becoming a landlord? your thoughts, please

[letsgobobby]

18 months ago I posted about a home we were looking to buy. We did buy the home and have lived happily in it since:

viewtopic.php?f=2&t=79764

But some things have not gone as planned, primarily having to do with location. No, it has nothing to do with being on a corner lot, thank goodness.

What happened is we ended up putting our daughter in a school 15 minutes from our house, because they had a super-unique and cool program. We did not know about this program before we moved. It is a public school, she is in full-time immersion Chinese kindergarten, and the program was just extended through 8th grade with a commitment to extend it all the way through high school. This program is wonderful, she loves it, and it is a great fit for us. We are literally ecstatic about the opportunity she is getting, and how happy she is there. However, we had to lottery in to the immersion program because we are not in the school district. That is ok for my daughter - she is guaranteed to be in the program til the end, now that she is in. But we have no assurances about our son, who is 3 and will start K in 2.5 years. That means if we want to assure him a spot, we need to move within the school boundary within the next two years.

My question is: should we buy a place in the school boundary now, attempt to rent it out for 2 years, then move in; or should we wait and buy in 2 years; or should we buy a new place, move in now, and attempt to sell or rent our current place?

Home prices here have bottomed and are up about 10% in the last year. I think by waiting we will pay more to buy. I think we can find a modest place on a good lot, rent it out for two years and at least cover our costs, and then in 2 years remodel it extensively/enlarge it and move in, then sell our current place. Since we'd extensively remodel we'd be less concerned about potential renter damage; and since the market is in an upswing by all appearances, we'd be able to sell our current house for more (and hopefully the credit market would have loosened up a little, enlarging our pool of potential buyers).

I have no landlording experience and I'm busy. The new neighborhood is only 15 minutes away and it is obviously right next to my daughter's school so I could give my best shot at managing the property, but I'd be willing to hire a manager if that wasn't working out. This isn't about making a killing, it's about ensuring the best education for my kids and whatever incidental costs are incurred in the process are fine.

What are your thoughts about this situation? Is it terribly unrealistic to manage a rental for the first time? Are the potential costs of hiring a manager so much that we'd be better off just waiting two years and buying then?

[Saleen]

Are you positive the fact that one child already attends the school doesn't make the chances for the younger one better? Around here, if the eldest child wins the "lottery," younger siblings will be allowed to go to the same school so long as they begin attending while the other child is still there.

It seems like you are on top of the situation, but may be one thing to look into.

[KyleAAA]

Financially speaking (excluding what happens to home prices over the next two years), it would be a better deal to buy the new house and rent out your current house. Why? Owner-occupied mortgage rates are significantly lower than those available to investors. If you buy a new house but don't plan to live there for two years, you'll be stuck paying investor rates. These average about 1% more, if memory serves correctly.

Regarding management, the properties are only 15 minutes apart. Managing it yourself shouldn't be a problem SO LONG AS you pick a good tenant. Contrary to the horror stories you're going to hear on this thread, landlording really isn't all that much work except in the very worst (and rare) of circumstances. I would not recommend hiring a property manager since you live so close to the property.

[Userdc]

This only makes sense if you are right that home prices are going to be higher in two years.

What's the upside in dollars if you are right?

What's the downside in dollars if you are wrong?

Can you afford to take on that additional risk? Even if you can, is it worth the headache?

[texasdiver]

Sounds like a tremendous amount of hassle for possibly no payback.

Being a landlord is like any other profession. There is a STEEP learning curve. You would go through the steep part of the learning curve then give it up. Hardly seems worth the effort.

I'd just wait and move when you want to. In 2 years you may find the perfect house that doesn't need remodeling. You never know.

[fareastwarriors]

Sounds like a tremendous amount of hassle for possibly no payback.

Being a landlord is like any other profession. There is a STEEP learning curve. You would go through the steep part of the learning curve then give it up. Hardly seems worth the effort.

I'd just wait and move when you want to. In 2 years you may find the perfect house that doesn't need remodeling. You never know.

No experience, 2 little kids, a spouse, and presumably a full-time job...it will be tough. Landlording is a business. Are you ready to start a small business?

[john94549]

I think we can find a modest place on a good lot, rent it out for two years and at least cover our costs, and then in 2 years remodel it extensively/enlarge it and move in, then sell our current place. Since we'd extensively remodel we'd be less concerned about potential renter damage; and since the market is in an upswing by all appearances, we'd be able to sell our current house for more (and hopefully the credit market would have loosened up a little, enlarging our pool of potential buyers).

I have no landlording experience and I'm busy.

OP: Re-read this part of your post (several times). Then consider: (a) modest places requiring a remodel (aka "fixer-uppers") might not rent for enough to cover costs, and might not attract the best tenants; (b) the "upswing" might stall, or reverse; and (c) the credit market (aka loan rates and affordability) might well tighten, reducing the pool of potential buyers. Stated another way, all your assumptions could well prove to be incorrect. Assuming, of course, you could find a lender to finance the acquisition (a whole nuther issue, as they say).

[Honobob]

This would be a fantastic plan (renting original house and buying new principal residence) for someone that WANTS to be a landlord providing the original purchase was made knowing what type of rental it would be. You are proposing to be an "accidental" landlord. Most of those have poor results.

You say the market is up but what is the long term "up"? My properties generally double in value every 10 years but that usually happens in two of those ten years. If you're in those two years you'll be estatic, but if you're in the flat or negative years not so much. And what is the rental history for your type of house? What kind of tenant do you expect to get knowing you'll be selling in a couple of years?

Landlording does not have to be time consuming or hard but you have to do it right and that means have a plan. The housing situation seems to be planning you. You should probably wait until you actually have a need in the new school district. It may never happen. If you chose wisely the first time your house should appreciate the same or better than the new neighborhood.

[anonymoose]

Financially speaking (excluding what happens to home prices over the next two years), it would be a better deal to buy the new house and rent out your current house. Why? Owner-occupied mortgage rates are significantly lower than those available to investors. If you buy a new house but don't plan to live there for two years, you'll be stuck paying investor rates. These average about 1% more, if memory serves correctly.

Regarding management, the properties are only 15 minutes apart. Managing it yourself shouldn't be a problem SO LONG AS you pick a good tenant. Contrary to the horror stories you're going to hear on this thread, landlording really isn't all that much work except in the very worst (and rare) of circumstances. I would not recommend hiring a property manager since you live so close to the property.

It's not that bad. I refinanced my primary residence and my investment property, both with Wells Fargo, both last month, both 15 yr fixed. The difference was 2.75 vs. 3.125, closing costs were the same.

[Calm Man]

If you are going to move why wouldn't you buy the new house and sell the current one and move? Also, nothing is guaranteed bobby. The school district could have to shave costs and stop the Chinese immersion conceivably.

[Hector]

You bought a house 18 months ago thinking you found the perfect home. Now you are thinking about moving out!
For now you think buying another house in the school district would be the perfect home and has to be done in 2 years. Something might change in next 2 years. Why not wait for 2 years?

[letsgobobby]

You bought a house 18 months ago thinking you found the perfect home. Now you are thinking about moving out!
For now you think buying another house in the school district would be the perfect home and has to be done in 2 years. Something might change in next 2 years. Why not wait for 2 years?

good point

[donall]

Are you positive the fact that one child already attends the school doesn't make the chances for the younger one better? Around here, if the eldest child wins the "lottery," younger siblings will be allowed to go to the same school so long as they begin attending while the other child is still there.

It seems like you are on top of the situation, but may be one thing to look into.

Please look into this (policies and practice), the sibling admission is quite common amongst magnet and selective admission schools (think about it, parents would have to send or drive to two different locations). Most principals also have a few slots for situations like yours that they can use discretion in choosing students. Things also change in school districts in two years. Being a landlord is a risk, I would only do it to earn money, not to prepare for a future (maybe) home. Good luck

[letsgobobby]

there is no sibling admission policy here, it is quite explicit because demand exceeds supply. We asked (several times).

I can't move yet. A policy at the hospital is being changed but until then I have to live within 30 minutes. This new house is 40ish.