Noob from Baltimore - sell or rent?

Question

Hello BP. I'll get right to the point. Bought a house in Baltimore City in 2005 (about a year before the bubble burst) with very little down. Fast forward 10 years, the house is underwater, but fortunately the market has picked back up and I'm not that far under as I once was. Now that I have a family and am planning to purchase a new home outside the city, I'm trying to figure out the next move - rent out my current home, or sell at a potential loss.

So here I am on BP looking for advice on deciding which way to go.

Do I sell the property?I've met with a listing agent to give me ideas of what updates the house would need before listing as well as getting a CMA. With about $10k in updates, he seems to think that the house would sell for about $8000 more than I owe. With no updates, he's guessing I will be out about $10k after closing costs and realtor commissions. So that's a bit of a wash.

Do I rent the property?

I don't plan to manage the property myself, so I've compiled a list of PM companies that were recommended to me by other investors and realtors. The next step here is to contact them and see what they would try to charge for rent. Looking at what other rents are near me, I will be lucky to cover my current mortgage of $1340/mo with rental income unless I can refi to a lower payment. To that end, I have contacted a mortgage broker to begin the refi process. If I can get the house appraised at more than I owe (big if) I will save over $400/mo, and then it would be possible to at least flow positive on the property each month.

Ned Carey · Answer

Welcome to BP @Tim Y.

Sometimes when facing a loss or a problem, it is best to just accept the loss and move on. The cost of struggling to hang on can wind up costing you more in both emotional energy and actual dollars.

If the rent will only cover the mortgage payment or a little more you will have negative cash flow. There are many expenses that new investors and landlords do not expect or plan for. Typically expenses Not Including Your Financing cost, will be 50% of the income that comes from rent. That includes management cost so you could save by self managing. I suspect you bought a renovated home in 2005 so the home may have a little lower repairs and expenses as i suspect the house was updated with all new systems at that time.

Keep in mind good management is hard to find and may not be that much less hassle than doing it yourself. Also you may not be able to get refinancing at rates that will be much better than you have, if you are going to be converting it to a rental.

You may find that keeping the home if it is in a desirable area may appreciate, making keeping a sound financial decision. On the other hand selling at a loss and buying a cheaper house with lower financing may be a better long term option.

Sorry there are no easy answers.

Tim Youse · Answer

I wasn't aware of that deal with Mr Lister. Sounds like it's basically a FSBO service? That could be an option.

I'm going to chat with another lender tomorrow to discuss some options and see if I can at least get the house appraised high enough to make renting it out worthwhile. (off topic: when I met with him earlier this summer we discovered out my "grant" I had for buying in the city was really just a $5000 no interest loan. My former realtor had told me that was supposed to be forgiven if I stayed in the home for at least 5 years.)

In the meantime, I'm buying a house in Catonsville that should close by the end of Nov, so I suppose the clock is ticking.

To answer some other points that were brought up. Yes, fortunately, I do have enough cash to put 20% down on the new house, with funds left even if I had to absorb a loss selling my current home, although I'd like to avoid that if at all possible - or at least try to take the smallest hit I could.

Thank you all for your input.

Account Closed · Answer

many of your answers depend on you.....can you absorb the loss if you sell? is the property worth keeping to rent? do you trust the realtor you're talking to? why not just sell it yourself and pay 400 to mr lister to have it listed on mls and save the 2.5 percent? why not just rent it yourself without a property manager and keep the 10 percent? all sorts of questions you must answer for yourself in order to answer your question.

Jacob Bindler · Answer

I assume you are planning to move out. Otherwise, the conversation is meaningless: you need to live somewhere. I would rent on my own and list FSBO or use other services like domoveno to sell without an agent. will cost you very little and you will know the situation.

Jill DeWit · Answer

Hello Tim Youse and let me be the first to welcome you to Bigger Pockets. At BP, you can get the information you need on real estate investing while networking with other investors from around the world! BP has free online videos and courses for you to use at your fingertips. You came to the right place and I wish you all the best.

Tim Youse · Answer

Figured I'd bring this thread back from the dead and update it with some numbers:

Purchase price in 2006: 158k, 5% down ($5k of that was a 0% interest down payment assistance "loan")

House is located in Hillen off Loch Raven Blvd, south of Argonne (near Original Northwood)

Appraised in Nov 2016 for $133k.

Remaining mortgage balance: $128k at 5.5% / $5K at 0% - this is a conventional loan, so no FHA refi or streamline refi has been possible

Monthly PITI:  $314, $613, $220, $79

PMI: $26

Total monthly payment (PITI+PMI): $1252

I'm hoping to get market rent for around $1500/mo, which is typical for my area. I had to PMs check out the place and one recommended $1500 and the other $1450.

The house does have a detached garage so I *could* explore renting that out separately for $100 - $150 mo.

The numbers for the P/I on the BP calculator are $100 off so the chart is misleading, so my $6 cash flow will be morel like (-$94) and that's with me self managing.

So my what are my possible exit strategies? I am in a position where I could take the financial hit of selling or holding, although looking to minimize the loses.

A) Hold on and rent - wait for the principle to come down in a few years and sell?

B) Sell now and take a hit? Probably look into a FSBO or flat fee listing agent.

C) Would a Lease Option make sense here? Are realtors needed for a LO?

Just to update a previous post. I did not close on the Catonsville house I put an offer in back Novermber, so I'm currently living in this property.

Tim Youse · Answer

Good to hear Matt. BTW, if your house is the one I think it is, it's pretty sweet. Congrats on the sale.

Matt Powell · Answer

You're buying at a good time in Catonsville. It's a pretty stable market and fall/winter sales usually go for about $10k lower than your typical Spring sales. We just sold our home in the Dunmore neighborhood of Catonsville, just inside the beltway.

Noob from Baltimore - sell or rent?

Most Popular Reply