Another Rent or Sell Thread

Archived From: Finance
  • Page :
  • 1
  • Text Only
Voting History
rated:
Trying to figure out whether to rent current home or to sell it. I'm moving to a new part of the country and would not be able to LL myself--likely would have to pay a property manager and possibly an agent.

Pros, great rental from a size, space, and location standpoint. In a great school district that many are trying to get into. House was $370k last year, but the mortgage principal is just under $300k. I'm estimating I could get between $2000-$2400 per month in rentals. Current mortgage + escrow (tax and insurance) is $1850.

Cons, it's a rather old home and likely would have some repairs. Were I to do such repairs, I'd almost prefer to be in the tax-advantaged position of making them for tenants before selling. Even if we had stayed there, though, it would likely need a new HVAC system in the next 3 years, likely will need a new water heater in the next 5 or so years, and could stand to have various other repairs. There's also a relocation benefit for the new job that would pay closing costs if house is listed and sold w/in 1 year--i.e., I'd give that up if we rented. We're unlikely to purchase in the new area any time soon--or, maybe, ever. I like the idea of gaining at least some equity in something (purchased last year, and I believe the market will not fall off any more, at least in that area).

Can someone point out what I'm missing here? It seems like it's most likely a break-even proposition, but might be a little bit cash flow positive or a little bit cash flow negative. The main value would be in gaining some equity and in being able to get a tax advantaged position on repairs. The main loss would be in giving up the potential relocation agreement benefits in a sale and the possibility of it being cash flow negative (which I doubt will happen).

Thanks in advance for your help

Member Summary
  • Also categorized in:
Thanks for visiting FatWallet.com. Join for free to remove this ad.

hebron1427 said:   ...There's also a relocation benefit for the new job that would pay closing costs...Sell the house. Long-distance landlord is a tough job that doesn't pay very well.

dcwilbur said:   hebron1427 said:   ...There's also a relocation benefit for the new job that would pay closing costs...Sell the house. Long-distance landlord is a tough job that doesn't pay very well.

I'd get a property manager, so I would likely have little interaction with any tenants.

I guess moreso I was looking for logic as to whether my reasoning on the numbers was correct, and whether there are any hidden financial issues that I'm missing. Before I make a decision about what to do, I want to ensure that my figures are correct and I've accounted for all reasonably foreseeable variables.

Anyone?

Factor in annual vacancy expense... I use 10% of rents projected. Plus your insurance is different. Fire and dwelling policies can be more expensive.

how do you get the 10% number? do you find it's an accurate estimate?

I was in your exact position just a year ago. Bought house in June of 2009, was told to relocate in September 2011 (Let me guess, you work for the government). I tinkered with keeping the house, vs. selling. I was even on the house atleast, but when I rented I was short $300/month. I had the house listed for 3 months before I decided to get tenants. I had the tenants for 3 months before I sold the house. In the end, the realtor and property management company were the ones who made the money. I really couldn't justify losing the money every month + the ~9.1% price advantage I had against other sellers in the market with my closing cost reimbursement I would give up by keeping the renters.

If you are emotionally invested in your home, you will hate tenants and will hate property managers even more. My tenants didn't realize they had to set up garbage service. I drove by one month(I visited friends frequently) and there were full trash bags all over my deck. The property manager was a douche and never communicated to the tenants when I was to visit (install smoke detectors, things like that).

Expect the property management company to take 8-10% or your monthly rent. Anything you install has to be depreciated (correct me if I am wrong, SiS) over the useful life and not able to be taken as an immediate deduction.

It is a conservative estimate, but I haven't really been doing this long enough to tell. So far so good. I asked a lot of other people that were more experienced that I was and read up on some good books (i.e. Landlording).

Sell. The Pros you list (size, sapce, location, good schools) are also Pros for selling. You're seriously underestimating how hard it is to be a landlord. I've been doing it for 20+ years (and made plenty of money at it), but as soon as the current tenants move out I'm selling. Even with a management company, the reality is that it's you who will ultimately have to make all the decisions and deal with the crap. Dollars out of your pocket for all of those repairs and whatever other nonsense the tenant demands. Not to mention, who knows what kind of tenants you'll get? Take advantage of your relo benefit and move on with your life.

Sell.

5-10% vacancy is about typical. You'll get turnover and its difficult to keep a place rented between tenants. You'll often have a vacant gap month between tenants or occasionally 1-2 month when you can't rent. Or an occasional tenant will skip town in the middle of a month. Of course it varies depending where you live and how good/bad the rental market is.

You'll have to pay the property manager ~10% of rent. Plus that 10% isn't the whole cost, they have expenses and fees, etc They often want 1 month rent to fill a vacancy. Its not just 10%. Plus you have to manage the manager a lot of the time. Finding a good dependdable manager can be hard and they often won't do things the way you would.

You were looking at a break even proposition but theres costs you haven't considered. The tax advantages come from losing money. You've got 70k equity tied up in this place that you could use elsewhere. You say the place needs repairs so thats a lot of future work that you'd be paying for and hoping a property manager handles well. Best case the property appreciates well and you come out ahead in the endd with a bit of work and find a good manager, worst case the property doesn't go up in value and your equity sits idle while you have negative cash flow a borderline useless property manager and tenants from hell who tear the property apart and you bleed thousands of dollars for years till you run away screaming. Sorry to be dramatic, but the negative risk here is considerable.

jerosen said:   Sell.

5-10% vacancy is about typical. You'll get turnover and its difficult to keep a place rented between tenants. You'll often have a vacant gap month between tenants or occasionally 1-2 month when you can't rent. Or an occasional tenant will skip town in the middle of a month. Of course it varies depending where you live and how good/bad the rental market is.

You'll have to pay the property manager ~10% of rent. Plus that 10% isn't the whole cost, they have expenses and fees, etc They often want 1 month rent to fill a vacancy. Its not just 10%. Plus you have to manage the manager a lot of the time. Finding a good dependdable manager can be hard and they often won't do things the way you would.

You were looking at a break even proposition but theres costs you haven't considered. The tax advantages come from losing money. You've got 70k equity tied up in this place that you could use elsewhere. You say the place needs repairs so thats a lot of future work that you'd be paying for and hoping a property manager handles well. Best case the property appreciates well and you come out ahead in the endd with a bit of work and find a good manager, worst case the property doesn't go up in value and your equity sits idle while you have negative cash flow a borderline useless property manager and tenants from hell who tear the property apart and you bleed thousands of dollars for years till you run away screaming. Sorry to be dramatic, but the negative risk here is considerable.


Correct me if I'm wrong, but it seems like most of the downsides you mentioned are a result of getting a bad property manager. I actually already have a property manager picked out that I know is tremendous. My wife's uncle has been using him on one of his own rentals and gives glowing reviews (and he's pretty anal about getting things done), plus I've known him for about 6 years personally and know he's good at what he does. While I understand your concern on keeping $70k in equity, is there no value to having real property to offset inflation? Since I won't be buying in my new area any time soon, I'm not that concerned about the equity tie-up, and I would rather it go toward ownership if possible. Please let me know why this reasoning is wrong.

Yes if you've got a great property manager already lined up then that does make it a lot easier. But you do need to account for vacancies and you do need to account for the property manager costs plus expenses etc. You should not assume 0% vacancy even with a great property manager. You're quoting rent expectation of $2000-$2400 and mortgage cost of $1850. $370k houses renting for $2000-$2400 doesn't pass the 1% rule and isn't a 'great' rental investment and you're giving up the employer paying closing costs to boot.

You may come out ahead here if the property appreciates. But are there better rental investment opportunities in the new area? Compare your house to a duplex or other lower cost single family. Maybe owning a rental is a great idea but maybe this house isn't the best rental choice. Renting your own house is surely easier in a couple ways as it saves on transaction costs and its a known good property.

But you said it seems its most likely break even. You're taking on risks for what you think might be break even. I don't see the point of that.

If you can handle the possible negative cash flow for now, Rent with Property Manager. Keep in mind Rent goes up with time and Inflation adjusted mortgage payment goes down. So you may break even soon and see positive cash flow eventually.



Disclaimer: By providing links to other sites, FatWallet.com does not guarantee, approve or endorse the information or products available at these sites, nor does a link indicate any association with or endorsement by the linked site to FatWallet.com.

Thanks for visiting FatWallet.com. Join for free to remove this ad.

TRUSTe online privacy certification

While FatWallet makes every effort to post correct information, offers are subject to change without notice.
Some exclusions may apply based upon merchant policies.
© 1999-2014