Author Topic: Yet another "Rent or Sell?" post  (Read 1669 times)

gecko10x

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Yet another "Rent or Sell?" post
« on: June 17, 2013, 03:08:50 PM »
We are now landlords by necessity. Had our house on the market for 12+ months and couldn't sell it, so it's now in the 1st month of being rented (1yr lease). To meet the 2 of 5 IRS rule, we would have to dump it by June 2015, meaning we'd probably have to know what we want to do when we sign a new tenant in 2014, since we'd likely have to show the house with tenants in it.

So, some numbers:
House value: $100k? (we currently owe < $80k; paid $86k)
P&I: $385 (3.375% 5/1 ARM, set to adjust in 2016 I think)
Taxes: $50 (will be re-assessed as rental this year, so I don't know what it'll go up to)
Insurance: $60

Info on current state of house:
- Was built in 1960 on a 1940 block foundation. For the most part, it's structurally OK, but it's possible there's some movement with the block under the front porch. We only noticed the block separation when we listed it last year.
- Roof is ~10yrs old. Don't know what quality shingles they are
- HVAC is ~10yrs old.
- Water heater is ~5yrs old.
- Fridge & stove are 9yrs old, dishwasher is 5yrs old.
- Has some cheap laminate flooring that may need to be replaced if tenants are hard on it. Some carpet that will need to be replaced for sure.

Currently being rented for $1000/mo minus 10% management fee. The location of the house is decent for a rental I think. Relatively close to both a state college and a 30 min. drive of well paying jobs. Neighborhood isn't great, but the lot is pretty nice.

Experienced opinions?

Another Reader

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Re: Yet another "Rent or Sell?" post
« Reply #1 on: June 17, 2013, 03:36:17 PM »
My first reaction is in your shoes, I would wait until it's near to the lease renewal date to make a decision.  I would see how the first year goes - what breaks, does the tenant pay on time, is the interior clean and undamaged, etc.  You are clearing about enough to cover expenses over time on the 50 percent rule of thumb, see how accurate the rule of thumb is in this case.

Is the $100,000 what you were asking and could not get, or is it a more realistic estimate that takes into account all the issues with the house?  In real estate, there is a saying - "price fixes everything."  At some price, your house will sell, with all of its pluses and minuses.  That's what the house is worth.

arebelspy

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Re: Yet another "Rent or Sell?" post
« Reply #2 on: June 17, 2013, 06:50:39 PM »
AR's advice makes sense.

And since the 2 in 5 IRS rule you mentioned was made prorrated in 2009, you'll only be saving 40% of those cap gains, which are fairly small based on purchase price and current value (even adding in the depreciation which will be recaptured, not that much will have been "captured" by this point to make a huge difference), so it's something to factor in when you make that decision, but not as big of a factor as you might think when you run the numbers.
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gecko10x

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Re: Yet another "Rent or Sell?" post
« Reply #3 on: June 18, 2013, 07:02:42 AM »
$100k is what I think I could get in a year or two. We had offers for more than that fall through, and we originally had it listed too high, and it sat on the market for too long. The longer it sat, the lower the offers got.

And since the 2 in 5 IRS rule you mentioned was made prorrated in 2009, you'll only be saving 40% of those cap gains, which are fairly small based on purchase price and current value (even adding in the depreciation which will be recaptured, not that much will have been "captured" by this point to make a huge difference), so it's something to factor in when you make that decision, but not as big of a factor as you might think when you run the numbers.

Ah, good to know. I hadn't actually looked it up.

Thank you both for the comments.