rent it?

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rent it?

Postby retirementandpf » Tue May 14, 2013 12:26 pm

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Last edited by retirementandpf on Thu Nov 21, 2013 12:18 pm, edited 1 time in total.
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Re: Should I sell my house or rent it?

Postby mlipps » Tue May 14, 2013 12:33 pm

I'm no real estate genius. But the way I would look at it personally, is that if you sold the house for $350k, give or take, you'd be able to spend about $1166/month based on a 4% SWR. So personally, I'd probably keep it & rent it, at least for now, if you expect that $2300-Monthly Maintenance Costs-Property Manger Fees will be greater than $1166. Others may have a more sophisticated analysis, just my two cents.
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Re: Should I sell my house or rent it?

Postby Chan_va » Tue May 14, 2013 12:47 pm

Forget about the $450k and $650k numbers. Those don't affect your current decisions.

You have 2 options

1. Option 1 - Sell now for $350K and invest with some stock/bond AA mix. Your expected returns will vary on the mix.
2. Option 2 - Rent. Assuming your net income from rent (after taxes, management, vacancy, repair) is~50% of rent, then you are looking at a return of (2300*0.5*12)/350,000 = 4%. Plus whatever appreciation you get in house value.

It's a close call and depends on how soon you will need the $350k and your ability to deal with renter hassles. If you dont need the money and can invest the $350K for the long term, then I would probably lean towards option 1.
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Re: Should I sell my house or rent it?

Postby retirementandpf » Tue May 14, 2013 3:55 pm

Thank you mlipps & Chan_va.

We really don’t need the money right away and will definitely use it for mid-to-long term investment. I had made my plans on renting it but the Realtor just told me that I need to get a town permit to rent. The thing is that we are leaving within 2 months, so I am a little time-pressed.
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Re: Should I sell my house or rent it?

Postby TomatoTomahto » Tue May 14, 2013 4:10 pm

My two cents: sell. You are going to be far away for an extended time. Management companies are okay at best, but in my experience their quality is inversely proportional to the distance the owner lives from the residence. It's the last thing you're going to want to think about for the next 5+ years. If you decide never to return, you'll have to manage the sale at a distance.

Forget the sunk loss; that ship sailed. If the house returns to its old value, other investments will have done well also.

To paraphrase: tell me about the upside of renting again, George.
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Re: Should I sell my house or rent it?

Postby cestan » Tue May 14, 2013 4:27 pm

sell it. move on with life
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Re: Should I sell my house or rent it?

Postby Twins Fan » Tue May 14, 2013 6:15 pm

In boglehead form, don't forget to think about the taxes part of it.

I'm tired today, so if I fudge some numbers or wording here forgive me. :D

You say "we", so I'm assuming a married couple here. If you sell now, you get all that $350K tax free because of the primary residence exclusion as a married couple, which is $500K. As soon as you are away for 3 years and haven't lived there for 3 of the past 5 years, you lose that exclusion. If you sell then, you are paying taxes on the gains. Which without a mortgage and talking up to $400K (in a few years?) is going to be a nice sum. Plus, the depreciation you claim while using it as a rental. The gains and depreciation work together somehow, but I'm not exactly sure how. It's a hit to your wallet though because of taxes owed from the sale.

If I mucked that up too bad and someone can clarify better, feel free.

Either way, I think the OP is better off selling now to take advantage of the primary residence exclusion.
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Re: Should I sell my house or rent it?

Postby TomatoTomahto » Tue May 14, 2013 6:22 pm

Twins Fan,

I'm not a tax guy, but the house is so far under water that I think the risk of gains is only wishful thinking.
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Re: Should I sell my house or rent it?

Postby 3wood » Tue May 14, 2013 6:32 pm

Another vote for selling it. Easy for me though, since I have no interest in ever being a landlord. Good point about the tax implications of selling vs renting.
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Re: Should I sell my house or rent it?

Postby interplanetjanet » Tue May 14, 2013 6:38 pm

This is simplistic, but say that you had an extra $350k and no house. Would you buy one to rent out before moving overseas?

It's not truly as simple as this because there are costs to home acquisition and sale. You presumably know the house well, have a good idea of its condition and the neighborhood. However...this is a good mental exercise.
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Re: Should I sell my house or rent it?

Postby Twins Fan » Tue May 14, 2013 6:42 pm

Oh, is it only gains over purchase price? I was thinking since the have no mortgage on it that it's all gain.

I'm not a tax guy either... obviously. :D

But, as a long distance landlord myself, I do knw that when/if the OP were to turn it into a rental the deprecitaion schedule is set off the current FMV of the home. Doesn't matter what the purchase price was. So, that would kind of reset the gains thing if they move away, keep it for few years, and lose the primary residence timeframe. Something else to think about?

I still say sell it now since it doesn't seem the OP wants to be a landlord.
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Re: Should I sell my house or rent it?

Postby retirementandpf » Tue May 14, 2013 8:00 pm

Twins Fan » - Yes, we are a married couple and have been using our home for our home-based consulting business.

interplanetjanet » - We will initially rent in overseas, and perhaps buy an apartment later. I have no intention of buying another house in the U.S. with the proceeds of this one. If and when we return back to the U.S., we may buy another one then. (Our older son is a 3rd grader and younger one is just an infant. We plan to send them to HS & College here in the U.S., they will have to go to an international school while overseas.)

My wife and I are leaning to sell, but, still we have put quite a bit money into it...
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Re: Should I sell my house or rent it?

Postby Khanmots » Tue May 14, 2013 8:15 pm

retirementandpf wrote:interplanetjanet » - We will initially rent in overseas, and perhaps buy an apartment later. I have no intention of buying another house in the U.S. with the proceeds of this one.

I think you missed what she was getting at. You're tied up in *this* specific house based on (in part) an emotional investment in it.

She's trying to get you to imagine that you didn't own a house. That you were sitting here with $350k in the bank. Would you be considering buying a $350k house to rent out while you're gone in this situation? If not, then why would you be willing to rent out the house you have now instead of converting it to $350k?

It's a way to give oneself a different perspective on a financial problem involving sunk costs.

retirementandpf wrote:My wife and I are leaning to sell, but, still we have put quite a bit money into it...

When you find yourself thinking about the money you've spent in the past when trying to decide what to do in a current financial situation realize that you're allowing emotions to cloud reason. It's a very very common fallacy that is very easy to fall prey to. Everyone from individuals to large corporations struggle with it.

In your case the $650k is gone. Mentally treat the entire $650k as having burned in a fire. What you have today is a house. It doesn't matter if you bought the house for $650k or $65k, what matters is what the house can be sold for. Interplanetjanet's mental excersize helps get one in the state of realizing that having $350k and no house is the same as having no $ and a $350k house.

Another way to think of it would be to ask yourself if you were getting a $350k inheritance would you rather it be a $350k house that you can rent out while you're gone or $350k in cash?
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Re: Should I sell my house or rent it?

Postby retirementandpf » Sun Jun 30, 2013 3:12 pm

Some recent developments about this:

1) We did list the house for sale, got two decent offers highest being $362k
2) We also did apply for the Rental Permit with the Town. I did some of the work myself (floor plans, etc.)
3) We have obtained the rental permit in late June. With that, we are no longer pressured to sell too quickly so we removed the house from the market
4) It has been listed FOR RENT for $2,500/month 3 days ago, received two offers highest being $2,300/month.

It seems that we would most likely rent it for $2,400/mo. I estimate our annual carrying costs (property taxes, homeowners insurance and minor maintenance) would be $10k, so i hope it would pay off down the road.
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Re: Should I sell my house or rent it?

Postby Dulocracy » Mon Jul 01, 2013 2:12 pm

Thanks for the update! I always enjoy hearing about how things turn out for people. Congratulations on your situation. I hope it works to your advantage!
I'm not a financial professional. Post is info only & not legal advice. No attorney-client relationship exists with reader. Scrutinize my ideas as if you spoke with a guy at a bar. I may be wrong.
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Re: Should I sell my house or rent it?

Postby sls239 » Mon Jul 01, 2013 2:33 pm

Don't forget you'll have to pay federal, state, maybe local income taxes on the rent money minus expenses and depreciation.
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