should I rent or should I sell?

Question

Greetings,

My wife and I purchased a house in a small community (mainly in a tourist industry because of the Lake of the Ozarks but our house is not on the lake) almost 12 years ago.  We purchased the house from an individual (for sale by owner) for $129,000.  The home is 2900 and it was dated (not updates since it was built in the late 70's).  We immediately put $30,000 in upgrades and have upgraded more since the purchase (including finishing 600 square feet of basement space).  But the housing market is currently very poor in our community and we are wondering if selling is really the right decision.  We had the house appraised for a lower interest rate several years into the note and we currently owe $101,000 on it (at the time, before the market crash, the appraiser gave me a quote of $175,000 on the house).  Now it appears we could have to drop down to $150,000 to sell the house (and with a realtor at 7%, we stand to lose a lot of the equity we have put into the home).  There are not a lot of large homes for rent in the area so I'm wondering if I should rent instead of selling and see if the market improves (I can't imagine that it couldn't improve).

We already own a new home and we don't really need to make money on it (but making two house payments along with electric, water, trash, etc. is not great) but we would have liked to get a little of our equity out of the previous home so we could replace a few things in our new home.

We actually live in a different state but I have several people who I could pay a $100 to who would watch out for the home and deal with repairs as needed.  What about refinancing the house as a rental?  Is that smart?  Any advice you might have would be good.

Thomas S. · Answer

The biggest mistake home owners can make is to hold on in a falling market expecting things to change. Renting would likely be a major mistake, costing you more money and more stress, and ultimately you may end up selling at a even lower price. What you have spent and what you put into it is irrelevant, it's worth what it's worth. The future market does not look any brighter.

Sell now, take the loss and put the whole thing behind you before it gets worse. Being a landlord is no basket of roses, high stress, high risk, late night calls, late rent payments, sleepless nights, tenant evictions, court appearances, tenant damage etc, etc,

Linda S. · Answer

@Randy Chappell,   if you don't want to be a landlord, just hire a PM and collect rent.   I would never recommend paying friends, you need a professional.   If you don't need the money, what do you have to lose by letting someone else pay down the equity?

Emanuele Pani · Answer

Randy I tend to agree with Jim, it all depends on how much money you can rent the property for and what your long term needs are. If you don't need the money for the house and you might end up taking a loss I would consider renting it and have the tenants pay off your mortgage while you keep growing the equity and eventually pull some of that equity out of the property to use as a down payment towards an additional rental property and grow your wealth like that. Vacation rentals are a great way to increase the cash flow potential but are definitely more work and if you are going to pay a PM they would most likely ask more than the usual management fee. I have always liked the saying we don't wait to buy real estate but you buy real estate and wait, as long as your long term strategy is building passive income I would keep it and rent it :) Cheers

Jim Adrian · Answer

Have you looked at what this would rent out for?  I would look at the numbers for guidance.  This may be a cash cow and worth keeping but then it could be a break even property, then best to sell.  Could this be a vacation rental?  But I hear this is more work than a typical family rental.  Define your goals and what your bottom dollar down and stick to them.

Randy Chappell · Answer

Linda, just for clarification, I have a friend who does that (property management) for a living.

Ciera, it's truly hard to believe the market will be worse than this in the future.  We would be selling the house for $10,000 more than what we bought it for 13 years ago after sinking probably $40,000 into it in repairs and upgrades and adding 600 square feet of finished space.

Ciera Hutson · Answer

I would sell now then.  With the interest rates going up, there will be even fewer buyers and even more homes on the market and the values will continue to fall.

Ciera Hutson · Answer

Well you have to take a few things into consideration:

1.  Have you ever been a landlord and do you want to be?

2.  You never know what kind of condition the home may be in once the renters leave and you may end up having to put more time and money into the home to make it marketable.

3.  Buyer interest rates are going up and are expected to be at 5% by the end of the year.  As a result this will decrease the number of buyers and that would cause the value of homes in the market to decrease as well.

4. The standard commission rate is 6% but many realtors are willing to negotiate.  It sounds to me like your real concern is the amount of money you will net out of the sale of your home.  If you find an outstanding agent they will be able to market the home in such a way that you will be able to net what you need out of the sale.  I would be happy to refer you to a top agent in your area that will be willing to focus on your top concern which is netting the most amount of money.

Ciera Hutson · Answer

Greg S. said it all.   Thet market will get worse.  It doesn't matter how bad it is now.  It's all about the interest rates.  Think about it in terms of supply and demand.  Sounds like there is more supply than demand already, once you factor in the future rise in rates, there will be even less demand.

Randy Chappell · Answer

I really appreciate the advice and expertise in this area.  I will do a little cost evaluation (realistic rent in the area as well as talking with my property manager friend on cost as well) and see which is more feasible (cutting my losses or renting long term).

Again, thank you for your help!

Randy Chappell · Answer

Ciera, I appreciate your input.  The bottom has dropped out of the market as too many are leaving the area and the market is flooded with homes.  My house is already very close to being 50 a square foot and I'm beginning to wonder how much lower I can go at this point.

should I rent or should I sell?

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