Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Spare house as income, when is it nay?
Old 05-27-2011, 05:19 PM   #1
Recycles dryer sheets
iam21177's Avatar
 
Join Date: May 2011
Posts: 159
Spare house as income, when is it nay?

Hello all,

35 here and I own a house. I'll be moving in with my fiance soon who also has his own house. I'm trying to decide if I should keep my house or sell it. No plans to move back into it.

I think the numbers say sell, but there's that emotional factor of letting go of that house and that awesome yard.

Before I give you the numbers/details, I am pretty sure that I will not be able to cover the mortgage with rent (based on opinions from property management places). I think I'll fall short $200-100 in covering the mortgage (management fees would be extra).

The market is stagnant here and we've never experienced booms when other places do, so even holding on to it for 5 more years may not be that profitable, considering I will fall short each year $1200-2400 on the mortgage. Being an old house too (1925), I could sink more in repairs (but I hear that is deductible). I haven't had too many repairs in the past 7 years I've lived there, but they could be coming. We thought I could break even at best in 5 years - based on our non-expert opinions.

Also, if I sell, I could take my profit (not much, no more than $10k based on real estate agents guesses - there was a refi/buy out in 2008, that's why it's so small) and pay off my student loans and/or put half towards a retirement fund. We're talking nearly debt free.

So I can give # on recent appraisals, mortgage value, possible listing/purchase prices if that will provide more info.

OR

Is a stagnant/slow market and rent not covering mortgage enough to not venture down this road?

Facts will help me get over the emotional attachment.
__________________

__________________
iam21177 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 05-27-2011, 05:40 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
calmloki's Avatar
 
Join Date: Jan 2007
Location: Independence
Posts: 5,459
My gal & I got started on our rental pile when we got together and ended up with 2 places, only one of which we lived in. Normally I'd be urging you to build your fiefdom from this happy point.

With only $10k in equity I'll suggest selling, especially if you are looking at negative cash flow. Tenants will amaze you on repair costs. Carpets that an owner can live with happily for 15 years won't make it 5 in a rental. Pedal the place and focus on your new lives together.

My from the hip suggestion.
__________________

__________________
calmloki is offline   Reply With Quote
Old 05-27-2011, 06:49 PM   #3
Recycles dryer sheets
glippy's Avatar
 
Join Date: Mar 2010
Location: New England
Posts: 197
"...but there's that emotional factor of letting go of that house and that awesome yard."

I thought you were gonna say you were going to hold on to it because you could clear $400/month after expenses renting it out.

But that not being the case...

I guess if you see some value in spending ~$3,000/year so that you can be the official owner of a yard you never see, then it might be worth keeping.
__________________
glippy is offline   Reply With Quote
Old 05-27-2011, 07:03 PM   #4
Thinks s/he gets paid by the post
 
Join Date: Oct 2008
Location: Naples
Posts: 2,161
Personally, I like rental property to build your portforlio. However, in my personal experience, I almost always did the minor repairs myself and got some major repairs done on the cheap by contracting them to people in exchange for other items of value. Using the barter method. Also, you mentioned the dreaded words "management fees". Can't you do the managing yourself? Hire your live in to do the managing. Anything to defer or eliminate expenses. You and he just have to sit down and talk about it. Put numbers on paper. Then again, maybe you aren't into that sort of thing so it might be better to just sell it.
__________________
JOHNNIE36 is offline   Reply With Quote
Old 05-27-2011, 07:19 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2006
Posts: 11,016
If you had a lot of equity in the house and could see the end of the mortgage coming, and if you were prepared to manage the rental yourself, it might make sense to take a small monthly loss now, banking on increased equity and increased rents in the future.

However, given the facts presented, it seems to me that this is "spare house as expense". Ask yourself: would this be a good investment if you were buying it now as a rental property? Cash flow is king! Don't let sunk costs and your emotional attachment to your home cloud your judgment about your house.
__________________
Meadbh is offline   Reply With Quote
Old 05-27-2011, 07:46 PM   #6
Full time employment: Posting here.
arebelspy's Avatar
 
Join Date: Apr 2011
Posts: 625
I'm a big fan of real estate and rental income, but taking 10k equity is much better than negative cash flow every month. Sell.
__________________
arebelspy is offline   Reply With Quote
Old 05-27-2011, 08:19 PM   #7
Thinks s/he gets paid by the post
GregLee's Avatar
 
Join Date: Oct 2010
Location: Waimanalo, HI
Posts: 1,881
Don't forget transaction fees, in making your comparisons. I mean, a good thing about that house of yours, and the mortgage, is that you already have them. If you just keep the place, you don't have to pay new fees to change your arrangements.
__________________
Greg (retired in 2010 at age 68, state pension)
GregLee is offline   Reply With Quote
Old 05-27-2011, 08:29 PM   #8
Full time employment: Posting here.
 
Join Date: Jun 2007
Posts: 567
Rent
-5-10% for vacancy (unless you're positive you can get a long term renter)
-5-10% for property management (either paid to you or paid to someone else)
-10% for repairs (maybe more if you're not doing it yourself... could adjust down, but with no major repairs in the last 7 years on a 1925 house, you might be due in a few years)

Not budgeting for repairs is going to hurt. Vacancies will hurt. Prop management, especially if you're not doing it yourself, will hurt.

On the other hand... how do things look if you guys move into your house and rent his? Or, sell both, buy a duplex, live in half.... that way no one gets the yard

eta: also, not to scare you, but it's kind of hard to discriminate against tenants.... when we bought a rental in a college town, we were told about a couple that rehabbed an older house and then rented to 4 of the rugby players. After a year, they had to completely rehab again. Over the long term, probably not a big deal. Over the short term, if already negatively cash-flowing, well, that would be a tough pill to swallow.
__________________
Webzter is offline   Reply With Quote
Old 05-31-2011, 01:37 PM   #9
Recycles dryer sheets
Eyerishgold's Avatar
 
Join Date: Aug 2007
Posts: 222
My wife and I kept our townhouse to rent out after we bought a new home. The most challenging part is dealing with tenants. I'm in the process of evicting a tenant right now. I ran a credit check, background check, verified employment and income, called references, etc, and they still turned out to be terrible tenants. They're behind on the rent, have had 4 complaints filed against them with the association and have had the police called twice.

So, aside from the money issue. Make sure you have the temperament to deal with tenants and the issues that come along with owning rental property. If you don't think you can handle everything that comes along with owing a rental then my advice would be to either hire a manager or sell. But, give some serious thought to the other issues that may arise besides the negative cash flow.
__________________
Rather go to bed without dinner than to rise in debt. - Benjamin Franklin
Eyerishgold is offline   Reply With Quote
Old 05-31-2011, 02:31 PM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,380
Quote:
Originally Posted by ginadog View Post
Hello all,

35 here and I own a house. I'll be moving in with my fiance soon who also has his own house. I'm trying to decide if I should keep my house or sell it. No plans to move back into it.
If you really like it, why not keep it until you are married and feel pretty sure that you will not want to live apart again.

This really nice couple who lived across the hall from me spent $600,000 on a townhouse, and within 4 months they are divorced. Talking to him, it seemed like the change from the freedom of renting brought up other questions that had perhaps been out of sight- like are we going to start a family? If his job takes him elsewhere, will I go along?

The permanance feeling suffocated them.

Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 06-03-2011, 02:27 PM   #11
Recycles dryer sheets
iam21177's Avatar
 
Join Date: May 2011
Posts: 159
Thanks for the responses and questions for both sides of the situation.

"You and he just have to sit down and talk about it. Put numbers on paper. Then again, maybe you aren't into that sort of thing so it might be better to just sell it."

Based on our guestimates, even without management fees and say minor repairs we can handle, we figured the best case scenario would be to break even in 5 years, but we aren’t professionals. Reason: stagnant to slow appreciation rates with shortage on rent.

"Ask yourself: would this be a good investment if you were buying it now as a rental property?"

It would be a good rental property if I had a larger down payment when I bought it.

It had ~$32K in equity 3.5 years ago, I rolled in half into my refi to pay out my ex in cash, and kept my $16k in the house as equity, but with slow appreciation rates and all the selling fees should I sell, the resulting profit would have been $8,500 one year ago. It was probably that action that makes this no longer an investment and more of an expense. Alas it was the right move at that time. At least there is profit.

"On the other hand... how do things look if you guys move into your house and rent his? Or, sell both, buy a duplex, live in half.... that way no one gets the yard"

We talked many different options such as moving to my house (old, creaky and small), and even living in his house while tearing down and building new on my property. We didn’t like the new build idea at all though.
I can get over the house. I only really love it when it’s spring/early summer. Otherwise it’s really cold in the winter and super hot in the summer. We talked of buying a house together in the future, and decided we would revisit that in a year when we are married and see how I’ve adjusted to his house. His house is bigger so we could downsize in the future but get a great yard. His tournament sized pool table would not fit in any room of my house. I'd be like that Seinfeld episode with the Maestro. LOL.

“So, aside from the money issue. Make sure you have the temperament to deal with tenants and the issues that come along with owning rental property.”

That is a valid point as well. When I was in college, I played landlady to my dad’s condo. I lived with 10 people I’ve never met before, interviewed them, set up leases. If I covered the mortgage with renters, then my room was free. But then again, there is something to say about the simplicity of just not having to deal with that aspect – people, difficulties, extra repairs. Simplify life.

“If you really like it, why not keep it until you are married and feel pretty sure that you will not want to live apart again.”

Yes, I have thought of keeping it mainly as a “safety net” for this engagement period. I had to weigh the cost of keeping the house a year at least against with the risk of the engagement falling through. I think the greater good of our forces combined does outweigh the idea of having a cute, old, little house on the river should I become single. Someone else asked if I were suddenly single again could I afford something similar if I had to buy again. Yes, somewhat. Worse case scenario, I'd be single, debt FREE and have to rent or buy cheaper.

I have milled over all of this, a lot, maybe more than most (I've had a whole year to think about this). Sometimes I just have to go with the facts and just DO.

Update: Just emailed the agent for an assessment. Going down that road at the moment. It sounds like I'm arguing for that side.
__________________
iam21177 is offline   Reply With Quote
Old 06-08-2011, 07:53 PM   #12
Recycles dryer sheets
 
Join Date: Nov 2007
Posts: 103
I think the bigger question should be whether you want an extra job or not. IMO, owning an extra home is a job, quite unlike a passive investment like a mutual fund.

Regarding current market price, ignore them and price the house at a fair price. It makes no difference if current market prices are low or high because it will not change the fact that you have no way of knowing which way it will go in the future. I just watched a video on Robert Shiller give his opinion on which way housing prices are headed, and he basically said he has no idea. What that means is if he doesn't, then most certainly neither do you or I.

All things being equal, I think owning your own home (that you live is) is more often than not a good idea. Owning additional homes - again, all things being equal - is usually not a good idea, especially when you factor in the time/stress factor. Get that money liquid and put it to work in a passive investment so you don't have to work too. My disclaimer though is that I'm naturally lazy which is why I'm on a forum like this in the first place.
__________________
slazenger is offline   Reply With Quote
Old 06-26-2011, 10:21 PM   #13
Recycles dryer sheets
 
Join Date: Jul 2004
Posts: 173
Quote:
Originally Posted by ginadog View Post
Hello all,

35 here and I own a house. I'll be moving in with my fiance soon who also has his own house. I'm trying to decide if I should keep my house or sell it. No plans to move back into it.

I think the numbers say sell, but there's that emotional factor of letting go of that house and that awesome yard.

Before I give you the numbers/details, I am pretty sure that I will not be able to cover the mortgage with rent (based on opinions from property management places). I think I'll fall short $200-100 in covering the mortgage (management fees would be extra).

The market is stagnant here and we've never experienced booms when other places do, so even holding on to it for 5 more years may not be that profitable, considering I will fall short each year $1200-2400 on the mortgage. Being an old house too (1925), I could sink more in repairs (but I hear that is deductible). I haven't had too many repairs in the past 7 years I've lived there, but they could be coming. We thought I could break even at best in 5 years - based on our non-expert opinions.

Also, if I sell, I could take my profit (not much, no more than $10k based on real estate agents guesses - there was a refi/buy out in 2008, that's why it's so small) and pay off my student loans and/or put half towards a retirement fund. We're talking nearly debt free.

So I can give # on recent appraisals, mortgage value, possible listing/purchase prices if that will provide more info.

OR

Is a stagnant/slow market and rent not covering mortgage enough to not venture down this road?

Facts will help me get over the emotional attachment.
I live in a major metro area in the SW. We have a friend who is about to buy a 65k foreclosure that is a 3 bedroom townhouse. (It only shares a garage, so it's almost single family.) She's buying it as a primary residence, but even with a mortgage, this home could be rented and clear $400 per month as there are no fix up costs. These kind of homes are all over the place.

If you have cash you can easily make 15%-20% of your investment in this town in one year! In other words, you would have a payoff in 5-7 years.

What I'm getting at is this: get out of the house and save up a boatload of cash. You don't want any mortgage that's over a year old.

The real estate mkt will take years to unravel and if you can snatch up one house per year in a decent mkt, you'll be writing in a few years as one of the happily retired on this forum.

But don't mess around with ANY house that is upside down. You can always short it if the bank will not cooperate. But get out and start saving a ton of cash. There is NO reason in this market to own a home that is negative a couple hundred. Even with a mortgage, you should be clearing several hundred. These kind of opportunities are rare.
__________________
Whisper9999 is offline   Reply With Quote
Old 06-26-2011, 10:29 PM   #14
Thinks s/he gets paid by the post
GregLee's Avatar
 
Join Date: Oct 2010
Location: Waimanalo, HI
Posts: 1,881
1925! I love old houses. (Mine goes back only to 1946.) I wish you could find a way to keep it.
__________________

__________________
Greg (retired in 2010 at age 68, state pension)
GregLee is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
401K Yay or nay? Wormrider FIRE and Money 16 11-29-2009 04:49 PM
This why you have spare keys Notmuchlonger Other topics 7 12-12-2008 08:40 AM
Got any spare change, mister? cute fuzzy bunny Other topics 28 02-14-2006 12:17 PM

 

 
All times are GMT -6. The time now is 05:19 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.