Is renting the only choice for me?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Post Reply
Topic Author
joshdamon
Posts: 40
Joined: Tue Dec 23, 2014 11:26 am

Is renting the only choice for me?

Post by joshdamon »

This is not another rent or sell thread... I promise. Or it might be but I need some help from the helpful souls on this forum... God bless ya'll.

So, I recently relocated from Northwest Suburbs of Chicago (Lake in the Hills to be precise) to Irvine, CA. The relocation happened very quickly and I was offered the full relocation package. My company would pay the broker fees if the house sold. It's been 4 months now and the house hasn't sold yet. I am paying both mortgage and rent right now and that's a lot of money. Every month the house stays on the market, its $2000 down the drain (including mortgage, insurance, taxes etc). I do not get any relocation benefit for renting the house.

I originally purchased the house back in 2006 for a whopping $333K. Right now even if I sell it, I would get $270K max (may be a little less). I still owe $240K on the house.

In the beginning of this month, I decided to open up the house for rental as well and got a lot of inquiries. If I rent the house out, I break even at $2K rent which I am easily getting.

My questions are:

1. What should I do? Should I rent it out or try a bit more to sell the house? I really don't know when the property values in Lake In the Hills, IL will go up and what would trigger it really.
2. What's the best month for putting up your house for sale?
3. If I refinance my mortgage, will it be at a higher rate since it will now be considered "investment property"?
4. Do I get any tax benefits for keeping my house and renting it out instead of selling it?

Please guide me. This confusing and stressful.
btenny
Posts: 5702
Joined: Sun Oct 07, 2007 6:47 pm

Re: Renting out might be the only choice for me...

Post by btenny »

Has your real estate broker told you why your house is not getting sales traffic? Is it priced right for that market? Is it fixed up nice so it shows good? Is it staged with furniture or naked? Or is there just no one buying homes in that area of Chicago? Have you talked to other RE agents about selling the house and the current market? You need this info fast to make a decision. IMO you need to sell it as you are not prepared to be a real estate manager from a long distance.

Yes you may be financially better off renting the house. But the real issue is how are you going to manage a rental long distance. Does you rental budget allow 10-20% management costs? Have you thought about who is going to select tenants? Who is going to make repairs? When the toilet breaks on Sunday and is leaking water? Who is going to inspect the property annually and as needed? What do you do when the tenants (or the rental agent) calls and says they had a kitchen fire but everything is OK? Are you prepared to travel to Chicago 1-3 times a year to do these things? Long distance renting is just very tricky IMO. Most times it makes money for the agent who does not do much and ends up causing you trouble and making your property run down. But if you can get a good tenant with good payment history who takes care of the place and then have them stay long term, say 3-5 years or more then you are golden. But even with a good tenant you still need a local agent for occasional issues so how to proceed is complex.

I have made money both ways with rentals, locally managed by me where I did great but had to answer toilet repairs calls on Sunday, and other distant rentals where I did OK and used a remote rental agent. In the distant case I had trouble with different agents and their employees several times and paid them a fortune. They lied to me, stole from me, (actual cash and some property) and never really did more than just collect money and clean the unit (condo). Anything difficult required me to travel to the unit and make repairs and remodeling decisions and regular inspections. In all cases when I made money I bought the properties at great prices and held them long term and did most of my own significant repairs and remodels. Plus when I owned long distance I wanted to travel to that place and play so I enjoyed visiting and I only rented short term so I could use the unit myself.

So you need to do some evaluations of what you want and some thinking.

Good Luck...
Topic Author
joshdamon
Posts: 40
Joined: Tue Dec 23, 2014 11:26 am

Re: Is renting the only choice for me?

Post by joshdamon »

I wanted to add that I have about equal number of rental and buyer applications. There are a lot of showings but renters usually respond back positively. Buyers are not pointing out anything bad except, maybe a little small for them or too far from the city (Chicago).

I also had a pretty robotic real estate agent who will do what you ask her to.
User avatar
Watty
Posts: 28859
Joined: Wed Oct 10, 2007 3:55 pm

Re: Is renting the only choice for me?

Post by Watty »

1. What should I do? Should I rent it out or try a bit more to sell the house? I really don't know when the property values in Lake In the Hills, IL will go up and what would trigger it really.

Would you buy it today as a rental? Except for some transaction costs and taxes that is really just about the same question.

A big question to ask yourself, and then write down the answer, is what are would your goals be in keeping the house as a rental. If you can't write this down then that could be a good sign that you should sell it even if you have to drop the price some.



2. What's the best month for putting up your house for sale?

It varies by market but spring time is typically the most active time of the year. People with kids are looking to buy then so their kids can finish up the school year without changing school. If that is good or not is less clear since there are typically more houses on the market then too so it a question of the balance between buyers and sellers.

3. If I refinance my mortgage, will it be at a higher rate since it will now be considered "investment property"?

Refinancing would be tough now since you would not qualify for a traditional mortgage because the house is for sale and it would be hard to qualify for an investment mortgage with the house being empty. Another question to ask is if you will be able to qualify for a new mortgage on your next house if you keep it as a rental.

4. Do I get any tax benefits for keeping my house and renting it out instead of selling it?


If you keep it as a rental then you will be running a "small" business that is worth over a quarter of a million dollars so your should treat it like a business and have a business plan including professional tax advice and several possible exit plans so you can eventually sell the house without getting hit with a lot of capital gains taxes then. The taxes will likely make it work or not so planning them out is critical. Converting a residence into a rental property is doable but your taxes will be complicated so you should not try to do your own taxes for at least the first few years.
randomguy
Posts: 11295
Joined: Wed Sep 17, 2014 9:00 am

Re: Is renting the only choice for me?

Post by randomguy »

Best months for selling are regional but they tend to be in the April to June range. If a house and you have a steady stream of traffic, you are overpriced. You either have to wait for the person willing to overpay or drop your price. Renting might make sense financially but only if you want to be a landlord. For one 270k house 1500 miles away, it might be a lot of work for little reward.
Post Reply