Sell or rent out my house?

Question

Hello all,

My wife and I bought a house in Plattsburgh, NY about two years ago.  The house is a 2400 sq foot, 3 bed, 3 bath, big pool and hot tub.  Since we bought the house, I have put about $15,000 into it, as I have completely remodeled one of the bathrooms and completely rebuilt the back deck, which wraps around the pool.  I have also painted the house top to bottom, including painting the trim white, which was that orange pine 90s look before.  Suffice it to say, the house looks amazing and brand new throughout.

Now, I work in Burlington, Vermont which is about an hour away and involves a 20 minute ferry trip across Lake Champlain.  We bought in Plattsburgh because that's where my wife worked and the home prices are *drastically* more affordable than they are anywhere in Vermont.  My dilemma is my wife unexpectedly landed a much higher paying job in Burlington recently, which has left me unsure what to do with my current house.

Both of us commuting and spending hundreds each month in ferry / travel costs on top of the time commitment is silly.  So the question becomes do I sell or rent this place out?  I have an amazingly low 3.2% fixed mortgage on the house, and according to most realtors I should be able to rent it out for ~$100-200 more than my total mortgage payment.  Plattsburgh doesn't have a large single family home rental stock, and we have a few big employers coming in, so the house *could* be a nice long term hold.

However, due to those employers coming in this year, those same realtors have told me that this area has been quite the sellers market and if I listed it I should be able to sell it for $20,000-$25,000 more than a bought it for, which isn't bad for only owning it for 2 years.  On a negative, the roof has only 2-3 years left, which would cost me $6,000 or so if I did most of the work myself (luckily I'm fairly handy).

What to do?  Do I turn this home into a long term rental and be an "accidental landlord" banking on the lack of single family homes for rent in my area, coupled with the new employers coming in and the central, convenient location of the house?  This of course involves risk to a certain degree, but then again so does all real estate.  Or do I sell it when the market's hot and not have to worry about a potential downturn later on?

In either scenario, my wife and I would rent in Vermont for 1-2 years minimum, as we want to ensure we don't run into this problem again if we can avoid it.

I'm a complete real estate noob, so any advice on strategy and timing regarding this situation would be greatly appreciated.

Cheers..

-Alex

Andrew B. · Answer

Sell. Many good reasons to sell, no good ones to rent. First, if rent is $100-$200 over your mortgage payment you are cash flow NEGATIVE after factoring in capex, vacancies, etc. you only make money if nothing ever breaks...ever, and you don't have a single day of vacancy. Impossible.

Also, you have a pool. Pools in rentals only work in extremely high end areas, and will likely lead to headaches under best scenarios and huge liability under worst case scenario. There is a reason anytime someone mentions a pool here, the response is to fill it in.

Next, you have a house designed to be occupied by homeowners. This sometimes works poorly for tenants as you have added things that a homeowner will take care of, but the tenant will not. This may include a disposal, fridge ice makers, or even just fancy finishes. When these break, you as landlord have to replace it. A rental unit should be constructed with renters in mind, and include finishes that are less complicated and wont break easily. This is why owner occupied residences don't usually work out for renters.

Hopefully you come to the best solution for you and your family!

Alexander Babbie · Answer

@Julie Marquez Small world isn't it?  I was considering being a landlord for the experience, as it's not like I have a ton of equity locked up in this house yet, but there are some sizable risks (especially with the pool) that do make me a bit wary.The biggest employer I was talking about coming in is Norsk Titanium.  They have already started work on a multi-billion dollar plant in Plattsburgh, where they will use advanced industrial 3D printing technology to essentially print titanium parts for the aviation industry.Its a high-paying, high technology employer and when they are at full capacity it will be the biggest employer in the county with the exception of the hospital.  Pretty exciting stuff.  Since they will be bringing a lot of engineers and specialists from outside the area, it is a pretty good time to have a move-in ready nice home on the market, as it seems they are going pretty fast.

https://www.northcountrypublicradio.org/news/story/34886/20171018/cuomo-visits-norsk-titanium-in-plattsburgh

Andrew B. · Answer

there are a couple "rules of thumb" that people use around here.

1. mortgage payment should be half of rent

2. rent should be between 1 and 2% of home value

3. subtract 10% of rent for vacancy, 10% for capital expenditures, and 10% for management fees (basically subtract 30% from rent, but the 3 numbers vary by location) and the difference between that number and mortgage is your cash flow

these are very broad heuristics that vary wildly by market though. if you are interested in learning about real estate investing, spend a lot of time reading these forums and podcasts. you can learn a lot here.

Julie Marquez · Answer

@Alexander Babbie Glad you stumbled upon Bigger Pockets because you can learn about every possible option of real estate here. If you have any interest in becoming a real estate investor, then I say keep the house and rent it out. You sound handy and completely capable. While this might not be the best deal ever, it is a great place to learn and get started. I'm all for the experience, and if you don't like being a landlord, then sell it later. I'd even suggest looking into doing the property management yourself, if you have time. It's a good learning experience and Bigger Pockets can teach you everything from screening tenants to accepting rent and more.

Also, what big industries are moving into Plattsburgh? My mom and her family are all from there, they ran Pytlak Orchard, and now my grandma and relatives live on Willsboro Point.

Tawny Bloom · Answer

One other thing to think about when renting is that renters don't necessarily take as good care of a property as you might so although it may look amazing now you might get a little extra wear and tear than you were expecting if you rent.  If you are only able to earn $100-200 per month is it worth the extra hassle and any other possible repairs down the road?  And do those numbers take into consideration management fees or will you be managing from VT?

Michael Noto · Answer

@Alexander Babbie With the numbers you provided I would do the roof and sell. That roof needs to be done soon anyway and that $6k will kill years and years of cash flow on a property that makes $100/mo.

Megan Phillips · Answer

I think it's up to you if you want to be an "accidental landlord," if you can break even with renting (mortgage, insurance, property management, and taxes) I would rent it. Although it's not ideal to bet on appreciation to make a purchase (or future sale) more attractive, if big employers are moving to the area, it seems like the value of the home will go up. Worst case scenario, you don't like renting it, sell it in a couple more years, and you still have increasing equity over that time. If you decide not to use property management to find tenants/manage, you could pocket a couple hundred bucks a month, and potentially pay for the new roof.

There is PLENTY of information on this site to help with managing your own property, I wouldn't necessarily run right out and pay someone else to do it for you. I also think with a house rental, tenants are generally responsible for most upkeep (snow removal, lawn mowing, general maintenance, etc - so what's there to manage? Someone please correct this if it is not true). This is all assuming you have enough income for rent and savings for a new purchase in the future (could also use a HELOC or refi money out of your current home to help with down payment I would guess). My vote: rent it.

Darrell Lee · Answer

Depends. What did you pay for the house, add your closing costs, improvements for a true total basis.

If you sell, add commissions and closing costs and you are probably looking at breaking even at best.

Rent covers loan pmts? What about taxes, insurance, utilities, maintenance, capex... You need to have a realistic view of rent vs sell.

The BP calculators are very helpful. Use them to help you make your own decision. Only you can determine what is best for you as there are so many factors only you know.

James Maradits · Answer

I would sell.  Aside from the numbers not being very ideal, it sounds like you are proud of the home and the work you've done (very rightfully so) which likely means you would be pretty upset if a tenant didn't take care of the place like you would.

I think it's harder to look at a property as strictly an investment when it has been your home and may have emotional attachment from years living there with your family.

Sell or rent out my house?

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