Struggling with a rent or sell dilemma

[Mr. Green]

At the end of 2011, my wife and I bought a house in downtown Wilmington, NC for my father to live in. He lived there for almost 8 years before passing away two months ago in September. We bought the house as a foreclosure, a steal at $51,000, though there were some foundation and roof issues.

Over the course of 8 years, my father steadily ruined most everything in the house. He put holes in walls, floors, ceilings, window framing, and a door. Much of it is simply an annoyance and isn't terribly difficult to repair but there are a few things that really impacted the home's value. So now my house is worth about the same as it was 8 years ago, while area real estate is up 30% or more.

I'm currently struggling with the decision between selling the house or keeping it as a rental. Even with the damage Dad has caused, financially it would still be worthwhile to keep as a rental. We would beat the 1% rule and maybe get closer to 2% depending on how much the renovation cost. I'm also unsure if we might want to live there one day. My wife and I currently have no desire to live downtown but who knows what the future will bring. We do love Wilmington (we currently live on the coast about 20 minutes to the north of town) and don't see ourselves leaving the area any time soon. I could not buy a renovated house like this for the amount of money we'd have in it after a renovation.

So what's the hang up? My wife and I spent 3 months travelling the US this Spring and we intend to spend the majority of next year doing the same thing. We'll be leaving in late March. The house doesn't have to have a renter in it by then but I don't care for the thought of the house sitting empty for many months while we're away. So if the plan is to complete a renovation and get a tenant installed by the time we leave, then there is a healthy element of urgency to this. I've already spent the last two months of my life dealing with cleaning up the mess that was left behind and I'm mentally and emotionally burnt out. If I pay someone two do everything and wash my hands of the renovation that cuts into the financial equation of whether the property is worth keeping. Plus, I'm a bit paranoid about the quality of work that will be done so I know I'll want to be keeping close tabs on things. I'm afraid that choosing to keep the house and renovate it will mean turning this into my top priority for the next few months of my life and that's not something I should do.

I don't know what kind of feedback I'm expecting from my fellow Mustachians that I don't already know but I'm just tossing it out there for input because I'm too exhausted to truly work it over in my mind.

[Telecaster]

Sell.  Rental property is a job.  If you aren't sure if you want the job, you don't want the job. 

[Mr. Green]

Sell.  Rental property is a job.  If you aren't sure if you want the job, you don't want the job.

We would hand that off to a management company. We did that with our old house in Maryland and it's been wonderful. They deal with the tenants and we collect the check. Doing the same thing here would mean I'm only on the hook (mental energy-wise) for the renovation.

[Telecaster]

The renovation is a job.  If you aren't sure want the job, then you don't want the job.

You've mentioned some issues with your father previously.  You know approximately 5.6 billion times more about that than I do, but if a renovation means you have to revisit all those issues, then maybe you should just skip it and put this thing to bed.  The fact you've said you don't want to deal with this says to me you don't want to deal. You're FI.  You don't need the money.  Don't take this job unless you want the job. 

[Mr. Green]

The renovation is a job.  If you aren't sure want the job, then you don't want the job.

You've mentioned some issues with your father previously.  You know approximately 5.6 billion times more about that than I do, but if a renovation means you have to revisit all those issues, then maybe you should just skip it and put this thing to bed.  The fact you've said you don't want to deal with this says to me you don't want to deal. You're FI.  You don't need the money.  Don't take this job unless you want the job.

You're absolutely right. My concern is looking to avoid something now that I might regret later, like wanting to live there. Of course that's a future that may never come to pass so I could deal with the baggage of the renovation and keeping the house for nothing. My personality leads me to consider all the future scenarios and I admittedly get hung up trying to find the best path. I know the best path isn't always discernable but I am not very good at accepting that fact and making a choice. Thankfully, I'm very good with acceptance once a something has happened and there's no going back.

[waltworks]

I know it would be more expensive to buy another house down the road if for some reason you wanted to move downtown - but given that you're FI, would it actually have enough of a financial impact to matter? It sounds like you can get a place for $100k or less? I have a hard time imagining that will move the needle for you.

So I'd just sell the place and wash your hands of it. On the off chance you want to move to that area, just buy a place at that point. You don't need to own a house in every area you might someday live.

-W

[zoochadookdook]

If you are selling I may be interested; I have family on the coast (wrightsville beach boardwalk) and would love to own a rental in the area as a rental/possibly occasional vacation home.

[Mr. Green]

I know it would be more expensive to buy another house down the road if for some reason you wanted to move downtown - but given that you're FI, would it actually have enough of a financial impact to matter? It sounds like you can get a place for $100k or less? I have a hard time imagining that will move the needle for you.

So I'd just sell the place and wash your hands of it. On the off chance you want to move to that area, just buy a place at that point. You don't need to own a house in every area you might someday live.

-W

You can't get anything in the city in good shape for under 180k anymore. My concern for the future is that the word is out that Southeast North Carolina is awesome. People are moving here in droves, and rightly so. The two counties adjacent to Wilmington are both in the Top 5 fastest growing counties in the State, and Southeast NC is one of the fastest growing regions in the country. On top of that, infrastructure plans are in the works that will take this whole area to the next level. I expect home prices here to outpace the market in general because of that trend. If we sell now, I would not be surprised to find the same house cost me twice as much 20 years from now, adjusted for inflation. While we are FI, that would still hurt to buy back into. We could do it, barring a terrible sequence of returns over the next decade but it could eat up most of our "extra." But who knows, maybe the stock market will go nuts and we'd have been better having the money in the market.

I just think about real estate as a scarce resource because it is if you can't easily reproduce it. I can buy index funds any time. I can't rebuy this house any time. It's not our ideal spot right now, and maybe we'll never want to live there, but it's easily turned into an income producing asset. It just requires time I really don't want to give it right now. A very first world problem, I know. These are hard things to quantify and that's what hangs me up in the decision making process.

[Mr. Green]

If you are selling I may be interested; I have family on the coast (wrightsville beach boardwalk) and would love to own a rental in the area as a rental/possibly occasional vacation home.

I will keep this in mind if we decide to sell.

[RumBurgundy]

If we sell now, I would not be surprised to find the same house cost me twice as much 20 years from now, adjusted for inflation. While we are FI, that would still hurt to buy back into. We could do it, barring a terrible sequence of returns over the next decade but it could eat up most of our "extra." But who knows, maybe the stock market will go nuts and we'd have been better having the money in the market.

Granted, I don't know have much of your financial picture including mortgage/$ you have in this house, but is what you're doing here all that different from stock picking? You have, at best, a guess what the local RE market will be like in 2 decades. Wouldn't you rather put your money in an index fund and settle for "average" returns?
If the house is double its value in 20 years, wouldn't you hope that corresponding amount of money you could put in the market today from selling it would be worth 4x what it is today?
Yeah, I'm neglecting the headache of financing without a conventional job, I'll admit that. However...

It's not our ideal spot right now, and maybe we'll never want to live there

My guess is that if you don't want to live there now, that influx of people moving to the region in droves probably isn't going to change your mind. That's my own anecdotal data of watching my own town suffer growing pains that has myself looking for an escape hatch.

Also, just my personal opinion again, but I'd prefer a fresh start on a future house than one from a deceased family member (assuming I wasn't raised in that house).

Since it hasn't been said yet, I'll offer the counterpoint that you might want to wait a few months after the passing of a parent before making a big decision. Give yourself time if you can't decide. It doesn't sound like you have fear of foreclosure bearing down on you.

You sound like you have a very similar personality to me (finding the ideal decision/evaluating countless scenarios of the future) so forgive me if I take a big jump to the conclusion that your gut seems to know that you should sell and it's waiting for your head to catch up. That's just a guess from a stranger on the web who knows very little about your own situation but I know from my own experience that it's often easier for others to see the path you're ultimately going to choose/should choose because they're not in the fog of all the little details only you yourself are privy to.