Author Topic: Sell house or rent out  (Read 5908 times)

Offline agentem

  • Prepper
  • **
  • Posts: 17
  • Karma: 1
Sell house or rent out
« on: April 28, 2011, 11:52:17 AM »
Need input.

I recently bought a foreclosed house from the government for about half of the market value. Totally worth it, no regrets there, it was a nice upgrade and better bug-in location after we made the fixes.

I do, however, have the problem of my old house. It's in an urban area in one of the "nicer" neighborhoods, so property values have actually stayed pretty level. However, I'm stuck with the dilemma of whether to sell it for a modest gain, or rent it out to generate a little income and then maybe try to sell it later on down the road.

I have plenty of equity in the place so selling would net me a nice check, but I think I may be able to do better on a sale once this inflation hits the real estate market again and I've got the asset. Based on market rates I could more than pay the mortgage and taxes on the rent and generate a little extra money every month.

I have no experience landlording so any outside thoughts on whether i should rent this out or sell would be appreciated, and if anyone has any experience leasing out properties or sites I could visit would be very much appreciated.

Thanks!

Offline boomer_sooner

  • Prepper
  • **
  • Posts: 30
  • Karma: 3
Re: Sell house or rent out
« Reply #1 on: April 28, 2011, 12:21:32 PM »
Two thoughts:

1) Renting is more difficult than anyone thinks.  When you rent, you're dealing with a different class of folks who often do not have the respect for property that most homeowners do.  I'm currently renting, so please don't take that as a blanket statement and get offended, but that's often true.  You've got to fix everything and the people in that house don't have any skin in the game.  That's not to say that you shouldn't do it, but I'd be very surprised if you rented a house for five years, spent no extra money, and then ended up selling it as though nothing had happened.  I'd bet on replacing carpets, doing some significant work on the walls, and maybe replacing some fixtures.

2) I wouldn't place a heavy heavy bet on inflation right now, particularly in the real estate market.  Inflation will eventually make it tough for people to get credit and I wouldn't assume inflation actually puts more dollars into anyone's pockets.  It could play out very differently, but there's another side of this issue.

I think it comes down to the market price and the realistic rental value.  Suppose your home would sell for $150,000 and you're able to rent it for $1250 a month.  That would tend to be a pretty good deal, because you'd clear 10% of the home value in revenue alone.  Even if you had to spend a few thousand a year on average in repairs, you'd be doing pretty well, especially since you can do some tax magic to deduct a lot of the net income from your taxes (see your tax professional for details).  That would amount to a 5-7% take on the house if you wanted to rent it out for a while.  I am less sure of the tax implications of selling a rental property, so some of your gain might be wiped out if you sold at a gain after renting for several years and claiming a depreciation deduction.

If you're in a place where the larger real estate market is unstable and/or the home value is much higher than my hypo, I lean strongly toward selling and investing the profits in renewable energy for your new homestead or doing something else that you find appropriate.

BTW: I have family who have rented out and have worked with landlords on a few occasions, but I have never landlorded myself and have no experience in very upscale neighborhoods, so add appropriate amount of salt.

Offline agentem

  • Prepper
  • **
  • Posts: 17
  • Karma: 1
Re: Sell house or rent out
« Reply #2 on: April 28, 2011, 12:40:12 PM »
Thanks,

Your hypo numbers are actually almost exactly what I'm looking at.

I know that inflation doesn't make anyone wealthier in real terms, but my thought is that while the inflation rises, so will the value of the house and the rental rates, but the mortgage will stay the same.

I am currently an employee at the state university so my income is pretty much fixed and not tied to inflation, so I'd like to have some sort of income producing venture outside of my employment. Renting property does give me pause, however, for the reasons you mentioned.

Offline boomer_sooner

  • Prepper
  • **
  • Posts: 30
  • Karma: 3
Re: Sell house or rent out
« Reply #3 on: April 28, 2011, 12:52:23 PM »
We TSP types don't tend to live in downtown LA (although some do), so I figured those numbers were right.  I wouldn't let those factors panic you and scare you off, but you might do some things to mitigate those risks.  One thing you can do is have a big security deposit: filter out people who are the least likely to respect your property.  I'd like to do some rental property eventually, and one of my ideas is to charge a below-market rent with a large security deposit.  Get some people in there who have some money but are renting for personal reasons.  If you could actually get a couple thousand bucks of security deposit, that'd be some skin in the game.  Another idea might be to just keep tabs on the property more closely than most people do.  If you're into landscaping at all, maybe you could offer a lawn service for a little extra per month.  That would give you a great excuse to say, cut the grass around the property and walk around it every month without creeping out the folks who are your tenants.

Sad government entitlement story: my father in law manages three houses for his mother in law, who is eighty and a bit old to be handling that stuff herself.  Grandma's best client is a section 8 renter who has been there for EIGHT YEARS.  She hasn't torn it up or anything, but neither has she begun to take care of herself.  Luckily, your place is too high-end for that kind of person, and even if it weren't, I wouldn't accept section 8 to save my life.

Offline excaliber

  • Survivalist Mentor
  • *****
  • Posts: 504
  • Karma: 26
  • gunning in Iraq
Re: Sell house or rent out
« Reply #4 on: April 28, 2011, 01:05:14 PM »
well I would vote for selling it,

my parents had a rent house, and had nothing but bad experiences,
legally, it is near impossible to get someone out of your house in anything kin to short time. if they quit paying rent.

  some folks will not leave even after you had them your eviction notice, specially if they are up on the laws, they will cause you
to jump through legal hoops, to get the legal documents, and court order.
  it's not as simple as changing the locks, then YOU have broke the law by denying them access
to a home they have not been legally removed from,

  my parents fought this battle more than once, and the last tenants, when they were finally removed by the court after living rent free for six months,
they stole most everything, the carpet, door knobs, shelve handles, outside screen door, and yes even the bathroom sink.
and broke what they did not steal, like the ceiling fans, and hot water heater lines and knobs.

a lot of this could be avoided by really screening the applicants, (references, talk to their employer, and a credit check)
and it is not like you will get rich on only one rent house, you will make a few dollars, but you are also still responsible
for the upkeep,something like a new heat and air unit will eat up a years profits. or roof repairs, new refrig etc. so your back to even that year,
  then the normal things, faucets that need replaced, garbage disposal they broke, door knobs, lawn care, etc will take up a lot of your time.

I would sell it and invest in something that made a little money and required less time, or pay off my bills, so I could live a better
quality life. and add to my savings.

Offline TexDaddy

  • TSP Goat Wrangling Geezer. He is EVIL also.
  • Moderator On Leave
  • Forum Veteran
  • *
  • Posts: 12300
  • Karma: 265
  • I live in Texas. What country are you from?
Re: Sell house or rent out
« Reply #5 on: April 28, 2011, 01:12:53 PM »
For reasons listed above, I personally, will never be a landlord. I say, sell it, take the money and make your best investment choice. Modest gains are good.

Offline Docwatmo

  • May Ignite Spontaneously
  • Administrator
  • Survival Veteran
  • *******
  • Posts: 8704
  • Karma: 259
  • The Prepper Rising from the Ashes
Re: Sell house or rent out
« Reply #6 on: April 28, 2011, 01:17:11 PM »
We had a rental property once.  NEVER AGAIN.  If you get good tenants its a breeze, if you get bad tenants its a nightmare of biblical proportions. 

You either spend a TON of money and time up front screening possible tenants (and that is no guarantee) or you take your chances and end up losing money on the back side.  (ended up taking them the small claims court for the 2300 in back rent and other fees and never saw a dime of it.  He kept changing jobs to avoid garnishments.

Some people have good luck.  And our first tenants were great people.  But you really do take your chances.

In the end its your choice,  and you may have a great go of it.  Just be aware of the costs and possible downside and you'll be ok.

Doc

Offline agentem

  • Prepper
  • **
  • Posts: 17
  • Karma: 1
Re: Sell house or rent out
« Reply #7 on: April 28, 2011, 01:32:19 PM »
Thanks for the responses so far!

So another thing is that I'm currently a law student and have free access to background check prospective tenants. Not sure if that would change anything.
« Last Edit: April 28, 2011, 02:13:59 PM by agentem »

Offline el_brownbear

  • Prepper
  • **
  • Posts: 28
  • Karma: 0
Re: Sell house or rent out
« Reply #8 on: April 28, 2011, 09:43:41 PM »
SELL!! SELL!! SELL!! Just saying. I have been a landlord for about 8 years to 3 different properties. All tied to debt (mortgages) and ALL had bad tenents at one time or another. I still have 1 unit that I would love to unload but am stuck for the moment because I'm upside down in the deal. If you can make a profit....and then look to pay off consumer debt or payoff current home you live in or buy more preps or etc. I really don't think you would regret it one bit, but I will all but guarantee you will regret being a landlord one day. That's kind of like the death and taxes bit! But, you are the one who has to make the choice. Think about it...hard. Good luck!!

Thanks,
Charlie

Offline MTUCache

  • Dedicated Contributor
  • ******
  • Posts: 1067
  • Karma: 89
Re: Sell house or rent out
« Reply #9 on: April 30, 2011, 05:37:04 PM »
SELL!! SELL!! SELL!! Just saying... I still have 1 unit that I would love to unload but am stuck for the moment because I'm upside down in the deal. If you can make a profit....and then look to pay off consumer debt or payoff current home you live in or buy more preps or etc. I really don't think you would regret it one bit, but I will all but guarantee you will regret being a landlord one day....
This.

Everything we hear about debt applies here, even if it's so-called "good debt" like a fixed rate mortgage.
It's just another risk you have out there, something else hanging over your head that could bite you later.

Add to that the risk that you have as a landlord, maintaining two houses and being dependent on someone else to keep your mortgage current... it's not something that I took lightly.

I've had a condo unit in Detroit rented out for more than three years now. Even with very respectable tenants who have had next to no problems, there's still headaches. There's still checks a few days late. There's still a refrigerator to buy. There's still upkeep that needs to be done. Even if I was "making" money on the place (which I'm not), it would hardly be worth the pain that I've put up with to this point.

If you have the opportunity to sell property right now and use that money for other things that make you more independent instead of less (paying off college loans, preps, upgrading your current location, etc), I would be strongly leaning towards that.

I was a landlord for a bunch of buddies back in college. I'm a landlord right now (unwillingly). If there's anything I've learned it's that I'm not cut out for it. I'm naturally a very risk-averse person who also isn't the strongest negotiator (something I'm working on, but it's definitely a flaw). I've also got a young family and a very tight budget... I'm not in a position to be making a handful of dollars by sticking my neck out. Unfortunately it's a position I've ended up in anyway, but I certainly wouldn't choose to be in this situation if I didn't have to be.

Offline Howard Wallace

  • Master Goat Inflator
  • Survivor
  • ***
  • Posts: 171
  • Karma: 29
Re: Sell house or rent out
« Reply #10 on: May 01, 2011, 01:07:11 PM »
I'm in a very similar situation and one of my houses goes on the market in a couple of weeks. 

I figure this course allows me to improve my debt situation, and also to build up a cash position that could be used for investment if there is a crash. 

Offline Roundabouts

  • Dedicated Contributor
  • ******
  • Posts: 1380
  • Karma: 66
Re: Sell house or rent out
« Reply #11 on: June 10, 2011, 10:01:42 AM »
We have had rental houses in the past and sold them.  Why?  We were dumb!  Hind sight 20-20.  We had good renters and bad.  Once I started reading up on how to be a land lord and pick tenants no more bad ones.  Of course that could have changed very easily.  My parents made their wealth with rental properties and I know of others who have also done that as well.  Their motto no matter how bad things get people will always need a place to live.

 You have to look at your reasons for getting into rental properties.  It is a business so duh there will be overhead.  You have to understand that and there will be work involved.  I do not advise any one to get into this without doing your homework first.  What are your goals?  You could sell and be free and clear of debit use your money to make your place the way you want it.  You could sell or do and exchange and get 2 rental properties.  You have to want to be in this business. 

Also it is a must to know your local laws.  That is so important!!  Where we are if you have to evict someone they are gone.  The first time we did it we hired a lawyer.  Yes it cost some $$ but the education we got was well worth it. Just a few bucks in letters and small claims court the judge looks at the tenant and asks one question do you own that property?  No then you have to move.  If you are not gone the sherif will arrest you for trespassing.  The laws in my area favor the property owner.

To pick renters what we did was while they were inside talking and touring the house one of us would go out and look at their car.  If it was filthy and piled up with garbage it was a no deal.  How was the tread on the tires?  worn? they haven't the money or concern to fix that. Most likely they wont take care of your house their home.  Also always "forget" to have one paper signed.  That way you just happen to be in their area and pop in their current place to have them sign. ( don't give them more that 15 min lead time) Again someone could ask to use the bathroom check in out visually. Ok so towels may be on the floor but is there crust behind the door around the toilet.  You are looking for signs of neglect.  Often times people can and will run around real fast to pick things up tidy just a bit. You can't hide neglect or huge holes in the wall. 

Also you can give a good tenant discount.  If they pay their rent 1 week early they can save say $25-$50 if they take care of all repairs less than say$100-$200 they can take $50-$100 off the rent.  Make sure you show them a check list "training"  that they have to sign and agree to.  Have one laminated and hang in a cupboard.  This should contain all the little things like when  to change a smoke detecter battery, change furnace filters, cover hose bibs for winterization,  any other regular maintenance thing that needs done on a regular basis.  Then once a year for a reward for say maintaining their yard buy them a flat of flowers or bark.  The whole idea is to empower them.  So many renters feel it's not my "house" so what do I care (bad news)  It is their home and they should want to take care of it.  Make sure you have a good contract one that spells out the above and what ever other incentives you decide to make.  When you find a great perfect one appreciate them by giving them an extra perceived value.

If you do not want to be a business owner sell as fast as you can. Best of luck

Ps in case you are wondering why we sold? Hubby listened to his people and I followed hubby.  Hubby now kicks himself and I do too for not putting my foot down when needed.  We are currently looking for rentals on and off. 

Offline stayfrosty

  • Prepper
  • **
  • Posts: 90
  • Karma: 3
Re: Sell house or rent out
« Reply #12 on: June 30, 2011, 12:59:02 AM »
I agree with other posters that you MUST do your homework before becoming a landlord. My wife and I rented out her apartment to a woman with good credit and worked at very respectable companies in the past. She ended up not paying rent for two months, lost various important keys and then leaving. We paid to have her evicted, paid for early moving fees (when she moved out early without us knowing), paid for Sheriff fees to issue papers, and paid for a private investigator to track her down. At the end of the day, we were out about $6,000 and there is nothing the law can do about it. If your tenant loses their job, you are screwed. You will be the LAST PERSON on the list of creditors. The law has so many loopholes that completely leave landlords out to dry when tenants don't pay.

frosty

P.S. - The fact that a person can get 20 years for stealing $6K from a bank, but can walk off scott free for stealing $6K in rent from a citizen... makes me sick.

Offline MaddoginMass

  • Survivalist Mentor
  • *****
  • Posts: 525
  • Karma: 10
Re: Sell house or rent out
« Reply #13 on: June 30, 2011, 06:51:36 AM »
I have nothing to add that has not already been said.  I rented out a house once, even using a management company, and I'll never be a landlord again.  Many tenants have no respect for the owners of the house.

Offline NotoriousAPP

  • Senior Survivalist
  • ****
  • Posts: 261
  • Karma: 10
Re: Sell house or rent out
« Reply #14 on: June 30, 2011, 07:54:15 AM »
I have three rental units and I've had a lot of scum pass through them.  Whatever you decide make sure you have a large reserve of cash on hand to replace AC units, refridgerators, etc.  Always plan on worse case conditions when the tenant moves out: replace all carpets, paint all the walls, replace an interior door or two, patch dry wall, yard clean up, garbage haul off, etc.  I've had this happen many times, you have to be prepared for it.

Stay away from property management companies, they're worse scum than the tenants.  I went through three companies at around $15k before I decided to manage my properties myself.

Think hard about this one.  I can't wait to get rid of my rentals.