…That is the question.
We have a rental that we were anticipating would become vacant soon as we mentioned before. Well, we did receive notice that he will indeed vacate by the end of April. This leads us to a few choices. The most obvious being, should we rent it out again or sell it?
There are pros and cons either way. This house was our first rental property and we bought it with a mortgage. Currently, the mortgage slightly exceeds the amount we get in rent…what they call an alligator. All of our other rentals are cash flowing.
We do have a fair amount of equity built in it, that would be useful in our new endeavors in Puerto Rico. Renting it out would be easier and we could continue to sock away equity with each rental payment…but are we up for that again? We are kind of in the mind set that we would like to tie up the loose ends here in Colorado slowly so that we can transition to Puerto Rico. But in order to make a big decision it’s good to make a pros and cons list.
Pros of Selling
We would get rid of the alligator in our bunch of rentals
We would net some money from selling which would help replenish us after spending a bunch in PR
We would have one less thing to worry about in Colorado once we do move
We will be selling in spring/summer which is a better time to sell/more buyers
Cons of Selling
Still a down “buyers” market
We’d be lucky to get what we paid for it
We will have to pay a pretty high mortgage (relative) without income until it sells
After commissions are paid out we will have put more money in than we get out (even though we’ll walk away with money in our pockets -still capital losses)
We’ve never sold a house before so it’s uncomfortable
May need to finish the basement to help it sell (which means more $$ and time that we don’t have)
It would be nice to stop feeding the alligator
Pros of Renting
It’s pretty easy; we know what we’re doing
The rental market is pretty strong
Have had some initial interest already
We could increase the rent slightly to make it cover the mortgage and stop feeding the alligator
We can improve the language of the lease
We would be able to pay down the mortgage more so that when we do sell, we’ll walk away with more
People like to move in the spring/summer time -more interest =better rent
Could wait a little while longer for the housing market recovery
Cons of Renting
Another thing to take care of/worry about
Will need to save longer to be able to move to PR with a large enough savings
Lots of unknowns about new renters
Not much wiggle room for errors or expenses (so close to the mortgage cost)
We initially bought this house with the intention of paying it off completely. That’s why we got a 15 year mortgage and why the payments are so high comparatively. When the housing market tanked we were able to afford those other houses more easily and so it made sense to put our money into those instead of this one. I think that was a smart move, but it still leaves us with this house that is not paid for. I personally think it would be a burden off our shoulders and we could start building cabanas that could be rented out in Puerto Rico instead. A sort of slow shifting of resources from here to there. On the other hand, we could get it rented out pretty quick. Set it and forget it.
I’m not sure. If you were in our shoes, what decision do you think you’d make? We are going to meet with a Realtor this weekend to see what she thinks we might be able to ask price wise. That will also help us to determine our decision…
Hmmmm – peace of mind is worth a whole lot. We are having to think through these things too as we price our house and ponder what to do after it sells. Using a realtor – using one may or may not make it sell faster, but definately puts you in a contract where you will need to shell out thousands of dollars. Try selling it on your own first with a time line – your price can be lower (if you want to be rid of it faster) or you will keep the extra thousands to offset some losses. Give it until end of summer which will give you time without a tenant to clean up (which you need to do anyway) and test the market. That would still give you time in good weather to get someone in before winter and then go with a realtor next summer or whenever the new renter leaves. Keep the profitable ones and chock this one up to a learning experience. Regaining positive mental health may cost a few thousand dollars or 5 or 6 but in the big picture who cares if you can move your life along sooner! Money is money but in many cases it isn’t the most important thing. Rarely do things work out perfectly.
1. What you’ve lost in equity due to it being a down market would take you at least 5 years to recover, according to real estate analysts. It could even get worse. Do not try to time this market.
2. DO NOT put money into the house by fixing the basement. You will most likely not get your money back when you sell. Several realtors told me this when I was listing our Sacramento home and wanted to make some repairs and improvements. Bang for your buck doesn’t apply anymore, except for high end properties. It’s already not worth what you paid for it; don’t make your losses greater.
3. From personal experience, being a long-distance landlord is a huge headache. You already have several rentals which you intend to keep.
My humble advice is take some losses now rather than bigger losses later. With regard to the mortgage payment, take those lumps NOW while you both have steady jobs. Put it on the market ASAP for the spring/summer season. If you decide to list it (which I know is a tough decision because it is less cash back for you, but worth considering if you’ve never sold before), list it with a broker who has a good history of selling his/her own listings. I see no upside to keeping it as a rental. If anything, the timing is near perfect to sell it. But be prepared to swallow those lumps– Fran
You both have some good points…which is why this decision is so hard. We are meeting with the real estate agent shortly, so that might give us some insight. We are thinking if she tells us we can sell at a certain number in a short period of time we’ll do it. If she thinks not, we’ll just rent out. That way we have sort of a criteria to work against. We are in a pretty good situation as we don’t HAVE to sell right away. We’d like to, but we don’t HAVE to…that’s a better situation than just being stuck with whatever we can get. I don’t think we want to try FSBO, especially not on our first house sale. Those seem to linger on the market longer than the others because of decreased exposure.