Sell my house or continue to rent it out?

Question

Hello all,

I find myself here as an "accidental landlord" who needs some advice from those with more experience than I.

Anyways, my wife and I purchased a house in upstate NY last year...and it has been a nightmare ever since.  I am a country boy and was totally unprepared for how much I would hate hearing city traffic.  It literally ruined the experience with the house, which is unfortunate because other than being on a relatively busy city road it does have a lot to offer (gorgeous kitchen, finished basement, cedar wrapped indoor pool, 6-person hot tub).  Not to mention how embarrassing it was not to realize what an issue it would be for me prior to closing.

Anyways, 6-months later my wife got a tremendous job offer about an hour away from this house, which was fortunate because I too had worked about an hour away, and with her now working in the same area I do, we hurriedly put our house up for rent.  We literally went with the first applicants that had their ducks all in a row, as we wanted out of the house as soon as possible.

So far, 6-months later my tenants have been amazing.  They are very low-key, pay the rent on time every month, and keep my house in immaculate condition.  On top of that, they *LOVE* the house and its convenient location and are looking to rent very long term (They have two middle-school aged kids and having them in my school district is paramount to them).  The problem is the agreed upon rent ($1300) is causing a negative cash flow of about $200, as my total mortgage payment w/ escrow is about $1500.  I know that the $1300 is at the very high end of what my tenants want to pay, so I am hesitant on my strategy when the lease expires.  I honestly don't mind losing $200 a month just to be free of the place, especially considering my tenants have been amazing.

As far as the numbers look, my house is appraised at $230,000 and I owe $205,000.  The market I am in has been very stable for a very long time...no incredible appreciations or depreciations of value (even through the housing crash of 2008).

I realize selling it any time soon would be foolhardy, as I just bought the place within the past year.  I honestly wish I never bought the place, but am doing the best with the situation as it is.  Anyways, what would be a decent strategy going forward?

Thanks!

Deanna McCormick · Answer

How to deal existing tenant,, is you let them know now your finding it necessary to increase the rent the minimum amount it takes to keep the property at a break even state.. and that you will be increasing the rent at lease renewal.. More than likely they will find a way to stay.

If not, you get someone that will and more than likely you will get that same great tenant.. You did the first time around, only situation is you priced yourself to low.. you shouldn't continue the loss any longer than you have to you never know what costs may come down the road..

So raise the rent or put a for sale sign out,  You did the math just a little to late.. so catch up.

Sebastian Naczas · Answer

It's hard to loose a good tenant, but I think it's worst to keep on loosing cash.

You're currently unsure if you can get such a good tenant, well you can.  I would set rent price at $1800 (or whatever is the top of the market is ... check out rentometer.com) if your place is as good as you say and not many of those are available you will get what you are asking for.  People who can pay top of the market are usually the ones who care to live in a clean and nice space, they will take care of your house.

Do your due diligence, screen them through background check and credit report (check out https://cozy.co/for-landlords/tenant-screening).  Have them pay for the screening (that on it's own scares a lot of people who know they have no chance of qualifying).  Set the deposit at twice the monthly rent (tenant needs to know that they will loose that cash if they will not take care of your property).

The first time around it seems like you were pretty lucky to get a good tenant.  Well the second time around you should not use your luck as much.

Alexander Babbie · Answer

Brian/Jack,

Thanks for the replies.  Brian, I agree the rent is currently to low (I am in the city of Plattsburgh), I have had two different property managers believe my house could fetch $1600-1800.  I believe over a couple of years I will be able to get my current tenants at least to the $1500 mark.

Jack, that is my dilemma....I have a tremendous tenant that is paying off the vast majority of my mortgage, I am hesitant forcing them out if they can't go any higher, only to find myself with a crap tenant down the road (to me the additional headaches of a bad tenant aren't worth 200 a month).

As far as CAP EX goes, the only big expenditure on the horizon is the roof, which has 2-3 years left on it.  However, I think I'd have to replace it for it to sell anyways, so its already a cost factored in whether I continue to rent it out or sell it.  Luckily my friends and I are rather handy so I won't be paying much in labor costs for it.

One thing about my market is there are very few single family homes for rent and our area has had an influx of manufacturers and high tech companies moving in during the last couple of years.  Having one of the few very nice homes available for rent during a boom time seems to be playing in my favor.  Only part of my strategy I'm unsure of is how to deal with an awesome tenant who treats your house like gold who simply cannot afford to go as high as the market will allow.

Brian Rosher · Answer

What town is it in and how many bed/baths?  That rent seems low for a 230k house in good schools for the area.  Once you start having some repairs you cash flow is going to look much worse.

Sell my house or continue to rent it out?

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