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I just got an internal transfer, and will be relocated by company from IL to CA. The dilemma/headache that I have now is trying to decide whether to sell my house or not.

Bought a town home in 2006 fro 170K and its value has depreciated a lot The real estate agent thinks that the going price is around 115-125K now. I owe about 113K for mortgage. The ongoing rent is about $1200/mo for my house. Since I will be so far away, I will probably need to hire an agent to manage it, he charges 1 month rent. Every month, I pay $890 for mortgage ($320 interest, $299 escrow). HOA fee is $150/mo.

Thanks for your time and I appreciate it. Happy holidays!

Member Summary
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What RedWolfe says happened to my parents. Moved out of Dallas, sold house at $12k loss, company reimbursed, got hit wi... (more)

CptSavAHo (Dec. 27, 2012 @ 1:53a) |

Yea, the value depreciates to about 60k. Company package will cover about 30k, have to confirm about taxes. Hoa has no i... (more)

corydi (Dec. 27, 2012 @ 11:04p) |

Yeah, based on that, I'd consider how long you realistically think you'll have to be a long-distance landlord before you... (more)

dbond79 (Dec. 28, 2012 @ 6:01p) |

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Put it up for rent now, try to sell when it gets warm and you have some time in on the job.

corydi said:   I just got an internal transfer, and will be relocated by company from IL to CA. The dilemma/headache that I have now is trying to decide whether to sell my house or not.

Bought a town home in 2006 fro 170K and its value has depreciated a lot The real estate agent thinks that the going price is around 115-125K now. I owe about 113K for mortgage. The ongoing rent is about $1200/mo for my house. Since I will be so far away, I will probably need to hire an agent to manage it, he charges 1 month rent. Every month, I pay $890 for mortgage ($320 interest, $299 escrow). HOA fee is $150/mo.

Thanks for your time and I appreciate it. Happy holidays!

This might be cash flow positive:
Rental income: $1200x11/12 = $1100 per month.
Outgo: $320 + $299 + $150 = $769 (w/o principal)
$890 + $150 = $1040 (with principal).

I am assuming the escrow fully covers insurance and taxes.

Of course there is additional to account for vacancy and maintenance. But it is not too bad to rent it out.

Thanks everyone for your feedback. I forgot to mention a few other things:

1) The home insurance is minimal as HOA has the master policy to cover exterior, so for interior, $130/yr.

2) If I understand the relocation package correctly, Company will pay about $30K for loss if I sell plus all the closing costs. the relocation company will put my house on sale for 90 days @ 103% of the appraisal value of the house. If it doesn't sell by 90 days, they will buy it @ 94% of the appraisal value.

Sell the house. You have a good relocation package and you have no idea of the hassles and expense of keeping a long distance rental. The fact is, I have yet to meet a manager that takes care of a house as well as you would. There are always additional expenses. Vacancy times are also longer as most managers will only show the place during normal business hours and not on evenings when a lot of people want to see it.

Think of it this way. Rent out your house, you will be down $300-$400 each and every month. Sell now, take your relo package, get a new place in CA.

Will you be trying to buy in CA? If so owning the rental may hose you.

sell the house, - no loss - no headache.

I'm renting in CA for the time being, not sure if I will be buying right away but the housing market there seems to be picking up.

Sell it.

Sell it and buy peace of mind!

I own three rental single family homes and one condo out of state that I manage myself. The condo requires almost no active participation from me except for flying out there for a few days when an old tenant moves out. One day to clean it up, one or two days to show it to new tenants is not that bad of a commitment every few years. If something breaks, I have a handyman I call to take a look at it. If rental property is a part of your long-term investment/retirement strategy then I say keep it and see how it works out.

Thanks everyone for your feedback, really appreciate it. I'm leaning more towards selling it but it's very hard to swallow the fact that I will be losing at least 30K just like that

.

I would like to know if I decided to rent out the house in il, will this make it harder for me to get another mortgage for new house in CA?

corydi said:   I would like to know if I decided to rent out the house in il, will this make it harder for me to get another mortgage for new house in CA?

Yes, that's why I asked about your plans in CA. It will be considered second home, minimum 20% down and you will have to substantiate enough income to be able to make BOTH mortgage payments without rental income credit. If you can establish a rental history for 24 mo or more the lender may credit that back to you. Sucks because if you were going from CA to IL you would be buying into a cheaper market and probably not a big deal, but going to CA its going to screw you on buying a second property. SIS has a bunch of CA real estate, find out from him how much and how hard it was to qualify for additional home purchases.

I'm sure your neighbors will be sooooo glad you're renting it out. But who cares about anybody else, right?

CptSavAHo said:   corydi said:   I would like to know if I decided to rent out the house in il, will this make it harder for me to get another mortgage for new house in CA?

Yes, that's why I asked about your plans in CA. It will be considered second home, minimum 20% down and you will have to substantiate enough income to be able to make BOTH mortgage payments without rental income credit. If you can establish a rental history for 24 mo or more the lender may credit that back to you. Sucks because if you were going from CA to IL you would be buying into a cheaper market and probably not a big deal, but going to CA its going to screw you on buying a second property. SIS has a bunch of CA real estate, find out from him how much and how hard it was to qualify for additional home purchases.


Actually he should qualify as a primary residence especially when he's relocating. That means he would qualify for owner occupied rates as that's exactly what he's doing. He would need enough income to support both mortgages though so hopefully he got a good raise.

It doesn't sound like OP is interested in being a landlord and it sounds like it'll be a wash holding the property. With rental property, you make money on cash flow, deductions or future appreciation. Without knowing the local market he's in, it's hard to say if it's going to increase in value in the future, it may even decline. If the future prospect of gains are minimal, you might be better off with the relocation package. People buy 30k cars all the time and they depreciate all the time, OP did get to use the property for 6 years so it's not like it's a total loss.

SELL! It might just be me but seeing as things with fiscal cliff arent going too well I predict housing will fall. Fiscal cliff=taxes go up/credits go away=less short sales, more foreclosures=median prices tank=values tank=more strategic defaulters.

henry33 said:   CptSavAHo said:   corydi said:   I would like to know if I decided to rent out the house in il, will this make it harder for me to get another mortgage for new house in CA?

Yes, that's why I asked about your plans in CA. It will be considered second home, minimum 20% down and you will have to substantiate enough income to be able to make BOTH mortgage payments without rental income credit. If you can establish a rental history for 24 mo or more the lender may credit that back to you. Sucks because if you were going from CA to IL you would be buying into a cheaper market and probably not a big deal, but going to CA its going to screw you on buying a second property. SIS has a bunch of CA real estate, find out from him how much and how hard it was to qualify for additional home purchases.


Actually he should qualify as a primary residence especially when he's relocating. That means he would qualify for owner occupied rates as that's exactly what he's doing. He would need enough income to support both mortgages though so hopefully he got a good raise.

It doesn't sound like OP is interested in being a landlord and it sounds like it'll be a wash holding the property. With rental property, you make money on cash flow, deductions or future appreciation. Without knowing the local market he's in, it's hard to say if it's going to increase in value in the future, it may even decline. If the future prospect of gains are minimal, you might be better off with the relocation package. People buy 30k cars all the time and they depreciate all the time, OP did get to use the property for 6 years so it's not like it's a total loss.


He will only qualify for owner occupied rates if he has sufficient equity in his current residence, which with the drop in value he does not have. Lender or underwriter will require appraisal of current property as a condition of the new loan.

corydi said:   Thanks everyone for your feedback, really appreciate it. I'm leaning more towards selling it but it's very hard to swallow the fact that I will be losing at least 30K just like that

Sorry, but you already lost it. Selling it does nothing more than recognize that fact.

But in return for your $30K and the payments, you got a nice place to live and a mortgage deduction.

The question you need to ask and I have no idea what the answer is, is what are the tax benefits if any for selling at a loss. If you're salary is going up a lot in the move to CA you could get a nice deduction from that size of loss...

And if it makes you feel any better some friends in Dana Point (SoCal) sold their house on a short sale, lost $6.5mil.

CptSavAHo said:   He will only qualify for owner occupied rates if he has sufficient equity in his current residence, which with the drop in value he does not have. Lender or underwriter will require appraisal of current property as a condition of the new loan.

The question you need to ask and I have no idea what the answer is, is what are the tax benefits if any for selling at a loss. If you're salary is going up a lot in the move to CA you could get a nice deduction from that size of loss...

And if it makes you feel any better some friends in Dana Point (SoCal) sold their house on a short sale, lost $6.5mil.


Not sure what banks you're using, but I never heard of the former, people buy second properties all the time, it's how people upgrade or move to a new job. Usually the banks are only interested in DTI. Is this some freddie/fannie guideline or are you talking about porfolio lenders? Also he has between 1.7%-9.6% equity in the home current home, how do the banks even figure out what percentage is acceptable? You can do an FHA loan with just 3.5% down.

As for tax benefits of selling at a loss, nothing really. Just like there's no tax benefit when you sell a car or any property when it's less than the purchase price. If it's a short sale, then you owe taxes on the amount of money forgiven unless you meet some guidelines on forgiveness. If it was a rental property, you wouldn't have to pay the tax on depreciation recapture which kicks in if there's a gain.

corydi said:   Thanks everyone for your feedback, really appreciate it. I'm leaning more towards selling it but it's very hard to swallow the fact that I will be losing at least 30K just like that
Wait, did I understand your earlier post correctly, that your company will cover your loss up to $30k? So just to be clear, is this $30k loss you're referring to in addition to the up to $30k loss they'll cover, so you're estimating $60k total depreciation?

If you're referring to the same 30k they're picking up, you didn't lose it, you broke even. On the other hand, if the place actually did lose more than a third of it's value in the time that you've owned it, maybe it's a good time to cut your losses anyway, especially with someone else picking up half the tab.

corydi said:   Thanks everyone for your feedback. I forgot to mention a few other things:

1) The home insurance is minimal as HOA has the master policy to cover exterior, so for interior, $130/yr.

2) If I understand the relocation package correctly, Company will pay about $30K for loss if I sell plus all the closing costs. the relocation company will put my house on sale for 90 days @ 103% of the appraisal value of the house. If it doesn't sell by 90 days, they will buy it @ 94% of the appraisal value.


A few factors here to add: first your condo association may have rental restrictions. (hard for them to enforce, but it can be a hassle)

Second, the pain of selling NOW will be buffered by not paying closing costs and the payment for loss will take a LONG time to offset with increases in value. Next, get a fresh estimate - giving those terms the relo company has a horse in the race to give you a low estimate.

With no package I would say to rent, with THAT package you are better off selling. Remember that a down market often cuts both ways. Think of your payments as "rent" and the $30K loss payment as a return on your original down payment if it helps any. The $30K loss payment will help a lot on down payment if you buy in CA as well.

Also, check with a CPA (in CA) about how all that is taxed and where. Most likely CA is going to consider the payment as salary and tax it accordingly. (this will be likely offset by claiming the book loss on the property, but how the IRS and CA treat it is most definitely something that needs a CA specialized tax professional. The relo company cost is probably not taxed, but the paid closing costs may be taxable too.

What RedWolfe says happened to my parents. Moved out of Dallas, sold house at $12k loss, company reimbursed, got hit with $3kish tax bill because it was treated as income.

Yea, the value depreciates to about 60k. Company package will cover about 30k, have to confirm about taxes. Hoa has no issue for us to rent.

Thanks again everyone for ur input.



dbond79 said:   corydi said:   Thanks everyone for your feedback, really appreciate it. I'm leaning more towards selling it but it's very hard to swallow the fact that I will be losing at least 30K just like that
Wait, did I understand your earlier post correctly, that your company will cover your loss up to $30k? So just to be clear, is this $30k loss you're referring to in addition to the up to $30k loss they'll cover, so you're estimating $60k total depreciation?

If you're referring to the same 30k they're picking up, you didn't lose it, you broke even. On the other hand, if the place actually did lose more than a third of it's value in the time that you've owned it, maybe it's a good time to cut your losses anyway, especially with someone else picking up half the tab.

Yeah, based on that, I'd consider how long you realistically think you'll have to be a long-distance landlord before your losses would be less than the $30k option you have today. Meaning, this place needs to appreciate about 30% from it's current value before you'll be personally down less than $30k, not including the lost opportunity for others to cover your closing costs. For all we know, it could take 10 years to get even to that point, let alone a point where you've completely broken even.

As someone who's tried the long-distance landlord thing and wished I hadn't, I'd recommend against renting the place even if you didn't have this offer from your employer. Best of luck whatever you decide, OP.



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