I need some financial advice/input, guys - LONG

Mrs.Greg · October 2013

So DH and I are ready to buy a new house. We have been going back and forth about what to do with our current home. We have 2 options: 1) sell and hopefully break even (based on what we owe, the assessed value and what our real estate agent friend has told us about house pricing, we are pretty sure we won't much off the sale) or 2) rent our current house out.

I'm leaning toward option 1 because I don't want to worry about this place, 2 mortgages, I just want to be done. DH hates that we've been here for 7 years and will have nothing to show for it. He wants to go through a rental agency to (hopefully) make renting less stressful and just rent our house for a year, 2 years at most, and then sell and, again hopefully, make some money off the sale. DH isn't money hungry, I swear. It just bugs the crap out of him that we've been paying on this place for so long and will just break even.

Being the planner than I am, I want to be prepared for worst case scenerio - we buy a new house, move in and can't get anyone to rent our house for a period of time.

Right now, the only debt we have is DH's truck loan and our mortgage. His truck will be paid off before we apply for a new mortgage. Our current mortgage is about a quarter of DH's gross monthly income. I've been talking to a broker about how much we might pay a month for a new house and it would be, at most, $100-150 more than our current mortgage. So 50% of DH's monthly gross income COULD potentially go toward mortgages if we don't get renters. That makes me so nervous even though our broker says there are a lot of people looking to rent right now. He's pretty much convinced DH it won't be an issue. Ugh!!

Of course, this will be a joint decision between me and DH so if I absolutely don't want to rent our house out, we will just put it up for sale.

Are we asking for trouble by wanting to own two houses and trying to rent one of them out? Or am I being overly cautious?

If you made it to the end of my post and are actually gonna reply, bless your heart! Thanks!!

notkateanymore · October 2013

I would never want to own two houses unless I had lots of extra cash to burn. Being a landlord sucks as well, trust me. One of the reasons {not the only though} we rent is bc we haven't sold our other house yet. I do not want two mortgages.

rockyrollgirl · October 2013

DH feels the same way as your husband does. "If you are not going to make any money, rent the damn thing.".

Mrs.Greg · October 2013

KateMW said:
I would never want to own two houses unless I had lots of extra cash to burn. Being a landlord sucks as well, trust me. One of the reasons {not the only though} we rent is bc we haven't sold our other house yet. I do not want two mortgages.

We do not want to be landlords either so DH likes the idea of paying an agency to be the middle man. It just seems like too much of a hassle to hold onto this house in hopes of a small return when we sell.

mylittlesunshine · October 2013

I agree with @KateMW

The other thing that would concern me is the condition your house could go into because of your tenants.

I would sell and move on.

dmartin726 · October 2013

I wouldn't sell. I would rent it. It is a renters market for sure. Rent prices are sky high because so many lost there homes and so many can't qualify for mortgages. I would take the risk and rent. If you can't rent it, you can always sell it, that option won't go away. I think you owe it to yourselves to give it a shot. Especially if the outcome is likely going to be a higher sale price down the road. That being said, I'm am a risk taker.

joyfullyfound · October 2013

I agree with the PPs - I'd sell. I get the temptation, but I've heard way too many horror stories about rented homes to ever want to take that on myself! A suite or carriage house on our own property where we could keep constant tabs on what was going on there would be different... but a separate house? No.

Finding good, honest renters is hard. It's basically luck of the draw, and you could get seriously screwed.

My SIL and BIL bought their house 2 years ago, and it had previously been rented out to what the homeowners thought was a young couple. Turns out over 10 college guys were living in the 4 bed/3 bath house for a year, and they trashed it. And then they just disappeared, leaving all their crap there and never making their last payment. The homeowners went in to clean it up to sell and found the nastiest shit. Multiple iron burns in the carpet, molding dishes all over the counter, and molding food in the fridge. Used condoms stuck to the walls. Holes in the floors and drywall. Massive water damage... the list seriously goes on and on. My SIL/BIL got the house for a steal, but they only got to move in 6 months ago because the damage and amount of repairs to be done were so terrible.

Obviously that's an extreme case... but I've heard an awful lot of stories like that. I'd rather just break even on a house than risk it!

chickaboo1974 · October 2013

We bought our current house before selling our old- except we didn't have a mortgage on the old house- my DH bought it 17 years previously (and a FYI we did make money on the sale- it sold for only 20k more than my DH paid for it 17 years previously- with a new roof, new energy efficient furnace/ac, neutrally remodeled bathrooms). We absolutely did NOT want to rent. It was nothing about the money factor- it was the hassle and the damage that renters do cause.

Mrs.Greg · October 2013

auroraloo said:
I'd sell as long as I could break even. You have memories to show for it, it's where you brought your children home to.

Also, double check about paying off the truck before applying. A lot of times car loans actually make your credit better. Maybe just *almost* pay it off, bank the money to pay it off and pay it off after closing.

See, we are getting conflicting advice about paying the truck off vs not. My bank loan officer friend says what you say. But our broker says that not having that $400 car payment could get us $60-80K more house. When he explained how that works, it totally made sense but I'll be damned if I could explain it as well myself.

Mrs.Castaldi · October 2013

I didn't read everyone's responses but I would suggest looking into renting it out for a while, at least until you can sell it for more. That being said, unless at a minimum you can break even the mortgage payment, taxes, insurance, etc with the rent then it doesn't make sense.

Spin313 · October 2013

We bought our new house two years ago and were/are underwater in our old house. We rent the old house through a property management company. We are just shy of breaking even after paying for the company and the landlord insurance. We are on our second set of renters and have had good luck getting nice people in there quickly, but a couple of issues have come up with the house that have been annoying to deal with.

We are going to see where we are when the current renters are done (they might stay a second year), and try to sell if we can break even or make a small profit.

IMO, sell (don't rent) if you can break even or make a profit...unless renting is going to bring in a good amount.

jlpev · October 2013

mylittlesunshine said:
I agree with @KateMW

The other thing that would concern me is the condition your house could go into because of your tenants.

I would sell and move on.

This!

likeanoldtimemovie · October 2013

I would rent it. I agree with @dmartin726. It is definitely a renter's market. In our area, which is very rural and LCOL, rent signs go up and come down in HOURS. Everyone's looking to rent. If you're going through an agency, I think it's an even better idea. I have a friend who works through a rental agency and if a home is damaged, that tenant is sued out the wazoo.

You could also talk to the rental agency about offering a rent-to-own thing if you're wanting to only rent for a year or two. You'd have even more serious tenants who are willing to put the down payment on it and buy your home in the next year or so.

Good luck with whatever you decide to do!

lexusolsen · October 2013

I agree with pp who advised a rent to own situation. Serious renters who will treat the place well since they want to be there long term.

carlab44 · October 2013

I believe you are in the Seattle area - so am I. We bought a house in 2000, moved into another house in 2009, and held onto the old one as a rental. We live in a neighborhood with a hot rental market, had 5 groups extremely interested in renting it, and had a family offer us a year's rent up front. They've been living in the house for 4.5 years with no issues. We also own a duplex nearby that we've had for over a year with no real issues (beyond typical maintenance needs).

That said, I wouldn't hold on to your house and rent it out just for a year or two in hopes of it going up in value. Personally I don't see the market going up that much that quickly to make it worthwhile. Real estate investments - especially rentals - are more of a long term strategy. If you were wanting to hold onto it to make some money off the rental and have some real estate in your investment portfolio I'd feel differently.

pitterpatter129 · October 2013

We are currently renting out a house we couldn't sell quickly. It's not something I'd recommend doing.

kcisthebombdotcom · October 2013

My friend is underwater on her house and rents it while living somewhere else. It is a nightmare I would not recommend getting into. Cut your losses and move on.

spring_time · October 2013

We had a similar situation, only our option was to do a short sale (the house had lost 50% of its value, and was only in my name) or rent. We went the short sale route. It killed me, absolutely killed me, that I had bought a lower priced home (at the time), put 20% down, spent thousands on home improvements, lived there for 8 years, and had to walk away with nothing. It could have been worse, I could have lost even more, but it made me feel sick for months while also feeling like a bum for having to short sale in the first place.

However, my cousin who chose to rent his house in the same neighborhood just went through an eviction proceeding. The people had been good renters for two years, then went through a divorce. Even the best renters can run into problems. Another friend rented out a house, and the renters destroyed it, bringing the value down even more. A third friend, had renters who paid some months, and not others. Some of those issues could be dealt with by a management company, others could not. To me, it is just not worth it, especially if you have to pay a company which is another added expense.

I still kind of wonder if I could have recouped some of my money by holding out for a couple of years by renting, but the last year and half of being stress free and only having one mortgage has been priceless. Live and learn...your home is not an investment, it is a place to live. As for your husband, tell him to think of it like you rented your home for the past few years, you would have had to pay to live somewhere. I think of it that way. Sometimes it helps.

Eta: Also, I wouldn't count on the house going up much more in value. We have had a huge rebound here, and at this moment, I would have only ended up with a couple of thousand dollars more than what it sold for. Still not anywhere near even breaking even, and certainly not enough to deal with the hassle for renting for this amount of time.

freezorburn · October 2013

It's not as if breaking even is a bad thing these days. Do you really think the housing market in your area will rally so much that you'll be better off if you sell one year from now? Have you done some research to see what rates other similar properties in your area are getting for rentals?

If you rent the house out you have to also carry the cost of insurance and maintenance, and a management agency if you choose to use one. If you do all your own management, factor in the time that you will need to take out to do any maintenance or repairs that you will be responsible for per your rental agreement. Even if you are having others do the work for you, It would require some of your time and attention to make sure the work is done to your satisfaction.

We did this and it was a pain -- the only reason it was worthwhile was because we intended to live in the house again after DH finished with a job posting. Otherwise, financially it was not really the right decision.

penguingrrl · October 2013

Are you talking about breaking even on what you currently owe or on what you bought it for? If it's what you bought it for that means you lived there "for free" instead of spending whatever on rent. If not, you spent those years pay $x/month rent, which you would have had to pay no matter what and probably spent less than you would have to rent a comparable home.

As far as renting it out,are you in an area where rentals are scarce? If so, you can afford to be picky about who you rent to. I know that the house we currently rent had a sign out front for 36 hours and that was the only advertising they did. In that time the landlords had over 60 inquiries. After assessing us and two other applicants they chose us because we had ties in the area and young children. They also know we're renting because DH is in a place in his career where we don't yet have geographic stability so we can't take the risk on home ownership yet. We treat this house as our home. We don't want to live in squalor even if we aren't financially invested in our home. We planted flowers out front in the spring (with permission), keep everything clean (beacuse ewww to people who don't) and if something breaks we fix it ourselves if it's cheap and call them promptly if it's expensive. You can get good tenants if you vet them carefully.

My mother just listed her house for rent because she's moving in with her boyfriend but wants to hold onto it while it builds more value. She's hoping for a young family or newly single parent (both situations she has been in herself and would love to help someone in that situation). She is listed at $1,000/month more than she pays in mortgage (she bought ten years ago in Dec), so she will quickly build up an emergency fund to pay for repairs needed.

Yes, nightmare tenants could happen. I'm sure everyone has stories about them. But I would say that more often than not you'll have people who are renting because of career limitations and want a nice home, especially with a SFH. Or newly divorced parents who still want to live in a nice, clean home.

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