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Thoughts on keeping and leasing my house (that still has a mortgage)
Old 09-24-2019, 12:30 AM   #1
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Thoughts on keeping and leasing my house (that still has a mortgage)

I am planning on retiring in the next year and have a house worth $450K that has a $200K mortgage balance. My friend who retired early has been helping me and thinks I should sell it now, downsize and be done with it, but I hate to pay the commissions and repairs right now and want to try out full time RV'ing for a couple of years (I am 60, single, tired of working and ready to do some traveling). I would buy a $30,000 RV for cash and lead a very modest lifestyle and work part time from the road.

House is in the growing and fairly hot area of West Plano Texas, and the current payment is $2100 month at a 4.65% interest rate, and I'm 10 years into the 30 year mortgage. I have been paying about $200 month extra towards principal.

I can lease it for 12 months for $2800/mo (without much prep cost), and then probably keep on leasing it with 2-3% annual increases for several years thereafter. Would this make sense considering during a couple of years full time RV'ing? On top of not wanting to pay the commissions and repairs picky sellers here ask for, I don't want to sell right now in case I don't like the RV lifestyle and want to come back to the house. If that happened, I probably come back after a year and then live in it for maybe another 2-3 years and then sell.

I am trying to see the downside of not spending the money right now to unload the house, and making $400-600 a month to help with my on-road expenses and healthcare costs before I can get on Medicare, and having somebody else pay my mortgage down before I do decide to sell, with the house hopefully continue to increase in price 2-3% per year.

I'm guessing somebody else has already been there and done this. Thoughts?
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Old 09-24-2019, 02:55 AM   #2
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A (fairly) hot real estate market can turn cold.
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Old 09-24-2019, 04:24 AM   #3
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You will not make $400-$600 a month. You will have vacancy and collection loss, taxes and insurance if not included in your mortgage, repairs and maintenance, HOA fees if applicable, plus capital improvements. Over time, you will likely lose money on the house. To be a successful rental, the rule of thumb is 1 percent of the value per month and 50 percent of the rent goes to expenses, including capital improvements.

If you haven't traveled in an RV, consider renting one for your next vacation. Many people romanticize RV travel, but the day to day reality isn't what they really want.
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Old 09-24-2019, 05:31 AM   #4
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You will not make $400-$600 a month. You will have vacancy and collection loss, taxes and insurance if not included in your mortgage, repairs and maintenance, HOA fees if applicable, plus capital improvements. Over time, you will likely lose money on the house. To be a successful rental, the rule of thumb is 1 percent of the value per month and 50 percent of the rent goes to expenses, including capital improvements.

If you haven't traveled in an RV, consider renting one for your next vacation. Many people romanticize RV travel, but the day to day reality isn't what they really want.
Very good post.
I've rented my previous residence for about 9 years after a w*+! relocation and bought a second home in my new location. My goal is to retire back to the house when I am done.

My experience with renting is very well summed up in the previous post. Also add property management cost that will run at least 10% of your rental revenue. As I post this today I am having the house updated from 9 years of rental wear. This alone will cost me a few months rent and $20,000 - $30,000.

If you want to keep the house, renting it helps offset the mortgage expense, nothing more.

If you have no real desire to retire at the home, sell it now and save yourself headaches and expenses.
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Old 09-24-2019, 12:00 PM   #5
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You will not make $400-$600 a month. You will have vacancy and collection loss, taxes and insurance if not included in your mortgage, repairs and maintenance, HOA fees if applicable, plus capital improvements. Over time, you will likely lose money on the house. To be a successful rental, the rule of thumb is 1 percent of the value per month and 50 percent of the rent goes to expenses, including capital improvements.

If you haven't traveled in an RV, consider renting one for your next vacation. Many people romanticize RV travel, but the day to day reality isn't what they really want.
I would try not to use "Rules of Thumb" for calculating a rental ROI. I think you need to be financially prepared for major unexpected expenses (cash reserve), but I wouldn't include them in annual calculations. I believe they are impossible to predict accurately. For example, I have had rentals for 40+ years (counting like 2 rentals for 5 years = 10 years) and my vacancy rate is less than 7 days. My collection loss is about $900. If I were to use 1% per month of the total value on my $1M townhouse, that would be $120K per year of maintenance. I have been averaging about $600 per year.

I would look closely at the condition of your house and what's most likely needed for the next several years. Then look at your maintenance history and pick an amount that represents your routine maintenance. If you plan to rent the house for just a few years you will not likely have any capital improvements.

I would look at your capital gains situation. If you turn your primary home into a rental, it will affect the capital gains exclusion amount if you sell at a later date.
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Old 09-24-2019, 12:06 PM   #6
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Personally I would rent it. Not for the income but to keep a place to come back to if and when you become tired of RV living.
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Old 09-24-2019, 12:17 PM   #7
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Very good post.
I've rented my previous residence for about 9 years after a w*+! relocation and bought a second home in my new location. My goal is to retire back to the house when I am done.

My experience with renting is very well summed up in the previous post. Also add property management cost that will run at least 10% of your rental revenue. As I post this today I am having the house updated from 9 years of rental wear. This alone will cost me a few months rent and $20,000 - $30,000.

If you want to keep the house, renting it helps offset the mortgage expense, nothing more.

If you have no real desire to retire at the home, sell it now and save yourself headaches and expenses.
Yikes. MY ole man, my sister and I have been in the rental business for a loong time > 30 years and have never had a 20 to 30k expense. This seems extreme IMO. We've done roofs, windows, carpet all around, paint all around, new appliances etc etc and never has it added up to 30k. The key to rentals is cash-flow, and minimize the businesses expenses and risk by selecting long term tenants.
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Old 09-24-2019, 12:34 PM   #8
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I would try not to use "Rules of Thumb" for calculating a rental ROI. I think you need to be financially prepared for major unexpected expenses (cash reserve), but I wouldn't include them in annual calculations. I believe they are impossible to predict accurately. For example, I have had rentals for 40+ years (counting like 2 rentals for 5 years = 10 years) and my vacancy rate is less than 7 days. My collection loss is about $900. If I were to use 1% per month of the total value on my $1M townhouse, that would be $120K per year of maintenance. I have been averaging about $600 per year.

I would look closely at the condition of your house and what's most likely needed for the next several years. Then look at your maintenance history and pick an amount that represents your routine maintenance. If you plan to rent the house for just a few years you will not likely have any capital improvements.

I would look at your capital gains situation. If you turn your primary home into a rental, it will affect the capital gains exclusion amount if you sell at a later date.
I bolded the above - and vote for selling and scooping up those tax free homeowner capital gains.

My thought is that looking at your own maintenance costs and thinking that they are comparable to rental maintenance costs is fallacious. Maybe more like quadruple for the rented time. Our rental apartment carpets are done at 5 years, interior paint every 2-3 years, appliances take a beating, walls and doors and door frames ditto - if you are fond of your house you are going to have your feelings hurt when you see it again after a rental period - sell now and open up your options for the future.
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Old 09-24-2019, 01:37 PM   #9
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We had renters do a lot of damage and it cost us money to fix it up to sell. If the house is nice don’t rent it.
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Old 09-24-2019, 06:43 PM   #10
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Yikes. MY ole man, my sister and I have been in the rental business for a loong time > 30 years and have never had a 20 to 30k expense. This seems extreme IMO. We've done roofs, windows, carpet all around, paint all around, new appliances etc etc and never has it added up to 30k. The key to rentals is cash-flow, and minimize the businesses expenses and risk by selecting long term tenants.
It is not the type of house you typically rent.
Large brick house on a 1 acre lot with a stream running through the property. In a private golf course community.

The updates include all new flooring, total interior repainted, and updating fixtures, and it has a well for the irrigation system that needs a new pump. Trimming a large tree that overhangs the roof, pressure washing the house drive and sidewalk, having the irrigation tuned up and fixed, etc.

The house needs to stay in a condition that fits the neighborhood.

Renting it was the most viable way to keep the property for our retirement. Trust me, there has been some soul searching on keeping it or not.
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Old 09-24-2019, 06:50 PM   #11
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Just remember about the capital gains rules for selling your primary residence. You can exclude up to $250k (500k for married) of your gains if you've lived in the house for 2 of the last five years.

That's assuming you have gains on the house of course.
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Old 09-24-2019, 07:10 PM   #12
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Just remember about the capital gains rules for selling your primary residence. You can exclude up to $250k (500k for married) of your gains if you've lived in the house for 2 of the last five years.

That's assuming you have gains on the house of course.

https://www.irs.gov/faqs/capital-gai...-of-home-etc-5
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Old 09-24-2019, 08:54 PM   #13
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I'd look to refinance if I were going to keep the house. That mortgage rate is not competitive in today's market.
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Old 09-24-2019, 09:36 PM   #14
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Yikes. MY ole man, my sister and I have been in the rental business for a loong time > 30 years and have never had a 20 to 30k expense. This seems extreme IMO. We've done roofs, windows, carpet all around, paint all around, new appliances etc etc and never has it added up to 30k. The key to rentals is cash-flow, and minimize the businesses expenses and risk by selecting long term tenants.
I had a $30K flat roof. Adding in a kitchen ceiling that collapsed, it was a bit more.

The problem is how to find a quality long term tenant. Most people do not have a clue, and do not want to take the time to learn. Or they trust their 'gut', much like the victims of Ted Bundy and the BTK killer.

Credit score is key, credit score for a house like this should be at least 675, for all occupants. And for a $2800 rent, income should be at least $112K a year.
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Old 09-24-2019, 11:11 PM   #15
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RVing is lots of fun. Wife & I lived in a 24-footer for almost a year, but we were more than ready to buy a house at the end. We were newlyweds, & so didn't mind the closeness, but there's no way to do hobbies, or much of anything else. We're still married after 42 years, BTW.


Go ahead & rent your house. We rented one large home in Wyoming, another large home & an apartment in Louisiana, & an inherited home in Arizona, all at the same time when we moved here to Hawaii. Interesting juggling act, but it turned out fine for us. Eventually sold everything off when the markets were right. No regrets.
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Old 09-26-2019, 09:21 AM   #16
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One rental will be a loser if you are not close and have to pay for professionals to do repairs. If you get tired of rving you will want a smaller home in a different location. Storing furniture and belongings will be wasted money. Get a big enough Rv to live comfortably the first time. My advice is to sell everything invest the money and enjoy the adventure.
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Old 09-28-2019, 12:45 PM   #17
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I would rent out your house to a quality tenant. Engage a realtor to help you find one. We are about to rent out our remodeled oceanfront condo for $5K/month to an individual with a credit score of 796 and income over $350K. Our realtor charges 6% of the first year’s rent.

We’ve rented out properties before and never had any damage with long-term rentals. Only painting in between tenants. The security deposit on our place is $7,500 so that should help if anything happens this time.

There may be tax advantages to renting vs selling your property. In our case, when we were working, our income was too high to deduct rental losses. Now that we are retired, we can manage our income somewhat and will be able to deduct accumulated passive losses.

Also I agree that you should refinance to get a lower rate ASAP.
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Old 09-28-2019, 04:28 PM   #18
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I would sell.... assuming 7 % for selling costs that would be $418.5k of proceeds, less $200k mortgage would be $218.5k in your pocket.... let's say $200k at worst. $200k invested at 6% that will provide you income of $1,000/month to help with your on-road costs and healthcare.
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Old 10-01-2019, 11:28 PM   #19
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Thanks everyone, you have given me a lot of various viewpoints to ponder!
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Old 10-02-2019, 07:36 PM   #20
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I make my living solely owning apartment buildings, single family houses and commercial buildings so I normally advise folks to buy and hold or in your case continue to hold BUT in your situation when there is only one property and it's a substantial value I would advise taking advantage of this seller's market. Real estate values go up in the long term but you cannot time a future market and the cuurent environment is favorable to sell. Also over 90% of my tenants over the last 25 years have been incredible BUT if you happen to end up with a bad tenant it can be a rough experience. On top of the damages and expenses that you could incur there is also the stress of removing a non paying tenant and that can affect your quality of life so I would advise to sell. Best of luck!
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