Rent or Sale?

[Fletcher Shawn]

Hi All,

This is my first post on the forum. I have read many books on real-estate investing over the past few years and talk with people in the field whenever I have the opportunity. I have been listening to the pod cast for the past few months. We are in a unique situation and would love some input.

We own a house that is currently up for sale $240,000 In Portland Oregon. 3 bed, 1 bath, .27 acer lot in 97233 zip code.  We owe $74,000 on the property. I think it could rent for $1,450.

The mortgage is $700 per month on a 30 year fixed. We are about $80,000 in debt with college loans, credit cards, and some personal loans that we took out in order to facilitate our recent move overseas. My new job offers personal loans at 4.5% APR. I am considering taking out the loan to get out of debt and then renting the house. We have gone back and forth between renting and selling. If we sold we would likely move back to the states in two year in the hopes of buying another property with the proceeds from our sale after the market possibly cools down. I will list out some of the factors.

• We will have $ to cover the Mortgage on a monthly basis even if we don’t have a renter.
• We fixed everything on the house before leaving in preparation to sale the house.
• The house sold for $268,000 but fell through twice. The first buyers backed out in the inspection period. The second buyer ran into issues with financing.
• My sister works for a reputable property manager and we can get a good value for the service.
• The house has doubled in value since we bought it two years ago and I am concerned we may be looking at the peak of the market. I also think there is a high probability of inflation...  These two things seem to indicate moves in opposite directions.
• Our house in in a relatively rough neighborhood (Rockwood).

That seems to be the information that would be most helpful. Would love to hear your insights.

• Do we rent or sale?
• Should I be worried about capital gains if we decide to rent?
• What questions should I be asking that I am not asking?

Thanks,

Shawn

[Steve B.]

Id sell it, your rent multiple is bad as is that neighborhood; it makes Lents look upscale.

[Peter Mckernan]

Hey @Fletcher Shawn welcome to the site!!! This is where you should be to ask these types of questions.

I take the pronoun you use is we as it is your wife that you own this property with? If that is the case, and you lived in that property two of the last five years calling it a owner-occupied property, than the capital gains will not hit you on anything up to $500,000 ($250,000 if single/not married). So, you should be good there. Capital gains will not occur if you rent the property only sell it.

As far as the loan through your company paying off the debt that you are in at 4.5%, that would just be moving the debt from one area to another, so technically you would still be in debt, but at a lower interest rate. 

I suggest you sell the property, walk away with the cash at right around $150,000 after sellers fees, pay off the debt that you are in, and then keep the rest to purchase a property when you get back into the states for either living/renting. The other reason is if you see the area as a bad area, unless you are seeing big improvements in the commercial area (i.e. revitalization), then the area may get worse before it gets better. 

Good luck! 

[Thomas S.]

Sell.

Rent to value ratio does not work.

[Fletcher Shawn]

Steve your right about the neighborhood:). Peter thanks for the break down. I appreciate you all taking the time to respond. It's a fascinating process trying to make a decisions about what is for us our only asset. I know this forum is more geared towards genuine investors but having some people that study, think about, and do this stuff on a regular basis give feedback is pretty awesome. Thanks!

[Steve B.]

As a rule these "accidental" landlord situations are usually a sell rather than a rent.  I see a lot of owners are emotionally disposed to hold on to their home as a renter but it's normally not the best use of your capital

[Neal Collins]

Fletcher Shawn $480,000 for a SFR in That neighborhood seems pretty high if you think it has doubled in value in two years. That's one area that has gone through an interesting change over the past couple years. Prices have gone up due to overall Portland metro but the tenant base has really taken a downward spiral due to gentrification of close in neighborhoods (no offense to anyone that lives there). I'd get out now and put the equity to better use.

[Steve B.]

Neal is exactly correct, lower end tenants are getting pushed into rockwood which is worsening crime yet home prices are appreciating there, it's very odd and a real example of "forced appreciation".  Another big issue with Rickwood is, unlike NE dekum area, it's so bad it has little chance to he hip , trendy, or improved anytime soon 

[Fletcher Shawn]

Thank you Steve, Neal, and all for thinking through this one with me.  We just accepted an offer a few min ago.  I think I would have been well on my way into a new career as a slumlord had it not been for your feedback.