Should I sell or rent my house?

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guest656
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Should I sell or rent my house?

Post by guest656 » Tue Sep 25, 2018 4:56 pm

This is in California. Purchased home for 525k and now worth about 850k. 13 years left on mortgage at 2.675% rate. Property taxes about 540 a month (prop 13). Total current expenses around 3200 a month. Would probably rent out for 3500-3750 a month. Should I sell or rent it out? Never been a landlord, moving a few miles away.

ThrustVectoring
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Re: Should I sell or rent my house?

Post by ThrustVectoring » Tue Sep 25, 2018 5:26 pm

The mortgage interest rate would make me want to rent it out, all else equal. It's really a question of how much risk you are comfortable taking on in the local real estate market, and whether or not you are personally comfortable being a landlord (or hiring someone to manage the property for you).
Current portfolio: 60% VTI / 40% VXUS

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dm200
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Re: Should I sell or rent my house?

Post by dm200 » Tue Sep 25, 2018 5:30 pm

I would evaluate the capital gains exemption if you sell vs. paying more in capital gains when you sell after renting it out for many years.

JoeRetire
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Re: Should I sell or rent my house?

Post by JoeRetire » Tue Sep 25, 2018 6:15 pm

guest656 wrote:
Tue Sep 25, 2018 4:56 pm
This is in California. Purchased home for 525k and now worth about 850k. 13 years left on mortgage at 2.675% rate. Property taxes about 540 a month (prop 13). Total current expenses around 3200 a month. Would probably rent out for 3500-3750 a month. Should I sell or rent it out? Never been a landlord, moving a few miles away.
Have you evaluated the occupancy rates for your locale and considered if they apply to your house?
If you didn't already own this house, would you purchase it in order to rent it out?
Most importantly, do you want to be a landlord? Have you been looking for a second job?

guest656
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Re: Should I sell or rent my house?

Post by guest656 » Tue Sep 25, 2018 6:22 pm

JoeRetire wrote:
Tue Sep 25, 2018 6:15 pm
guest656 wrote:
Tue Sep 25, 2018 4:56 pm
This is in California. Purchased home for 525k and now worth about 850k. 13 years left on mortgage at 2.675% rate. Property taxes about 540 a month (prop 13). Total current expenses around 3200 a month. Would probably rent out for 3500-3750 a month. Should I sell or rent it out? Never been a landlord, moving a few miles away.
Have you evaluated the occupancy rates for your locale and considered if they apply to your house?
If you didn't already own this house, would you purchase it in order to rent it out?
Most importantly, do you want to be a landlord? Have you been looking for a second job?
I would not buy this home to rent out if I didn't already own it. However the difference is that I have a very low mortgage rate and property tax rate which I wouldn't have if I just bought this home. I would consider getting a property management company if being a landlord was too much for me to handle.

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Watty
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Re: Should I sell or rent my house?

Post by Watty » Tue Sep 25, 2018 6:26 pm

A couple of things;

1) I do not know about California but in many states some property tax breaks are just for owner occupied home.

2) If you are in an earthquake prone area then after an earthquake federal assistance may just be for owner occupied homes.

3) You have over $300K in capital an you can likely qualify for a federal homeowners capital gains exemption. If you rent it for more than a few years you will lose that exemption.

4) It sounds like you will own the better part of a million dollars in real estate in the same area. That could be a high percentage of your net worth so just for diversification selling it may make sense.

JoeRetire
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Re: Should I sell or rent my house?

Post by JoeRetire » Tue Sep 25, 2018 6:34 pm

guest656 wrote:
Tue Sep 25, 2018 6:22 pm
JoeRetire wrote:
Tue Sep 25, 2018 6:15 pm
guest656 wrote:
Tue Sep 25, 2018 4:56 pm
This is in California. Purchased home for 525k and now worth about 850k. 13 years left on mortgage at 2.675% rate. Property taxes about 540 a month (prop 13). Total current expenses around 3200 a month. Would probably rent out for 3500-3750 a month. Should I sell or rent it out? Never been a landlord, moving a few miles away.
Have you evaluated the occupancy rates for your locale and considered if they apply to your house?
If you didn't already own this house, would you purchase it in order to rent it out?
Most importantly, do you want to be a landlord? Have you been looking for a second job?
I would not buy this home to rent out if I didn't already own it. However the difference is that I have a very low mortgage rate and property tax rate which I wouldn't have if I just bought this home. I would consider getting a property management company if being a landlord was too much for me to handle.
If you hire a property management company, you won't have any margin left.

denovo
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Re: Should I sell or rent my house?

Post by denovo » Wed Sep 26, 2018 2:30 am

guest656 wrote:
Tue Sep 25, 2018 4:56 pm
This is in California. Purchased home for 525k and now worth about 850k. 13 years left on mortgage at 2.675% rate. Property taxes about 540 a month (prop 13). Total current expenses around 3200 a month. Would probably rent out for 3500-3750 a month. Should I sell or rent it out? Never been a landlord, moving a few miles away.

read this thread (not just the first post)

viewtopic.php?t=226980
"Don't trust everything you read on the Internet"- Abraham Lincoln

riverguy
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Re: Should I sell or rent my house?

Post by riverguy » Wed Sep 26, 2018 5:26 am

guest656 wrote:
Tue Sep 25, 2018 4:56 pm
This is in California. Purchased home for 525k and now worth about 850k. 13 years left on mortgage at 2.675% rate. Property taxes about 540 a month (prop 13). Total current expenses around 3200 a month. Would probably rent out for 3500-3750 a month. Should I sell or rent it out? Never been a landlord, moving a few miles away.
Only depends on if you think the type of appreciation you have received in the last two years can continue can continue. Is that actually indicative of the market or did you just get a really good deal with built in equity already?

Otherwise who cares about the interest rate and prop 13? In general, houses in CA, from what I’ve seen, are awful rental investments from a cashflow perspective. You’ve probably got a mortgage balance of around 400k? Say you rent for 3600. Make $400 a month renting it. You’ve got at least $400k in equity after commissions. Granted you are paying down some principal and will have depreciation to help you, but on a pretax cash basis, you are making a little over 1% on that equity. Yikes!

HIinvestor
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Re: Should I sell or rent my house?

Post by HIinvestor » Wed Sep 26, 2018 5:42 am

There are a lot of risks in renting real estate—tenants can damage property way above the security deposit. It’s definitely a bumpy road and not lightly undertaken.

Jack FFR1846
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Re: Should I sell or rent my house?

Post by Jack FFR1846 » Wed Sep 26, 2018 6:18 am

When the mortgage company finds out that the house is no longer owner occupied, and calls the note, where will you come up with the money to pay off the loan? Or do you plan to disclose to the mortgage company that you plan to convert the house to a rental and renegotiate the mortgage? Either way, your low rate disappears.

How much did your insurance agent tell you your homeowner insurance is going to increase? When I went away to grad school on my company's dime, mine doubled.

If you decide to sell after your owner occupied status is gone, are you ok with losing $100k to taxes?
Bogle: Smart Beta is stupid

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Watty
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Re: Should I sell or rent my house?

Post by Watty » Wed Sep 26, 2018 6:23 am

One other thing, you need to look at how favorable the laws are for landlords where you are at. As I recall people have commented that California does not have very favorable landlord laws and your local area may have additional laws too.

BashDash
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Re: Should I sell or rent my house?

Post by BashDash » Wed Sep 26, 2018 11:51 am

This forum helped me come to terms with selling our condo.

I forget who posted it but it was something to the effect of "an index fund never called at 3 in the morning to complain that the toilet is clogged".

Being a landlord just wasn't worth the aggravation anymore.

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dm200
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Re: Should I sell or rent my house?

Post by dm200 » Wed Sep 26, 2018 12:56 pm

BashDash wrote:
Wed Sep 26, 2018 11:51 am
This forum helped me come to terms with selling our condo.
I forget who posted it but it was something to the effect of "an index fund never called at 3 in the morning to complain that the toilet is clogged".
Being a landlord just wasn't worth the aggravation anymore.
Right -- one, interesting, way to look at it. :sharebeer

Nate79
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Re: Should I sell or rent my house?

Post by Nate79 » Wed Sep 26, 2018 4:11 pm

That is a HORRIBLE rental. $850k house renting for $3750/month is downright horrible. I would sell in a heartbeat.

StealthRabbit
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Re: Should I sell or rent my house?

Post by StealthRabbit » Wed Sep 26, 2018 7:34 pm

Nate79 wrote:
Wed Sep 26, 2018 4:11 pm
That is a HORRIBLE rental. $850k house renting for $3750/month is downright horrible. I would sell in a heartbeat.
yup... Personal residences / SFH is NOT usually an attractive 'investment', tho special circumstances can make the acceptable, but seldom performing.

$875k RE asset should bring $9k/ month gross rents (~10% cap rate)
Simple rule... Property should get 1% per month rent on Capital cost / Market Value. If not... buy something else as an investment.

You don't want to rent anything that has a bedroom, buy a commercial property that has a NNN lease 7 yr + term
40+ yrs as a landlord, never called at night for a toilet repair... I think only 3 toilet repairs in 15,000 rental days (# props x days rented). You can hire this stuff out if you can't handle it. But better to do a commercial prop (non-food service / non- residential)

While in CA... use Prop 13 to your advantage. If you LEAVE CA... retain a property in CA under prop 13, in case you decide to ever return. (similar benefit to a lifelong pension)

Momus
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Re: Should I sell or rent my house?

Post by Momus » Wed Sep 26, 2018 10:15 pm

Rent it out if you don't need the money, 13 yrs go by quick... I am assuming you have 15 yr mortgage.

You are only a few miles away, a simple Yelp can take care of any maintenence issues $300-500/call once every 4-6 months. Post an ad at zillow to rent it out. Do credit check, background check, pay stub check, income has to cover 3x rent. Use Trans union smart move $40. Pretty easy.

I have a similar house, landlord/rental insurance costs me $700/yr for 850k house. My mortgage rate stayed the same.

Before you know it, you will have a paid off house not spending any $ to pay down the mortgage. You probably have to rent it out 3-5 times only, most people who rent SFH stays 3-4 yrs on average. Getting $4k/mo income + a paid off property after about 10 yrs, yes please.

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peterinjapan
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Re: Should I sell or rent my house?

Post by peterinjapan » Wed Sep 26, 2018 10:30 pm

Yes, I have one rental property (had one more but recently sold it), and love the income and the way depreciation nearly always wipes out all rental income for tax purposes. Currently rental income isn't counted against social security, so unless this changes I'll keep my one rental property forever, I think.

TropikThunder
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Re: Should I sell or rent my house?

Post by TropikThunder » Wed Sep 26, 2018 10:31 pm

Jack FFR1846 wrote:
Wed Sep 26, 2018 6:18 am
When the mortgage company finds out that the house is no longer owner occupied, and calls the note, where will you come up with the money to pay off the loan? Or do you plan to disclose to the mortgage company that you plan to convert the house to a rental and renegotiate the mortgage? Either way, your low rate disappears.
Is that true though? When I closed on my house, the escrow agent covered the owner-occupied portion of the application but specifically said it only applied for the first year. After that, you're free to move out and rent the place, no mention of the mortgage rate changing. In fact, that's a common RE investor tactic: buy a house as owner-occupied, live there a year, buy a new place and move, rent out the old place, rinse and repeat.

Lafder
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Re: Should I sell or rent my house?

Post by Lafder » Wed Sep 26, 2018 10:43 pm

I have never heard that moving out of a home makes the mortgage due, when you continue to own it. This is sometimes a clause in the first ? 6-12 months of a mortgage to give lower rates for primary residence. But not after you have lived there for awhile.

Landlord's insurance does not cover personal belongings, so rates may go down or be similar. Call your agent and ask. Remind tenants and put in the lease they should get renter's insurance.

You have to live in a home 2 of the past 5 years to not pay capital gains on the first 250k (or 500k if married) profit.

If you sold, what would you do with your equity? That would be a consideration for me.

I was trying to sell my former home and got nervous it was taking too long and did not want to lower the price even more. So we listed sale or rent and got a renter in the first week. Income has covered the expenses for the most part. But we lost any capital gains exclusion, have the hassle of repainting and getting ready to sell when the lease is up. I also have had the hassle of this or that problem..........I wish I had lowered the price and sold back then. Ask me again when we finally do sell if the property appreciation made up the loss of any extra tax we have to pay. Not to mention the ouch of paying back the depreciation we had to take over the years as a rental. But......you do have another person paying the rent into your net worth each month in a way .....

Overall, to me it is not 50/50 sell vs lease. It is at least 60 sell, 40 keep.

Luckily our mortgage and expenses are affordable for us even if no tenant.........but I do call it my ball and chain........

lafder

Nissanzx1
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Re: Should I sell or rent my house?

Post by Nissanzx1 » Wed Sep 26, 2018 11:33 pm

Sell. Profit margin for such an expensive property isn't enough.

Rentals are only really fun when there is no mortgage...

Caduceus
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Re: Should I sell or rent my house?

Post by Caduceus » Thu Sep 27, 2018 5:06 am

What you've described seems like a terrible after-tax, after-expense (including mortgage interest) return on investment. I would certainly not purchase the house. But as for whether you should sell it, you would have to consider capital gains taxes. And perhaps there are oddities about subsidized California housing taxes (I was reading about it somewhere) that makes this property more valuable than others?

Amanda999
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Re: Should I sell or rent my house?

Post by Amanda999 » Thu Sep 27, 2018 9:22 am

Are you handy, and looking for a 2nd part-time job? If not, sell. Far easier and lower risk ways to earn that margin. (Also, watch Pacific Heights and then get back to us.... I know, not all tenants are diabolical. Investing in VTSAX - well, no chance of a headache taking over your life. Just market losses.)

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