
Taxes and Insurance (the T&I of your PITI): $250/mo-ish
HOA costs: 0 (yay!)
Deferred maintenance notes: it'll probably need a new roof in about 10 years

The fact that you are not getting any interest at $1500 is a bad sign. 

Your total mortgage is $800 a month.  You need to do some math to see if this rental will be worth it. 

 A way of roughly estimating what expenses are on a rental is using the 50% rule.  Roughly 50% of whatever rent you pull in will be used up by expenses, and the rest will be profit.  In reality, the expenses may be lower, but not a lot lower.

That's means that even if you got this $1500 a month in rent, under the 50% rule, your expenses would be approx $750, and you would be out of pocket $50 a month.  No positive cash flow. 

It would appear you'll need to drop your rent $100-$200 and see if you'll get interest.  That will put your cash flow in a worse situation.

In reality, if you know all of your expenses, you can calculate something more accurate than the 50% rule, especially if you lived there for a long time.  But you do need to estimate vacancy, and you may not have a good idea what that will be yet, although you could try talking with other landlords in the area.

My advice.  Sell.  You don't want a rental unless it's going to have good cash flow.  Don't depend on appreciation and don't tell yourself it's a good tax write-off.

kristyj004

  • 5 O'Clock Shadow
  • *
  • Posts: 4
Re: Sell, Rent, Drop Rental Price, or AirBnb?
« Reply #8 on: February 06, 2018, 12:59:00 PM »
Thanks everyone for the feedback! To follow up, we took all of your ideas mixed with our own spreadsheet math and decided to.............

Sell.

It'll go on the market in the next few weeks. Hope the stock market doesn't bounce back too much before we can invest the proceeds in a whole pile of index funds.

Car Jack

  • Handlebar Stache
  • *****
  • Posts: 2141
Re: Sell, Rent, Drop Rental Price, or AirBnb?
« Reply #9 on: February 07, 2018, 07:03:09 AM »
You've missed some significant costs that I'm surprised I'm the first one to note it (I've rented my house only once for 2 years while away at grad school).

Mortgage:  You need to let your mortgage holder know you're going to rent the house.  They could simply rewrite the mortgage for you at a significantly higher rate or they could call in the note and force you to get a new mortgage.  Note that if you do nothing and they find out, they can call in the note.

Insurance:  This is even more important.  You need to let your insurance company know that you're converting to a non-owner occupied rental.  They will be happy to rewrite the policy for you (ours was) at significantly higher rates.  The risk if you don't do this is you have a claim, they find that the house isn't owner occupied primary residence anymore and cancel flat and pay nothing on the claim.  So that grease fire that the tenant has that ends up burning down the house.  Well....tough luck.  You get nothing and there's the bank asking for their money because you still owe the mortgage.

When we rented for those 2 years, we immediately knew the right thing to do.  The insurance agents were my parents and the bank president was my aunt.  Sorta hard to even try to get away with anything for us, even if we wanted to.

Better to sell, maybe? 

 

Wow, a phone plan for fifteen bucks!