Dilemma! Sell or Rent?

Question

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.

Brendan J. · Answer

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."

Mike D. · Answer

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

Tom Goans · Answer

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.

Bryan H. · Answer

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

Beth D. · Answer

Yikes.

Ziv Magen · Answer

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.

James H. · Answer

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.

Dick Rosen · Answer

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.

Shannon Slade · Answer

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..

Jimmy Hong · Answer

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-

Dilemma! Sell or Rent?

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