When is a home too large or nice to rent?

Question

As some of you know from my other posts, we bought a 3008 sq. ft. river front home in Sept. 2015 for $118,000 that was worth $650,000 in 2007. -- The home sat empty for several years. It had a failed sewer, had been vandalized, needed a lot of labor and materials. We are almost finished with it. We have now spent $80,000 in materials and labor. My wife and I have done about 90 percent of the labor in the evenings and on weekends. Several contractors and appraisers say that it is worth around $380,000 now. ( Brand new stainless appliances, new hardwood floors, retaining wall, new plumbing, new sewer, new driveway, new paint, new doors,new carpet, new lighting, etc. ) It is waterfront with a 4 mile water view of a coastal river in Shallotte, NC. It is one of the best views in the county.

We really hate to sell it since it is one of the only homes with a corner river length facing view. We are thinking about getting a home equity line on the home of as much as we can, then maybe renting it out. We could use the equity line, slow and generously, from it to purchase other properties to flip and rent more properties, and the monthly rent generated from the river home to pay back the equity line and to save up for cap ex, taxes, insurance, maintenance, etc.

Our question is, how much are people willing to pay for long term rent? The average rent around here is around $800.00 per month. Is this home too large or too expensive to rent? I bought some great real estate books from suggestions on this website. There are just so many strategies to choose from that it makes my head spin. The location of the home is very desirable and maybe people would pay top dollar?

If you were in this position, what would you do? --- What are other strategies that might work?

Thanks,

Mike

Mike Lynch · Answer

Well, that pretty much sums it up. We will have to sell it. It can't be used as a weekly rental. We have some really quite and picky neighbors. Loud renters showing up at 2:00 in the morning coming home from a dance club or local beach bar won't work. I have tried to figure out how to keep it, but the numbers never add up no matter what strategy or that I try to come up with.

Thanks Again,

Mike

Account Closed · Answer

Perhaps, an owner financed sale with a prepayment penalty?  You might be able to get more out of it long term.

You might try putting it up for rent at some outrageous price and just see what happens, too.

Thomas S. · Answer

Sell it. Your rent to value is not lining up.

A 5% return on $380,000 is $1583 meaning you would need to receive at least $3000/month in rent to cover return on equity and break even on expenses.

David Handel · Answer

It is never too large or nice to rent!  The issue becomes on what you can rent it for and how much you need to cashflow.

Just to pick a random number, can you get $2k+ in the area?  That is 2 1/2 times the average rent that you gave.  With the numbers you shared, you are looking at almost 0.5% for your rent to value ratio.  Long term renting might not be the best use on the property with those numbers.  I would lean toward selling it.