rent or sell house

[Joe Ricard]

Bought a fixer upper 5 years ago for 68K At the time we could only afford a 30 yr loan @6.75%

Well the house has been gutted and remodeled extensively we were putting wife's mom in the house for the last 4 1/2 years (it kept her out of my house). Now we have a house that we are not sure what to do with. We owe 50K and can either rent it and be driven crazy by nincompoop renters, or sell it for about 120K.

I think it is the thought of renters and the huge PITA they bring makes me think to sell it despite the market.

What's the smart move?

[Danny_Ocean]

If you can (actually) get 120k for it, sell it. That's a no-brainer. MS didn't appreciate like the rest of the country (which is now depreciating). Take the $$$ and

[dipso]

If the rent will cover the payment, rent it. You'll be sorry in 20 years if you sell it.

[Joe Ricard]

Yea the rent would be around 1100 a month. The note with taxes and insurance 695.00 So yea I shouldn't be losing any money.

It's a 1800 sq ft. 3 bed room 2 full bath 2 car attached garage. 1/2 acre land.

[kach22i]

In my area you will be required to refinance (not as low rate as owner occupied) it and get different insurance which is more expensive (in my area).

If you live more than 25 miles away, you are also required to sign up with a rental management company to maintain it and control the tenants (in my area).

In most cases (we live in a college town) the landlord gets hit with a fine as large as the tenants get if they have a loud party or something of that nature.

[dipso]

Originally Posted by Joe Ricard

Yea the rent would be around 1100 a month. The note with taxes and insurance 695.00 So yea I shouldn't be losing any money.

It's a 1800 sq ft. 3 bed room 2 full bath 2 car attached garage. 1/2 acre land.

That's 400.00 a month profit. 4800.00 dollars a year goes in the rental account. You get tenants for 2 years at a time lets say. I doubt they could do 10,000 dollars worth of damage every 2 years.
You are going to be making money AS the value of the house goes up.
Real estate doubles every 10 or 15 years supposedly, so in ten years you have made 48,000 dollars off the extra rent and now the house is worth 240,000.

20 years you got 100,000 in the rental account and a house worth 480,000.
I don't see the downside.

Plus, if after 5 years you find out being a landlord isn't for you, then sell it.

You can always sell it, you can't always buy it.

[Joe Ricard]

What part of China, or north Korea do you live in? Myanmar maybe?


Really? That so does not make it worth it to keep it. We have no such laws here. Heck we don't even have smog checks on our cars.

[Porsche-O-Phile]

If you are so fortunate as to be in a position where you can actually expect to cover your carrying costs with renters, I'd say it's kind of a no-brainer.

You are extremely lucky. In this area, it's about 1.5-2x the market rents to reach your carrying costs - and that assumes 100% occupancy and no flakes.

[Joe Ricard]

I like Dipso and Porsch a philes thinking.

If I can screen out the flakes it would be nice. I have been renting another property and so far I am 2 for 2 for getting losers who don't live up to thier end of the lease. I have sent them both packing at the end of the lease.

You should see thier eyes bug out when I give them notice that I will not be re-newing thier lease. Like how dare I kick them out. Ended up keeping 100% of the security deposit from one of them.

Thanks Ya'll I will probably give it one more try and then 3 strikes and I'm out.

[dipso]

My way you get the 4,8000 a year profit. You might lose some occasionally, bad renters, roof, etc but you still have the house to sell in the end which has doubled or tripled by that time.

Waynes way you have the 4,9000 a year profit, with no occasional losses, but no house to sell at the end. Waynes way though allows you to re-invest the profits, and with compound interest that will keep growing might even end out about the same with no hassles.

How about renting it and put the 4800 a year back towards the principal and when it is paid off thats 12200.00 a year profit and invest that.
Damn you could buy waynes 959.

[the]

Originally Posted by dipso

You can always sell it, you can't always buy it.

You can always buy one like it, or better, though.

And, in a declining market, for less money.

A good example is Motion. I remember when he moved to Montana and was talking about his Laguna Niguel house, 2 years ago. I posted that he should sell it, no brainer. He posted that he wouldn't, because it couldn't go down in value. Too much Asian money coming in would keep the price up, or something like that. I'm sure it's down a couple of hundred thousand by now. He could have sold it, pocketed his profit, and bought it (or one just like it, or better) today for hundreds of thousands less.

[svandamme]

or:
sell it, and buy a fixerupper cash
rent that one out
expand

[Danny_Ocean]

Originally Posted by dipso

Real estate doubles every 10 or 15 years supposedly, so in ten years you have made 48,000 dollars off the extra rent and now the house is worth 240,000.

Not in MS...and most of the rest of the country (e.g. MI). You Kalifornia folks are seeing the world through rose-colored glasses.

[biosurfer1]

I think Wayne's numbers may be a bit off, I don't get the same based on the $70k left over after the 50k is paid off after the sale.

If you can make what you said in rent, it doesnt make much sense to sell, especially with where interest rates are...

[Hugh R]

A rental has nice hidden tax breaks that you can take advantage of. Carpet your house, paint your house... guess which pile of recipts it can be stuck in at tax time.

[9dreizig]

Originally Posted by kach22i

In my area you will be required to refinance (not as low rate as owner occupied) it and get different insurance which is more expensive (in my area).

If you live more than 25 miles away, you are also required to sign up with a rental management company to maintain it and control the tenants (in my area).

In most cases (we live in a college town) the landlord gets hit with a fine as large as the tenants get if they have a loud party or something of that nature.

I find it hard to believe that ANYONE can make you re-finance.. I grew up in Michigan and short of the communist capitol of the midwest ( Ann Arbor) I can't believe you'd have to hire a rental company to manage it , even then how would they know ?? Also the insurance should be changed to rental pretty much anywhere if you're not living in it..

[turbo6bar]

Presuming 25% for expenses and $1100/month rent, capitalization rate is 8.25. It's not bad, but not great. Appreciation rate would enter the picture here. If your area is like North MS, prices are flat. The biggest strike against you is the fact you only have one rental. I like it either full bore (fleet of rentals) or empty. One or two can be a pain in the ass if you're not prepared to act professionally and efficiently. $5000 real profit and potentially greater paper profits are excellent when it's going good, but it's awful solace when things are in the crapper. I think you know what I mean. The tenant pool sucks ass right now. On the other hand, the cash flow is pretty nice.

You know there is no smart move. Just trust your gut. It's great you can't lose either way.

One thing you should consider is federal tax treatment of the home if you do decide to sell. Will the taxman consider your property an investment? If so, you will be liable for the 4+ years depreciation recapture, regardless of whether you took the deduction. The dollar amount won't reduce your bottom line significantly, but it is an expense to consider.

[Joe Ricard]

One thing you should consider is federal tax treatment of the home if you do decide to sell. Will the taxman consider your property an investment? If so, you will be liable for the 4+ years depreciation recapture, regardless of whether you took the deduction. The dollar amount won't reduce your bottom line significantly, but it is an expense to consider.

I have no idea what that is.

[Tobra]

Originally Posted by dipso

If the rent will cover the payment, rent it. You'll be sorry in 20 years if you sell it.

yeah, you pay somebody to manage it for you, if you can find someone reliable

Hugh you sneaky devilthat had never occurred to me

[Dueller]

Let's look at real numbers...you paid 68K 5 years ago on a 30 year fixed...loan balance is probably around 63K (unless you've doubled up or paid extra towards principal). So at $120K you'll net $46K after closing costs (I'm figuring 6% realtor's commission of $7200 plus some other closing costs).

If you have been declaring it as rental property on your tax returns and depreciating it for the tax breaks you'll likely have to pay capital gains on maybe $40K or so. Thats another $6K you'll lose...so your net "profit" will be $41K-ish. This doesn't account for payments you made along the way.

If you need the $41K or so net then sell it. If you need the deduction of rental property for tax purposes AND can cash flow it,then keep it.

Another way of looking at it. If you had $40K or so in the bank, would you buy this piece of proeprty as a rental investment to get the passive income and tax breaks and appreciation long term? If so, keep it. If not, sell it.