Should I Sell Out Or Rent Out?
I'm in the military and have to move every 3 years. I bought my first home a year ago for $72k 3/2/2 inground pool, Privacy fence, the works. I've put just over $8k into remodling-new baths, jacuzzi tub, carpet, tile, kitchen counters, windows/doors, etc.
My monthly payments are $628 monthly includingTax/Insurance. Area rentals for similar go for $850-900 easily. House was recently re-appraised for $86K.
Due to having to move around so often should I sell and pocket the $15K, or rent it out with an 8% management fee and a positive cash flow of roughtly $115 and repeat the process?? What would you do? <IMG SRC="images/forum/smilies/icon_eek.gif"> [ Edited by SavedBYgrace on Date 02/08/2004 ]
Hello:
If it is in a good rapid appreciating area, I would keep it as a rental and for your retirement. You might want to consider getting some 15 year financing in place
or bi-weekly mortgage payments. With the write-offs you will gain as a rental, you can't go wrong! Besides, I guarantee
in 10 years from now if you sell, you will regret it!
I would highly advise you to keep a few properties for retirement, I am sure that would come in handy!
Good Luck
Jeffrey Adam
[addsig]
I'd be careful how you go about renting the place out, as we all know being a long distance landlord can sometimes be difficult. This wouldn't always be my first suggestion but it looks like there might be enough room to hire a property management company. Of course this is going to eat into your profit, but then you don't have to worry about the property, right?
Ryan J. Schnabel
I have to agree with Jeffrey you may want to consider keeping the house for supplemental retirement income. My father was a career air force officer. He and my mom bought 7 houses while he was in the USAF. My mother still owns these houses today which helps supplement her retirement. Witchita Falls is a growing area and should remain so.
I'm a real beginner, but I would still recommend keeping a property like that. That's my dream today, to simply hold dozens of units that all bring in a large steady cashflow. And eventually, when the mortgage is paid... You'll have a huge cashflow and free houses.
God I love it.
I would have to agree with Jeff. based on what you are telling us it seems like a no brainer
Lori
[addsig]
Yeah, especially if you're not really in need for the immediate cash. I think it'd be pretty nice to have a steady cash flow every month AND appreciation... that always appeals to me
It's unanimous then, I'll go that route, I was just worried about tennants tearing it up since it's been gutted and everything is new- especially when I consider the cost of replacing say a pool liner ($1200) or the living room carpet. It can't be replaced in sections, that ran almost $1500. I've budgeted 40% of the operating budget for maintenance and property management so hopefully that'll cover it. I read 25-30% is typicall for a single family home. On top of that I'm hoping I'll get a higher caliber of renter for the price it should rent for, I would think anyways... Wish me luck and thank you for all your honest opinions - BK
Does renting a place out usually lower the resale value by the way??
Renters never keep up the property like an Owner. Check references & get a decent deposit. Plan on coming back at the end & paint at a minimum, when you decide to sell. But why sell? Keep it and the others you acquire and you will have your retirement well funded.
The property manager I spoke with said they'd due the painting, screening, advertising, and re-keying so I never have to come back here, for only half of a months rent between renters. What your saying sounds like an excellent idea if I could do that a few times everytime I have to move, but the house has a VA loan on it and I can only have one at a time. I'd have to do 15-20% down for a conventional loan when I purchase another prop...ouch!
Food for thought though - Thanks!
Best of luck with it!
In the future, don't sink 8k into a property when you know that you're going to be transfered every 2-3 years. You can't recover your expenses.
Next, never regret any decision you make. If it was a bad decision, learn from it ,and then let go. Never take on that "Shudda,Wudda, Coudda" mentality. Look to the future not the past.
I'd rent or lease option this turkey.
What about doing a contract for deed. Sell it but keep your mortgage in place. You still have the cash flow or even more but without all of the landlord headaches. Just a thought.
Quote:I'm in the military and have to move every 3 years. I bought my first home a year ago for $72k 3/2/2 inground pool, Privacy fence, the works. I've put just over $8k into remodling-new baths, jacuzzi tub, carpet, tile, kitchen counters, windows/doors, etc.SavedBYgrace,
I am going to disagree with most all of the previous responses.
I think you have improved the house too much to convert it to a rental. Your best opportunity to get the best sale price for your property is right now. Your cost basis is $80K and any sale profit will be tax free after you take the capital gains exclusion on the sale of your primary residence.
Hold on to the property for three years, and you have converted your primary residence into an investment property subject to capital gains taxes when you sell. Plus, you have to consider that all your improvements have not appreciably increased your property value.
Another drawback that I don't care for in a rental property is the inground pool. I don't know what landlord's insurance and liability insurance will cost for a rental property with a pool, though I expect it to be a pretty high premium. You will most likely need to hire a pool service and be prepared for higher than normal frequency of repair, because renters will not do the routine maintenance a pool requires.
I strongly suggest you sell this property. At your next duty station, invest in a property that you will be more comfortable keeping as a long term rental and purchase another house as your primary residence.
Do not improve your next primary residence more than is required to maintain the property in reasonable condition (remember you will be moving again, soon). Convert your residence into a rental when you transfer. Now you should have two rental incomes buying two investment properties for your long term real estate portfolio. After three years at a duty station, your rent should have increased to the point that you should have no problem hiring a professional property manager when you leave and still keeping a positive cash flow.
Repeat the process at your next duty station.
Dave:
I have to disagree with your disagreement. There is a $80K basis for this property. The appraised value (which is probably on the high side) is at $86K. After deducting the prep costs to get the home ready for sale,the selling expenses, discounts, possible seller concessions, and settlement charges there nothing left for him. He may even have to bring money to the closing table.
He needs to hold for a few years to realize any profit. The pool and other liabilities can be taken care of by landlord insurance and tenant insurance. It wouldn't hurt to drop this property into an LLC as extra protection. Also,it may be remote but there's always the possibility for a 1031 exchange somewhere down the road..
Unfortunately, the lesson to be learned is, if you know that you're going to be moving every few years then you can't make large improvements unless you are prepared to take a loss upon sale.
I personally would prefer that he just sell the property, but if he does he most likely will be "upside down". He'll show a loss . What's the tax deduction for a loss on a personal residence??? That's not the road to riches.
Yes, unfortunately we got caught up in the "our first house" syndrom and sank way too much $$ into it to make it what we wanted without thinking about leaving it in a few years. I've just recently started looking into RE as a means to supplement my retirement income and I thought this house could be our starting point whether from rental income or being from down payment money from a quick sale. I'll see what other opinions develope before setting anything in stone. I sincerely appreciate your responses, seeing they stem from a veryknowledgeable audience.