Rent or Sell?

Question

Rent or Sell
I own a house in Arizona that I need to decide to rent or sell. I bought it 15 years ago new, at 85K. Iâ€™ve lived in it for the last several years, and recently vacated it with the intention of selling it. According to 2 RE agents in the past week it should sell within 3 months for about 145-150K, netting me 135, or it would rentâ€”both said 950 or so in a month or two.

If I sell, the plan would be to replace it with another house, paying for it (pretty much) completely, or maybe two, depending on me getting the money to do that. I want to sell because that house is in an hoa. Whatever I buy will not be.

Both agents suggested renting for a year or two, then when the market is rising, sell and buy. Right now there is vacant land behind it, which will not be true for long. I have NO idea what the hoa will do as far as assessments. I do know they will not go down.

What would you folks do, sell now, rent for a year or two then sell, or what? Now of course, Iâ€™m competing with foreclosures, but in a year or so, that open land behind the house will be being built onâ€”900+ houses planned for it.
If I take my 135K and buy another house for that amount, even if I can rent it at the same 950 per month, how does my financial picture change? Will I have the same return from a replacement that I would have from that house? Any replacement would probably be older, since I would not be buying in an hoa. Also is the fact that  my  house would sell for 150K, but what I would buy would have to be less, using only my proceeds. The recent agent said now the sales here are beginning to pick up. Maybe do an FSBO? I don't know how successful they are here.

Thanks,
Ofgift

Jon Holdman · Answer

No, you misunderstand what I'm saying.

1)Sell Now.  Call an agent and list this house tomorrow, Friday, March 20, 2009.

2) Take the $135K and put it in CDs.

3) Only buy another house that gets $900 in rent if you can buy it for less than $67K.

Account Closed · Answer

Again thanks.
I knew I was right to want to sell. 
Ofgift

Account Closed · Answer

Question. That house cost 85K in 1993, with about 13K in improvements in 1999. There is no mortgage. It would rent for about $900. Is that not a good return? What percent return is it?
PM is 10%
taxes about 1500
Ins about 600
(I would keep home warranty on it-450 a year)
hoa 109/year

Thanks,
Ofgift

Account Closed · Answer

Jon, Got it. I will work toward that. (There's still clean-up to do.) Actually, I prefer to do it that way. I really do want to sell it. 
I expect I will do the FSBO, and Jim, thanks for your suggestion of owner financing at 7% interest. 
I know nothing of that. I will see what I can find here, there must be info in the threads here. 
I hope this is what you are suggesting. If not, please correct me again!
Ofgift

Account Closed · Answer

I do own it free and clear, so the income would be mine, minus property management (I would hire a pm) r&m, taxes, etc.

If I understand you both correctly, it sounds like the best for me now is to rent it for at least a year or so, then possibly sell the third year. That would reduce the tax I would have otherwise. Itâ€™s my retirement, and the only objection is that itâ€™s in an hoa. Otherwise itâ€™s a great property. This hoa is relatively reasonable so far, I have personal reasons to sell out of it.

I havenâ€™t yet checked listings recently, but doubt thereâ€™s much for even 80K that would be reasonable, let alone in the 60â€™s.

That house was rented 4 years under a PM before I moved in in 1998. In 2000 I bought another house, same subdivision, and rented it, hiring the same PM. The co recently changed hands, and I will not use them again.

I'm not thrilled with the property managers I'm seeing. I will look into CDs, though I wonder about them, too, in this economic climate. I've moved into the one I bought in 2000, and hope to be out of here in two -three years. What else would you suggest for investing that money? 
I may have enough for a down payment. If I get th'93 house rented, I could look to buy another, price and location being appropriate. 
Thanks for the wisdom.
Ofgift

Jim Doine · Answer

Ofgift, If you are considering owner financing I would not offer it at 7% as suggested. I believe i have read in other threads that the going rate is 10-12%.If you don't want to carry 30 years put a Balloon payment on it in 3-5 years.Another option I have considered is cashing out and becoming a hard money lender 12-15% interest plus points, short term 6-9 months. Check with some mortgage brokers they should do all the paperwork for a small fee.  Jim

Will Barnard · Answer

Yes, you misunderstood me as well.
            I agree with Jon that the right play is to sell now.

Jon Holdman · Answer

What it cost doesn't really matter.  Its the fact you could pocket $135K if you sold.

Rent: $900
Expenses: $450 (50% rule, this may be optimistic wince you have an HOA.  Since you're using a PM, its for sure not going to be any less)
NOI: $450 or $5400/year.

So, you have an asset worth $135K that's netting you only $5400 a year.  That's a 4% return.  There's no guarantee it will generate that much income.  You could have a lengthy vacancy.  It could need a new roof.  The tenant could wreck the place.  So, it COULD turn into $10K out of pocket instead of $5400 in income.  That's just too low of a return on your capital for a risky, hassle-ly investment like real estate.

Jim Wineinger · Answer

I agree. Sell now. Since you have it free and clear, you might also consider owner financing not just FSBO. With an RE attorney writing the contract and terms you should be able to get more in interest than on those CD's. Downfall is having to wait for the money, but your sales price should bring more than that 900 rent or at least pretty close to it using 7%. Upside is that if you do have to foreclose an owner will take better care of it than a renter will.

Mark N.A · Answer

Your profile doesn't specify if you have any experience landlording.

Even if your return was much better than Jon's analysis, managing your own property is a real job, despite the misnomer of 'passive income'.  And hiring a PM has its own problems.

Rent or Sell?

Most Popular Reply