Dilemma! Sell or Rent?

Starting Out
13yFollow

Dilemma! Sell or Rent?

Brian Smartt
Queen Creek, AZ · Member since 2013 · 16 posts · 1 vote

Hello everyone, i'm new to the site and thought I would jump in and ask a question that i've been bouncing around for weeks now. This may turn out to be a long read and I apologize. I bought a home in the middle of 2007 in Queen Creek, AZ -- it was my first home. I paid $330,000 + $108,000 in upgrades. The house is 4,200 sq ft and was built by Taylor Woodrow(Morrison now). The market tumbled after my purchase and I was quickly upside down. In 2010 I went through a hardship and spoke to B of A about helping me out. They ignored me, even after I filled the paperwork out, for about 5 months. I finally decided I was going to call them and tell them I would be mailing them the keys to the house. I was going to move into a rental property my father owned in Chandler. Shortly after my call to them I got some paperwork overnighted to me, which was about 50 pages. The following day I came home and there was a white van in my driveway, it was BofA....a long story short - they offered to take $66,000 off the loan (I had a 1st and 2nd - the second was $66,00 and change). They also lowered my interest rate from 4.5% to 2.0% for 30 years. After I had an attorney review it - I signed it and ended up staying. Now, I have the opportunity to move to a larger home in a better neighborhood.
THE PROBLEM : Do I rent the house out or sell it? The house payment is $1220 and the HOA is $105/mo. Landscaping for front/back is $50 every two weeks. A property managmenet Co. said it would rent for $2150/mo. I'm worried that this wouldnt be a good rental -- there are a ton of upgrades in the home - built in movie theatre room, an expensive staircase - just the oils from fingers leave tons of marks, same with all the cabinets. My gut tells me the house would get trashed and I would end up having to pay more in rehab after then I would get in rent. BUT, if I sell it now i'd lose a lot. I owe around $355k, value is at $298k.

What would you do in this situation? There are 800+ homes in my community and the average for upgrades per new home was $32k. I went way above because it was my first home and I simply made bad decisions and got carried away.

Any help or advice would be greatly appreciated. Thank you for your time.

-Brian S.

0Reply
52 views

Most Popular Reply

Mike D.
Middletown, NJ · Member since 2011 · 108 posts · 22 votes
13y

Do you really need more than 4,200 sq ft?

5Reply
See this reply in the discussion

18 Replies

Jump to latestLatest
  • Bryan H.
    Investor · Willow Spring, NC · Member since 2013 · 788 posts · 285 votes
    13y

    Why don't you try threatening BoA with sending them your keys again? Maybe they can knock another $60k off your mortgage.

    2Reply
  • Mike D.
    Middletown, NJ · Member since 2011 · 108 posts · 22 votes
    13y

    Do you really need more than 4,200 sq ft?

    5Reply
  • Albert Hasson
    Investor · Paradise Valley, AZ · Member since 2012 · 366 posts · 214 votes
    13y

    Brian,
    I own a bunch of high end rentals in the Phoenix metro area and in my opinion you should rent it out. If you screen your tenants properly with an application, credit report, criminal background check, etc. then you should be fine. I have been investing in Phoenix since 2005 and have NEVER had one of my high end rentals trashed. In fact, my tenants go out of their way to alert me to issues before they become a problem. Chances are for a $2150/mo rental you will attract a family with an income around 100k/yr. I charge a 1 mo security deposit plus $300 non refundable cleaning deposit. So in your case you will have nearly $2500 to address any issues when they move out.
    Of course, you could have plain old bad luck and get a crappy tenant but the chances of that in your rent range are slim.
    Good luck.

    0Reply
  • Ben Hughes
    Investor · Cypress, TX · Member since 2013 · 403 posts · 59 votes
    13y

    Wow, if you sell it you can afford to eat $55k? Wish I had that much money to burn. Why are you moving out? 4200sqft is a huge house. I rent it out for sure rather than lose money.

    0Reply
  • Brendan J.
    Homeowner · Knoxville, TN · Member since 2011 · 207 posts · 73 votes
    13y
    Originally posted by Brian Smartt:

    Now, I have the opportunity to move to a larger home in a better neighborhood.
    THE PROBLEM : Do I rent the house out or sell it?

    Please don't take this the wrong way, but this quote may have exposed the real problem here.

    You're asking if you should force this house into a rental position you don't like, or sell it at a huge loss because you want to move to a bigger, nicer home? Unless you have 8 kids, do you really need to improve upon 4,200sf right now with this situation unfolding?

    Prudence tells me that you should stay in the home you have and work on getting the debt paid off. You may have reached for this house before you were ready, and you're looking at moving up again? Seriously Brian, these are the type of situations that 100,000 members of this forum are trying to avoid and you're about to do it again.

    Again, I'm not throwing stones or making any moral calls here, I'm just presenting the 3rd option that you haven't, if you're really looking for a solution to this, "Dilemma."

    5Reply
  • Brian Smartt
    OP
    Queen Creek, AZ · Member since 2013 · 16 posts · 1 vote
    13y

    Bryan H. -- I'm not really sure how to respond to this. I spoke to an attorney who suggested I do this. I was over 50% under water and he didnt see me ever going positive on it. His advice worked and i'm glad I did it at the time.

    Mike D. -- 4,200 sq ft is decent size, but the floor plan isnt the best and I run one of my business from home, which uses a good amount.

    Albert Hasson -- Very good advice - this is the kind of advice I was looking for. Do you know of any nice property management groups? Maybe ones you've used? The two i've contacted are in in QC and Gilbert -- checking there sites, my home would be the highest rental on either one which has me nervous.

    0Reply
  • Albert Hasson
    Investor · Paradise Valley, AZ · Member since 2012 · 366 posts · 214 votes
    13y

    Brian,
    My wife and I manage all our rentals ourselves. Since its only the one rental you can probably manage it yourself. Being a newer home it will not have many maintenance issues as long as there's not a lot of deferred maintenance. You need to find a realtor who can list the property on the MLS and accept an application, run credit, etc. Most realtors will charge 6-8% of the gross yearly rent as their fee. I don't see any reason to pay a property manager 8-10% a month. I would however check your rental estimate. That seems high to me for Queen Creek. Do you have a pool?

    0Reply
  • Ben Hughes
    Investor · Cypress, TX · Member since 2013 · 403 posts · 59 votes
    13y

    Why would you sell this house?

    0Reply
  • Gerry Kielman
    Investor · Merritt, BC · Member since 2013 · 7 posts · 2 votes
    13y

    I would think you have one of two choices to make. You can't afford to sell so why not let someone else pay the mortgage and give you some positive cash flow at the same time. 2150.00 - 1400+/- = 750/month in the pocket. The new house may work better for you and your business so if you have a down payment and can handle the new mortgage i'd say go for it...unless you like your current situation and don't need the extra 10k/year...

    0Reply
  • Tom Goans
    Real Estate Investor · Englewood, CO · Member since 2013 · 988 posts · 258 votes
    13y

    Brian Smartt,

    I echo what Brendan J. stated.

    I embrase the philosophy of the book "The Millionaire Next Door".

    How can you join the ranks of America's wealthy? It is easy:

    1. Always live well below your means.

    2. Be frugal.

    3. Invest wisely.

    Why would you want to risk going through the same financial stress? You may have forced a lender to renogotiate once before, I doubt it woul happen again.

    Think of all the money you could be investing and passing on to heirs. Think of all the good you could do for your comunity that you are spending.

    Learn from past mistakes to avoid repeating.

    This philosophy is not correct or the best for everyone. But it may be worth considering.

    2Reply
  • Beth D.
    Grand Rapids, MI · Member since 2013 · 99 posts · 30 votes
    13y

    Yikes.

    1Reply
  • Jimmy Hong
    Flipper · Irvine, CA · Member since 2013 · 349 posts · 45 votes
    13y

    Hi Brian Smartt, I agree with all the good advice given, if you don't HAVE to move, then don't. But if you must... it sounds like rental over selling for loss. At least you can cash flow, even if its a little bit.

    Also, doing your own property management will definitely increase your cash flow but having a professional team can help screen out potential bad tenants and help keep your high end property in shape. Do you have the time and know how to screen quality tenants or do you want to pay someone to do it?

    0Reply
  • Brian Smartt
    OP
    Queen Creek, AZ · Member since 2013 · 16 posts · 1 vote
    13y

    Thank you everyone for your helpful advice. The post was poorly written and I apologize for even posting it. I by no means HAVE to move. The problem I left out is, I drive 44 miles one way to work, which is an hour and 20 mins each way. It gets old. A home in a neighborhood i've always wanted to live in, is in foreclosure and I wanted to buy it -- the home is base bones, but has awesome potential. It's also only 7 miles away from my job. My common sense tells me to rent out my current home, but fear overtakes me that it will be trashed. I just was hoping to get some ideas. I appreciate everyones help and in the future will do a better job explaining.

    Gerry Kielman - Very good advice, the new home would be 5100 sq ft with a basement. My current home is two stories. In AZ basement homes are much better, especially in summer.

    Ben Hughes -- Just want to be closer to work, so I have more free time to spend doing other things.

    Albert Hasson - can a rental application be found online and how do I screen the tenants? Is there a guide (im sure this site has one - just have to dig for it). I had two property managements Co come look at the home, one says $1975/mo, the other said $2150/mo. Both include me paying the HOA and landscaping. The home does NOT have a pool.

    Jimmy Hong - I would like to be my own property manager -- but I dont know how to screen a tenant? What if I didnt want tenants to have pets -- how would I ever really know if they were following my guidelines until its to late and the baseboards are chewed up and the carpents are urinated on?

    Thanks again everyone for your advice and responses.

    0Reply
  • Jimmy Hong
    Flipper · Irvine, CA · Member since 2013 · 349 posts · 45 votes
    13y

    Brian Smartt, I'm fairly new myself but found tons of info regarding this matter, check out this forum:

    http://www.biggerpockets.com/forums/52/topics/14637-how-do-you-screen-prospective-tenants-

    0Reply
  • Shannon Slade
    Forney, TX · Member since 2013 · 119 posts · 101 votes
    13y

    Brian Smartt you got great advice from Brendan J.!! I am assuming thats the reason you started this thread

    My day job is 48 miles to work, so instead of moving I bought a cheap car to drive back and forth that gets great gas mileage. The car has 220,000 miles on it now still runs good (go GM). I do prefer to live outside of this metro area though. Good luck on any decision that you make..

    0Reply
  • Dick RosenPro Member
    Property Manager · Gilbert, AZ · Member since 2009 · 1k+ posts · 451 votes
    13y

    Brian Smartt you've gotten a lot of good advice in this post from several different perspectives, if you decide to rent it I highly recommend contacting a good rental agent to list it and screen the tenants for you. It typically costs less than 1 months rent and if you've chosen the right agent, they will likely choose the right tenant so that you can mange it yourself if that's what you choose to do. As a property manger myself, your risk of a bad tenant trashing your property really depends on the up front screening.

    0Reply
  • James H.
    Investor · Fort Worth, TX · Member since 2011 · 1k+ posts · 450 votes
    13y

    I think it is a no brainer. By renting it out, you have some cash flow, great long term upside AND get to move to a better house with a better location. That's a slam dunk IMO. Not sure what all the uber condescending advice about shaming you for looking up to better things is all about...

    The real question is if you are cut out to be a landlord. I have found it to be pretty easy. Some think its a nightmare. It just depends on you and how you perceive things. I think most landlords tend to report a positive experience if their property cash flows. It is a pretty impressive thing to have a 300K house that cash flows. I'd jump on that train and not look back.

    0Reply
  • Ziv Magen
    Fukuoka, Fukuoka · Member since 2012 · 148 posts · 29 votes
    13y

    Here's a thought - stay, grit your teeth, lower your expenses, maybe bring in a live-in tenant to help pay the bills, and wait for good sale conditions - then live somewhere you can afford. NO WAY you are using 4200 sqf unless you've got a brood of 11 there. What on earth were you thinking, and what on earth are you thinking now? To upgrade? SERIOUSLY???

    Sorry, don't mean to be rude, but it does certainly sound like you're not learning from your past mistakes, if you're thinking to move to a "bigger house in the neighbourhood you always wanted".

    I always wanted to live in a condo overlooking the water in the world's most expensive neighbourhood in Hong-Kong, the world's most expensive property market. And I might do that - when I can afford to.

    PLEASE, do yourself a favour and live in reality - not in some "homes and gardens" dream world - or you're headed for a complete disaster, in my opinion.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free