Sell or Rent my house?

Question

Hey guys, I'm new here, but been scanning this forum for the last 2 days and some of you seem to give great advice so I thought I would join and pick your brains. I'm planning to see a CPA next week....but would love some feed back here in the meantime cos I'm stressing out...lol

My family and I relocated down to San Diego from LA 5/6 months ago...the company so far have been paying our rent here ($3600) , but we still own and pay for our home back in LA. Now we need to make a decision to either rent or sell our home, as they won't pay our rent here forever. The company has agreed to pay for all closing costs if we sell.
Details:
We bought the house/condo in Dec 2004 at $450k
and have just over 400k left on the mortgage, I think that the house might be worth now anywhere between $420 -$460...hard to tell in the complex cos of so many foreclosures...
We pay about $5,400 in property tax, and pay 2 HOA's.. $400 a month ($100 for the area, and $300 for the gated community).
Now I was going to rent for $2600 to cover the mortgage (which is about $2500...the principle is about $250 the rest is interest)), and cover the HOA's and property tax myself...the thing is my husband earns over $150k so we don't get the tax benefits as far as I know.
We do have extra money aside ..about $80-90k in the UK...was hoping to use that to help upgrade to a new home someday...don't mind spending some of it to keep the current...but just scared of throwing our money away in the meantime even if the house does go back up again in few years...and make no money at all but a loss...most of all our savings gone..house now has capital gains if we leave it too long (even if we can recoup some of that loss as passive loss when we sell...seems like injecting so much money each month over x amount of years won't really pay back), and the company not paying closing costs then etc...
Is it worth it, should we just sell?...what about tax benefits of keeping it as a holiday home...seem as though we won't qualify for tax deductions if it's rented but do on a second home.

Any advice would be appreciated.. :wink: we've lived in the house for 5 yrs btw

Lawrence H. · Answer

hi nicole I sent you thru a collegue request as i can't find an email

Account Closed · Answer

Get ou and get out ASAP. Money has a time value and the more you take as a los over time the harder it will be to recoup. Looks like you may already be upside down on the LA property. Sell Sell Sell

Shane M · Answer

Nichola, when it comes to renting out a property a good tool newbies (like myself) use to calculate if a rental property is a potential deal is something called the 50% rule.

Realistically if you are renting out any property you are going to have unexpected expenses (repairs), months of vacancy, property taxes, etc. The 50% rule is simply taking your rental income and cutting it in half to account for all of those misc. expenses EXCEPT the mortgage payment. The mortgage payment is subtracted after you take the 50%. Then you arrive at your "cashflow" number, which is effectively how much you will make or lose on the property every month.

In your situation: 2600/2 = 1300 1300 - 2500 (mortgage) = -1200 of cashflow

So I would have to agree you want to get out of this property ASAP. Every month you stay, you lose more money. Your house would then have to appreciate by 1200 each month in order to make up for these massive losses.

Now the 50% rule is more of a guiding tool, but in your case it is clearly a bad deal.

Nichola King · Answer

Thanks guys for the great advice, I had a CPA call me today, but when I asked him for an appointment he said maybe he could just answer my question over the phone...so I gave him my details and he basically ended up confusing me with out telling me what I should do, but more or less said how I could figure out it out on my own how much it would cost me if I rented..which is where I got confused..got the feeling he wasn't interested in sitting down and looking through my paper work and doing it all for me. Nice guy, but I really need a CPA that will work this stuff out for me, and just give me options with the numbers ...so I can decide...so once I see a CPA ..I will come back and let you know what happened....might be interesting for others who are in a similar position as me.
Btw...i got the figure $2600 rent, cos the condos in my complex rent for about that amount....and a real estate agent that I'm working with suggested that price...
nickie

Account Closed · Answer

Nikola:

You mentioned there were a lot of foreclosures in your complex. What are they selling for? Is anything else in the complex selling? Are you basing your value estimate on what is actually selling?

If foreclosures and short sales are the only properties selling in your complex, you need to look at their selling prices to estimate the value of your property. In areas where there are a lot of foreclosures and short sales, it is difficult to price your property much higher.

Jon Holdman · Answer

I'd also say you should sell it ASAP before the price falls further. After you account for all of the expenses, you'll be in the hole every month with $2600 rent. Can you even get $2600 rent? You seem to have arrived at that figure based on your payment. But that's not how rent is determined. Look around and see what similar units actually bring in rent. You may get a very unpleasant surprise, or could be surprised in the other direction. In any case, the rental market sets the rent and your payment is irrelevant.

Having the company pay the closing costs is huge. That will easily put $30-40K into your pocket.

I would not buy in San Diego right now, either. But you should look around and see what you can buy and what rents are, and work on which is better. I do think prices are going to continue downward in San Diego, too.

Will Barnard · Answer

No possible way to break even let alone cash flow that hoem in LA and you are getting close to being upside down already. My advice would be to sell it ASAP. The closing costs paid for is a nice help too.

Talk with your CPA, if he/she is RE savvy, I am sure they he/she will agree.
You also have to factor into the distinct posibility that the value will continue to decrease and thus put you in an upside down position making it even harder and credit damaging to get out from under. I don't see any cap gains on the sale as it looks like you will just about break even on it.

Take your money and discretionary income and invest in RE the proper way (learn right here for free). RE offers some great tax advantages even for wage earners over the $150k mark.

Best of luck to you and hope you use this site frequently.

Sell or Rent my house?

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