Sell my house... rent my house... oh the decisions!!

Miscellaneous and Personal Stuff I Must Share
1

I’m moving to Ohio this summer. I have a house here in the Atlanta suburbs. My choices are selling my house or renting it out.

Sell:
Pros:
-Once it’s sold, don’t have to worry about it anymore, no hassles with tennants
-No ongoing mortgage payments
-Won’t have to refinance (in 2008 my interest rate goes up), which is an iffy proposition anyway. Right now I can’t refinance because, as a student, I don’t have enough income.

Cons:
-I don’t have enough equity in the house, and it hasn’t appreciated enough that I feel confident I could sell it for enough to pay off the mortgage AND the real estate commission.
-I don’t know that I could sell it without a realtor, given that I’ll be in Ohio
-It’s a bad market for selling a house… I could probably get more if I wait a few years.
Rent:
Pros:
-Hang onto the house and sell it later when the market is better, it would be a good investment
-Tax deduction
-Could probably rent it for more than the mortgage payment every month

Cons:
-Rental horror stories
-Have to hire a manager (I do NOT want to try to manage property from 700 miles away–can you say “nightmare”?)
-If it isn’t rented, the mortgage payment on top of whatever we’re paying for housing in Ohio would be painful
-Have to refinance before September 2008 (right now I don’t have the income to qualify, but would they consider the rental income as income when considering a refi?)

One of the things about selling it is that my furniture/possessions are of the sort of…old and shoddy variety, and I have a TON of stuff so my house looks small because it has so much stuff crammed into it. For this reason, showing the house to potential buyers before emptying it of my stuff is probably a bad idea. So I would be looking at moving to Ohio before even STARTING to sell, which is why I would pretty much have to use a realtor. I could probably sell the house for near what I paid for it, but not much more… which means that when you figure in realtor commission and potential closing costs, I could be looking at coming up with thousands of dollars out of my (empty) pockets. With the right property manager, I think the location would make it a pretty easy house to rent out… and it is only 10 years old so stuff really shouldn’t be breaking and needing a ton of maintenance work anytime soon.

I guess I’m kind of hoping to get some feedback from the teeming millions. I’m really leaning toward rental, and hoping to maybe get some advice on how to best do that without massive nightmares…?

2

Opal, will you get enough in rent to be able to cover your mortgage payment, taxes and insurance?

If not, I’d try to sell now. I may be wrong, but I don’t think the market is going to rebound any time soon.

3

When we moved from a nearby suburb into the city, we decided to rent out our old house. We’ve been renting it out for twenty years, and tenants have come and gone and come and gone. Some of 'em got in arrears on rent, then left in the middle of the night without giving notice. Most of 'em broke their leases. A few of 'em trashed the place unbelievably, requiring thousands of dollars of repairs and repainting. Every time the house is vacated, we have to go through the hassle of fixing it up, listing it, and continuing to pay the mortgage during times when no rent is coming in.

If it were up to me, I’d ditch that house in a second. My husband feels otherwise, and I really, really like my husband, so I’m acceding to his wishes.

4

Being a long distance landlord is a very bad idea, even w/ a property manager. Having said that it sounds as if you may not have a choice. You’re going to need to visit your property at least twice a year, but those trips are tax deductable, so that takes a bit of the sting out of it.
You’re making a common mistake in figuring your rent on your monthly payments. You should get a minimum of 10% of the market value as a monthly rental and that’s w/ a lease. If you’re going to rent month to month you should look for a min. of 12%. Typically you must figure the house will be empty about 10-15% of the time, maybe more if it’s a monthly rental.

5

We were faced with this problem with our condo when we bought our house. Ultimately, we realized that it takes quite a big commitment to be a landlord. You’re responsible for a lot, you have a lot more administration to deal with, you need to follow-up on issues regularly. Unless you’re really hard up for the $ or you’re exemplary in your organization skills, I’d say just sell and have one less thing you have to worry about in the back of your mind.

6

[QUOTE=A.R. Cane]

You’re making a common mistake in figuring your rent on your monthly payments. You shoud get a minimum of 10% of the market value as a monthly rental and that’s w/ a lease. If you going to rent month to month you should look for a min. of 12%.
[/QUOTE]

Sorry, I’m not following. Market value of what? Nobody’s going to pay $20,000 a month on a house with a $200,000 market value, for example, so I’m clearly misunderstanding this.

7

[QUOTE=OpalCat]

  • Rental horror stories
    [/QUOTE]
    I should have you talk to my brother. Sell the house, even if you have to put in extra money to pay off the mortgage. The peace of mind is worth it.
    Are you sure the house isn’t worth more than when you bought it? How long have you had it?
8

[QUOTE=A.R. Cane]
Being a long distance landlord is a very bad idea, even w/ a property manager. Having said that it sounds as if you may not have a choice. You’re going to need to visit your property at least twice a year, but those trips are tax deductable, so that takes a bit of the sting out of it.
You’re making a common mistake in figuring your rent on your monthly payments. You should get a minimum of 10% of the market value as a monthly rental and that’s w/ a lease. If you’re going to rent month to month you should look for a min. of 12%. Typically you must figure the house will be empty about 10-15% of the time, maybe more if it’s a monthly rental.
[/QUOTE]

To clarify, the 10-12% figures are annual. i.e: A house worth 100K should rent for $850 to $1000 a month.

9

[QUOTE=TimeWinder]
Sorry, I’m not following. Market value of what? Nobody’s going to pay $20,000 a month on a house with a $200,000 market value, for example, so I’m clearly misunderstanding this.
[/QUOTE]

Thanks, I caught my error and I was correcting it as you posted. In your example a $20K house should rent for a min. of $1666.00

10

You’re going to want to put half of your stuff in storage anyway, whether you’re showing the house to sell it or to rent it.

I seem to recall you bought the house in 2005, so you’ve lived in it for two years. That qualifies for a tax break; the gain on the house is free of federal tax. You’ll have three years after you move out during which you can sell the house and claim the full tax break. (IANA tax lawyer. Consult someone who is.)

I suggest getting hard numbers on comparable property sales and rentals, figure on the house being empty for two months if you rent it, and crunch both sets of numbers. That should help resolve the financial / mathematic side.

I can’t offer much help with the rest of it, other than to say good luck.

11

Doesn’t the house need to be insured to ensure the tenants don’t burn the house down?

12

[QUOTE=ouryL]
Doesn’t the house need to be insured to ensure the tenants don’t burn the house down?
[/QUOTE]

No lending institution is going to permit their collateral to go uninsured. If the homeowner allows the insurance to lapse the lender will obtain insurance and bill the homeowner, same w/ autos, etc.

13

[QUOTE=Arnold Winkelried]
I should have you talk to my brother. Sell the house, even if you have to put in extra money to pay off the mortgage. The peace of mind is worth it.
Are you sure the house isn’t worth more than when you bought it? How long have you had it?
[/QUOTE]

I paid $150,000 for it a year and a half ago. I have an interest-only mortgage. (I bought it planning to refinance when the townhouse my ex-husband and I had in VA sold, but then I ended up going back to school instead of continuing my job, and the townhouse didn’t sell for very much, and there ya go.)

It’s in a good location–good schools, 3 minutes from the interstate, growing area, 2.5 miles from the university… it’s about 25 minutes from downtown Atlanta without traffic, but a rush hour commuter would have probably an hour drive each way (but as I said, it’s right on the interstate so it’s a better bet than a lot)

The other houses in the development are selling for $145-155,000. I think mine would be in the upper half of that (it’s two stories, and has a basement, which not all of the homes in this subdivision are/do) but not much more than that. If you figure a 7% rental commission that means that I’d still have to come up with about $6,000 to pay off the mortgage, which is basically a half a year more mortgage payments on a house I’d no longer own.

My mortgage payments are about $950/month, insurance is $61/month. I think I could easily get $1200-$1400/month rent for it (it has a 2 car garage, yard, deck, community pool and tennis courts, etc…)

I would probably only keep it for another 3-5 years, I think, not super long term. Hopefully long enough to build some equity (after refinance) or for it to get some appreciation, enough to at least not lose money if sold.

14

[QUOTE=Scuba_Ben]
You’re going to want to put half of your stuff in storage anyway, whether you’re showing the house to sell it or to rent it.

I seem to recall you bought the house in 2005, so you’ve lived in it for two years. That qualifies for a tax break; the gain on the house is free of federal tax. You’ll have three years after you move out during which you can sell the house and claim the full tax break. (IANA tax lawyer. Consult someone who is.).
[/QUOTE]

I bought it in September 2005, which means that it won’t be 2 years until next fall. Also, the townhouse in VA sold in January of this year, so doesn’t that change things? (Can’t you only sell one house every 2 years or something?)

(Right now, as a full time student, I am not earning enough to pay taxes, so that’s at least something, though I’m not sure if I’d have to pay taxes on the sale of a house regardless of income? Not sure how that works.)

I wouldn’t show it (for sale or rent) while my stuff was in it. Just wouldn’t do it. I’m moving out anyway, after all. Wouldn’t move twice and pay for storage just so that people would only see half of my crappy belongings. :wink:

15

[QUOTE=ouryL]
Doesn’t the house need to be insured to ensure the tenants don’t burn the house down?
[/QUOTE]

Well, yes, but the house has to be insured anyway, so it doesn’t really change anything… (it’s $61/month)

16

I’d sell…I’ve heard waaaaaaay too many horror stories about rental properties for so many years, I’m amazed people keep wanting to get into it.

17

I don’t want to get into it, but from my perspective it seems like the chance of me losing $6000 or more if I sell now is high… and where do I come up with $6,000?? I don’t have an extra $950/month to keep paying my mortgage after I’ve moved and am paying either a mortgage or rent on a new place in Ohio… I’m a single mother and a full time student and I don’t have savings or assets… how am I supposed to do that?

18

Well, OpalCat, I’m not a real-estate agent and no good at predicting the future, so I can’t say if renting it out for 3-5 years will end up being worth it. But I do know from my brother’s experience that being a landlord can turn out to be an expensive and time-consuming experience. The landlord is supposed to fix things that go wrong, and repair something that’s broken. I don’t know how the laws are in Georgia, but in California, my brother found that to evict someone that stops paying rent is a long procedure (which is a good thing, but no fun for the landlord.) I was with him when we had to take a rake to clean out the trash in the living room. If you were thinking that in the future you would move back into the same house, then sure. But if you are positive you will never live there again, my advice would be to sell it.

19

Yes, I see that it’s a tough choice, but you’ll be worse off if you have to pay rent in your new place and your mortgage in the old place (because you don’t have a renter for a few months) and pay a fee to some management company that is managing the rental property for you.

20

You probably don’t want to be stuck with an interest-only loan in a declining market, either. Besides all the scary tenant scenarios, if you have no equity now and the value of your house goes down, you’ll end up in a much bigger hole than $6000. You’ve got some time, why not try to negotiate the commission and see if you can sell the thing.