Rent out or sell our primary home?

Question

I wasn't sure where to put this, so if it's the wrong category, please feel free to move it.

I have sent a letter to the owner of a vacant house in my neighborhood. I'm 99% sure no one lives there. We would be purchasing this house for our primary residence if we can snag it for the right price. (More on that later if it comes to fruition.)

My question is about our current house. I'm debating on renting it out or selling it. It is a 1946 3/1. We have done the major guts updates, full electrical/HVAC/plumbing and some other more minor things. Added a wood stove, ceiling fans, attic drop down door. Added a dishwasher.

It still needs a lot of work, but we've been living here for 1.5 years just fine. Kitchen and bath remodels are top of the list. Thing is, we don't have the funds to shell out for these remodels. And the roof will need to be replaced in the next couple of years according to our home inspector when we bought the house.

I'm wondering if renting it would open us up to too many liabilities or unhappy tenants or something along those lines. It's also on 4.17 acres, mostly wooded though.

The mortgage is $407 (taxes and insurance included). I figure we could get around $650-$700 or so as is.

Our mortgage balance is $53,000 with a recent appraisal of $72,500. Now, I'm not entirely sure we could get that amount for it.

Also, I'm pretty sure it won't qualify for a buyer to get an FHA mortgage. It just needs too much. And I know many buyers go that route. It would be a good candidate for a 203K or a USDA rural (if there isn't too much red tape with the condition and whatnot).

Opinions?

Tabitha Fox · Answer

This is what I'm leaning towards. I just wanted to get others opinions.

Tabitha Fox · Answer

Thanks for that breakdown.

The mortgage is a 20 year 5/1 at 3.5% which is $307. Add $100/month for taxes and insurance. It was the only option we could get for such a low mortgage with closing costs rolled in. We actually close on the refi on the 29th. We are refi'ing out of a seller finance at 8%.

Andrew Syrios · Answer

With a $407 mortgage payment and only $650-700 in rent, I don't think you're going to cash flow on the property as a rental. If you take, say $3500 in annual expenses (taxes, insurance, maintenance, turnover, etc.) plus a 10% vacancy factor you get this:

Annual Rent: $8400

Vacancy: $840

Expenses: $3500

Mortgage: $4884

Cash Flow: -824

That being said, I $407 sounds very high for a $53,000 mortgage. I like buy and hold, so I would probably lean toward at least investigating refinancing.

Tabitha Fox · Answer

We don't have the funds for the repairs. It would be sold as is.

If the other house doesn't work out, then we will do the repairs in our house as we can afford them.

David Hedges · Answer

I've been debating the same thing with my house. though I'm not sure if my situation may be different.

I've been of the opinion to get market value for my house I would need to do some of the repairs and updates around the house, and if I were going to rent, I'd probably need to do the same updates (for me, mostly replacing flooring and painting).

one thing I've been considering though that most likely would apply to you as well; If you move from your primary residence, the tax rate will probably change, in my case it will likely double on that house. Insurance may go up a little also, but probably not as significantly as taxes.

For me I think I have a bit more equity in my house as well and either way would work, but for you i'd consider if you would need to do the additional work regardless (assuming your not selling as is), and if you can make the numbers work assuming that some of the expenses will rise after you move out. based on the numbers you have there, you may be able to make a very small profit on that house if you don't need to finance the repairs, or can keep the costs down. though there is also the chance that if you didn't plan this out well or if the work is too extensive it could like Tabitha said quickly become a money pit.

Thomas S. · Answer

Sell it. As a rental it will be a money pit. The rents are far too low to even come close to covering expenses.

Charlie Fitzgerald · Answer

Sell it.