House vacant - selling soon. Try to lease or take the loss?

Question

My previous tenants recently moved out and I've spent the last few weeks repairing/improving the home and marketing it for lease again. Meanwhile, I also received news at work that I will be relocating (this property is also my main residence as I house hack a portion of it).

I'm currently torn if I should continue pursuing a tenant to fill the vacancy (~$2500/mo) or just take the loss and prep the house for sale. I anticipate my move could be anywhere from 4-16 weeks away. Unfortunately it's hard for me to firm up that timeline.

I've read in Texas that there are additional complications to selling a house that is under lease. Does anyone have experience or advice in this area?

I will also mention that the mental stress is a factor for me that has some monetary value. While selling the house and relocating states, if I also had to worry about vacating tenants and re-repairing to prep for sale that would be significantly harder than leaving the house sit ready as-is now.

Andrew Postell · Answer

@Brian Nel I also have a home that I still own out of state.  I us a property manager as well.  That's going to be the key ingredient here if you are investing out of state.  Having a good PM makes a HUGE difference.

Now, I would suggest to consider something - your home value vs. rent income.  What I mean here, is the home a single family home worth $500,000?  If so, that's not going to rent as effectively at 5 $100,000 homes.  You just can't rent a high dollar home for enough to cover a mortgage - ESPECIALLY a mortgage that you put down a small amount on because that's how most people buy their primary home.

So if you could sell that property for more effective rentals, I would consider that.   But if it is a good rental property, and you don't need that money from the sale to buy your next, then consider keeping it.  That's my thoughts.  Thanks!

Ralph Justiz · Answer

@Cassi Justiz ran into a similar scenario when we moved out of Texas. We decided to keep our property and get a property manager. It's been almost 4 years since then and we have zero complaints. We debated selling after 2 years of moving out of state to dodge the a tax hit but decided against it because the property was cashflowing better than anything we could buy then and we had a long term tenants in place. Good Luck!

Brian Nel · Answer

Thanks for the advice, @Cassi Justiz. My house does have significant appeal to an investment buyer (so much so, I've thought about ways to market it towards investors). It is capable of cash flowing $1000/mo. That said, I don't plan to sell it at a bargain which most savvy REI will be looking for.

@Ralph Justiz I do not need to sell, no, however out of state landlording is something I'm not super pumped about. I have an extremely demanding day job so I feel like if I were to have problem tenants or maintenance issues, it would be bad for my stress levels. If I cash out and sell, I'll be up $25-50k+ on my purchase price most likely. I would also have the ability to take that cash and do something much larger in my new city such as a MF quad.

Amy Fulbright · Answer

As sometime who recently vacated a place, turned it into a rental, Al while preparing to move out of state, I empathize.

I found a property management company with a pricing scheme that I like, and had them finish fixing the place up, and then placing a tenant in the home-turned-rental.

The impression that I have is that getting the first rental is the hardest. So if you plan to remain there in real estate investing arena, I’d recommend renting your current space out, probably with a property management company to start with. If you plan to sell, either to investors or to home buyers, then I would not find a tenant. Any time that I have looked at investment properties with tenants in place, the rent has been lower than I would need in order for the numbers to work. So I don’t even bother reaching out to the seller because I don’t want to be held to someone else’s lease. Truthfully, I don’t know if I’d have to assume ownership of the lease or not, I’m just telling you that seeing someone’s else’s tenant in a place I’m hoping to rent out, has generally been a deterrent.

I can tell you that the property management companies that I’ve seen generally charge ~10% of monthly rent as their Monthly regular fee, plus about 1 month’s rent to find / place a tenant. Some charge a premium on maintenance but others don’t charge a mark up, so just be aware. I have loved not having the stress of managing my rental long distance, so for me, the 10% of monthly rent has been worth it.

Ralph Justiz · Answer

@Brian Nel do you need to sell the property to be able to move? If you sell the property in its current condition will you make money, break even, or have to bring money to close? Are you intimidated by the idea of being an out of state landlord?  If you move out and rent the entire property out will you cash flow? If you cash flow is it enough to justify holding the property? Do you have enough reserves in the bank to fix the property if something major breaks? You should probably be asking yourself these questions and more. Weigh out the pros and cons of keeping or selling. Do what is best for you.

If it were me I'd keep it and rent out all the units and manage the property from out of state if I could afford it. If I wasn't an experienced landlord I'd hire a property manager for peace of mind and watch the checks roll in.

Cassi Justiz · Answer

Do not re-lease if you plan to sell the home to a retail buyer unless your house-hack is a true multi-unit property - duplex, triplex, etc. Having tenants in place is a HUGE turn-off to most residential buyers. If you plan to sell to an investor, then by all means re-lease. But it's very rare for a residential buyer to want to deal with a tenant.

I would go ahead and start talking to agents in your area and get your house on the market ASAP! 4-16 weeks could be a very quick turn-around time! Especially once you start looking at escrow periods average 30ish days in a lot of areas. A good agent can let you know whether your home is more likely to appeal to an investor or a retail buyer.

House vacant - selling soon. Try to lease or take the loss?

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