Author Topic: Sell or Rent? Note: We Hate Being Landlords!  (Read 2864 times)

gipsygrrl

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Sell or Rent? Note: We Hate Being Landlords!
« on: September 06, 2016, 04:52:13 PM »
Market Value: 435k
Original Purchase price: 295k
Original Mortgage Amount: $235,000
Interest Rate: 4.125
Mortgage Term: 30 yrs
Term remaining: 26
Amount remaining on mortgage: 217k
Gross Rents: $2100
Principal and Interest (the P&I of your PITI - should match with the above info): $1146/mo
Taxes and Insurance (the T&I of your PITI): $3696/yr
HOA costs: $0
Deferred maintenance notes: needs foundation repair at some point before selling - estimated at 10k.
Anything else special or unique in regards to the numbers of the property (not the property itself; things such as city assessments, back taxes, special costs due to unique features of the property, etc. etc.): not that I know if, but I'm a newbie landlord and not a financial person by any means!.

In a nutshell: we got really lucky buying our starter home in what has become a super-hot area in Denver. We've been renting it out for the past year. Most people are telling us the smart play is to hold on to it for at least 10 years and that will be our retirement. BUT: we've realized we hate being landlords. We live 1.5 hours away and have a small kiddo; the work involved in owning/renting the home takes a lot of time and is stressing us out. We're not high-earners, so the financial and cash-flow liabilities we'd incur keeping the house are a concern. We'd need to leverage the equity in this house to buy where we currently live - which would be putting all of our eggs in one real-estate basket. We want to sell - but don't want to make a mistake we'll regret down the line by giving up what people are telling us is a "gold mine".

Thanks so much for your time!!

Landlady

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Re: Sell or Rent? Note: We Hate Being Landlords!
« Reply #1 on: September 06, 2016, 06:00:48 PM »
I think you should figure out what your bottom dollar is to do something you hate and if you are netting equal or more than that bottom dollar in rents you should keep it. For example, looks like you are netting about $600 a month in rents. Is $600 enough to make you grin and bear it each month? If not, sell.
If you keep the house for 10 years and then sell you may profit a lot in a good market, but you will have to pay a hefty capital gains tax on the appreciation since it would no longer be your primary residence.
My advice with a shaker of salt since I don't know you is to get out of the landlording job if you hate it before capital gains makes a big tax dent in your profits.
Looks like you might profit a good amount by selling within the next few years or now. Selling will cost you 6% to real estate brokers unless you do FSBO which can save you 3%.

daverobev

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Re: Sell or Rent? Note: We Hate Being Landlords!
« Reply #2 on: September 06, 2016, 06:02:06 PM »
Sell it, ASAP. If you don't like the hassle, sell the damn thing, and invest the money in globally diversified ETFs.

Serious. The stock market will, most likely, do as well over a 25 year period. You can sell off small parts of your investment if you need cash, and you can add to it in small amounts.

I'm considering getting out of that game myself, even though my places are managed - it's still hassle. Vs a single statement from a brokerage.

rothwem

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Re: Sell or Rent? Note: We Hate Being Landlords!
« Reply #3 on: September 07, 2016, 06:30:34 AM »
Those are pretty good numbers on that house, have you thought about maybe outsourcing the management?

daverobev

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Re: Sell or Rent? Note: We Hate Being Landlords!
« Reply #4 on: September 07, 2016, 06:39:00 AM »
Those are pretty good numbers on that house, have you thought about maybe outsourcing the management?

$2k before expenses on a cost of $300k, current value of $400k? No, those are not good numbers.

rothwem

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Re: Sell or Rent? Note: We Hate Being Landlords!
« Reply #5 on: September 07, 2016, 08:32:57 AM »
Those are pretty good numbers on that house, have you thought about maybe outsourcing the management?

$2k before expenses on a cost of $300k, current value of $400k? No, those are not good numbers.

Meh, they look pretty good for the "accidental landlord" scenario they described.

It seems like they'll get screwed on the capital gains tax if they sell it, and maybe if they were able to do some real estate magic with a 1031 exchange to get properties with higher returns, they wouldn't accomplish what they were trying to do--lower stress and de-landlord themselves. 

Paying someone to manage the property and forgetting about it for 10 years would probably be the easiest way to go.  They're fairly healthy from a cashflow perspective.  Rent is probably going to go up, the value is probably going to go up.  It seems like a win-win.  I'd leave it alone and take the tax benefits that go with it. 

Cwadda

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Re: Sell or Rent? Note: We Hate Being Landlords!
« Reply #6 on: September 07, 2016, 08:39:02 AM »
Have you looked into refinancing and also making 2 extra mortgage payments per year? This would help lower costs.

gipsygrrl

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Re: Sell or Rent? Note: We Hate Being Landlords!
« Reply #7 on: September 07, 2016, 11:05:45 AM »
So, from my understanding, if we sell in the next two years, we will avoid capital gains, but after that we'd take the hit. Hiring property management and trying to forget about the house is the other option we're considering, but I'm worried that we'd still be looking at having to keep a giant emergency fund that will tie up our cash. We'd also be leveraged up to our eyeballs if we took out equity from the first house in order to buy something where we live now (we're currently renting here and rents are climbing steadily).

acroy

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Re: Sell or Rent? Note: We Hate Being Landlords!
« Reply #8 on: September 07, 2016, 11:20:00 AM »
Sell - be free! rejoice!

Meowmalade

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Re: Sell or Rent? Note: We Hate Being Landlords!
« Reply #9 on: September 07, 2016, 11:30:27 AM »
I had a condo in Austin that was in a great location and that I knew would appreciate over time.  I had a property manager rent it out after we moved to Portland, and ended up with nightmare tenants whom we ultimately had evicted (afterward, my neighbor told me he suspected they were dealing drugs out of my place!).  Obviously that's the worst-case scenario, but I hated having that burden and extra mental responsibility hanging over me, and selling it was the right thing to do.  I felt so light and free afterward!

Maybe you could sell it to one of the people who's telling you that it's a "gold mine", and avoid going through a realtor.  I ended up selling to a friend and we did the paperwork through a title company and his lawyer, and probably saved $10k that way!

waltworks

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Re: Sell or Rent? Note: We Hate Being Landlords!
« Reply #10 on: September 07, 2016, 09:54:45 PM »
Sell yesterday. Even if you loved being landlords, this is about the worst rental possible.

Ask yourself this: if someone offered to sell you this house, at it's current market value, would you buy it as a rental property?

-W

Goldielocks

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Re: Sell or Rent? Note: We Hate Being Landlords!
« Reply #11 on: September 08, 2016, 10:19:51 AM »
Sell...

When I look at the numbers, I see:

1500/mo (approx) in fixed costs. 
+ $180/mo (approx) allowance for vacancy of 1 month/yr
+? 200/mo in maintenance  ($4800 every 2 years if newer building, including tenant re-rent cleanup, advertising, forms, and change over costs)

Vs. $2100 /mo in rent

= $220/mo for your time and effort and profit (a bit more because you pay yourself the principal.)...   This is not horrible, and fine if you plant to return to this home one day... but you said that you don't like the work / risk...

Compare this to:
$435k x 93%(minus closing costs and maint. to sell) - $217k mortgage x 4% return on a "safe" investment = $625/month

Oh, and you can of course leverage your "safe" investment too, if you are into that.  My calc compares the leveraged rental against non-leveraged investment.

Ensign1999

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Re: Sell or Rent? Note: We Hate Being Landlords!
« Reply #12 on: September 09, 2016, 12:41:23 PM »
I would personally sell mainly because you don't enjoy being a landlord or the risk of owning the place.

It could be a huge mistake because the house could appreciate in value and if you sold a year from now or ten years from now you might get quite a bit more than if you sold and invested the equity.  Then again, the market could crash and you would be in a position where you could not afford to sell it.


bpleshek

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Re: Sell or Rent? Note: We Hate Being Landlords!
« Reply #13 on: September 09, 2016, 12:58:37 PM »
I would personally sell.  If you don't want to be a land lord, you don't want to be a land lord.  It can be a pain.  And you're remote.  90 minutes isn't horrible, but it's not like you can easily run over there every time a tenant calls like you could if you were local.  Also, they bought it 4 years ago and it's been rented for a year if I read it correctly.  If they sell now, they should be ok because they lived there 2 out of the last 5 years.  But time is ticking away.

https://www.irs.gov/taxtopics/tc701.html

Good luck.

Brian