Renting out primary residence to move out of state (back home)

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Renting out primary residence to move out of state (back home)

Brendon Botelho
Flipper · New Bedford, MA · Member since 2016 · 15 posts · 3 votes

Good Morning BP,

My wife and I moved from Massachusetts to Virginia last summer for a job opportunity. We bought a house 4 months ago but just found out we are expecting. She is currently in grad school and will be unable to work as of August of this year until graduation Dec 2018.

After analyzing all of our options, we determined that the best decision, both financially and emotionally, is to move back home to have family support with the baby while house hacking a 3 or 4 family as she finishes school (my RE goals is to BRRRR properties until I can supplement my salary).

Finding a job for me is no issue as I am a Civil Engineer. The issue we are faced with is trying to sell our house without taking a loss. We could sell if for what we paid, but then would be stuck paying agent commission (we used FHA with 5% down). We are in a prime location near a Navy base (20 minutes) as well as a Navy Shipyard (5 minutes), and 30 minutes from the Virginia Beach boardwalk. The house next door is actually rented out by 3 sailors which leads me to this question, would you guys consider renting out the house in the given situation? I'm debating on asking the sailors what they pay for rent so I can have a decent idea of what I could charge, but I'm not sure if that's appropriate to ask? The houses are identical expect for the fact that ours is a lot nicer and completely rehabbed.

Here are the numbers:

Purchase price: $160,000

Mortgage: $1030 (taxes and insurance included)

Proposed rent: $1,500

Property management fees (10%): $150

Cash Flow: $320 (max) - The house was completely rehabbed when we bought it so there should not be any major expenses, but I would still plan on setting aside at least $150 for small expenses/vacancies.

My thought is this: Even if I broke even or made a hundred bucks or so a month, its better than taking a $10,000 hit, right? My best friend lives 10 minutes away and could be my "boots on the ground"/Property manager. I would plan to sell the house in 5 years. Need your advice/opinion please!!

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Jonathan Thompson
Real Estate Investor · Virginia Beach, VA · Member since 2017 · 15 posts · 5 votes
9y

@Brendon Botelho

I moved out of my SFR in Chesapeake in '07 and have no trouble keeping in rented. Like mentioned above, there are always folks moving in and out. If you rent to a group of sailors, I suggest using 1 lease for all. Relationships sometimes strain and roommates move out and we military members get that nice little military clause to break a lease when we get orders. People produce fake orders. Fact.

If the house is nice and in a desirable location, you shouldn't have many issues renting to a family, military or not.  Just my $.02.

Good luck and congrats on the baby.

John

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  • Jonna WeberPro Member
    Moderator
    Investor · Boise, ID · Member since 2011 · 1k+ posts · 736 votes
    9y

    The answer is it depends.If you never wanted a long term investment and just stumbled upon the idea, might be best to sell now while the house is in great shape and move on.  There is definitely a hassle factor and some deferred maintenance that you will have to address when you go to sell in 5 years. I am a buy and hold girl - but in your case, I would probably lean toward selling.  Congrats on the baby!

    208-608-4884Podcast Guest on Show #80
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  • Rich N.Pro Member
    Investor · Haverhill, MA · Member since 2015 · 761 posts · 328 votes
    9y

    sell and use something like Redfin.  I think they charge and then return 2.5% commission.

    That's like 4K cost if you did the leg work yourself.

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  • David Krulac
    Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
    9y

    @Brendon Botelho

    My first choice would be to sell, even if there is a small loss.  The area around the Navy there should be a continual demand area with potential build up of military and should help you sell.

    There will always be unexpected expenses.  Here's what we've had in the last year or so:

    1.  Tenant moved out left ton of trash, one estimate $2,000 to remove

    2.  Replaced 3 roofs

    3.  Replaced 2 hot water heaters

    4.  Replaced furnace

    5. Tree fell on house

    6.  Tenant lost job moved out before lease up

    7.  Had to file for eviction tenant was behind in rent

    8.  Neighbor didn't fix broken water line caused 3 feet of water in my house

    9.  Sewer backup causes thousands of damage, and smelled real great too.

    10.  Bank turned off electric, sump pump couldn't work, flooded basement, and caused mold in house, had to gut all walls, ceiling, insulation, baths, kitchen, floor covering, everything to the studs, and needed new roof, new electric, new heating and most of new plumbing

    Other than that it was a slow year!  Oh forgot the fire house, another story.

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  • Brendon Botelho
    OP
    Flipper · New Bedford, MA · Member since 2016 · 15 posts · 3 votes
    9y

    Thank you @Jonna Weber! Thank you all for the responses and the insight. It seems like the best choice based on your responses are to sell the house even if we take a loss. I didn't think about repair costs when we go to sell in 5 years. My goal is to buy and hold long term, but I would not want to hold this one as it wouldn't cash flow that great. Back in my hometown, I have been finding 3-4 families that have been cash flowing (accounting for expenses the way Brandon told us to in his book and using the calculator on here) over 200 per unit on a minimum. Keeping this house long term just wouldn't be worth it. I was just trying to figure out a way to get out of it without taking a hit but it seems like I need to just bite the bullet on this one and move on.

    1Reply
  • Jonathan Thompson
    Real Estate Investor · Virginia Beach, VA · Member since 2017 · 15 posts · 5 votes
    9y

    @Brendon Botelho

    I moved out of my SFR in Chesapeake in '07 and have no trouble keeping in rented. Like mentioned above, there are always folks moving in and out. If you rent to a group of sailors, I suggest using 1 lease for all. Relationships sometimes strain and roommates move out and we military members get that nice little military clause to break a lease when we get orders. People produce fake orders. Fact.

    If the house is nice and in a desirable location, you shouldn't have many issues renting to a family, military or not.  Just my $.02.

    Good luck and congrats on the baby.

    John

    1Reply
  • Mike HurneyPro Member
    Real Estate Investor · Boston, MA · Member since 2009 · 2k+ posts · 545 votes
    9y

    @Brendon Botelho Welcome.

    This question indicates you're not "Landlord stuff" yet...

    "I'm debating on asking the sailors what they pay for rent so I can have a decent idea of what I could charge, but I'm not sure if that's appropriate to ask?"

    May be better for you to sell or 1031 Exchange the house.

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  • Brendon Botelho
    OP
    Flipper · New Bedford, MA · Member since 2016 · 15 posts · 3 votes
    9y

    @Mike Hurney I know the right answer to that question is to ask a real estate agent what rent goes for, or look at ads for similar rentals in my area, or even ask the owner of the house next door what he charges, but the intent was to get a really quick, raw number to see if renting would even be a possibility. If I'm thinking $1,500 and he charges 750, for example, that's a good indication that my number is way off. I just moved to this area 6 months ago so I do not know the rental market like I do back home. Regarding the 1031 exchange, aren't they only beneficial if I were to sell the house for a profit? I am concerned with taking a loss on the home since we only purchased 4 months ago so, from what I understand, a 1031 exchange would not be beneficial.

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  • Account Closed
    1031 Exchange Qualified Intermediary · Bend, OR · Member since 2015 · 44 posts · 10 votes
    9y
    Ask the neighbors what they pay - tell them you are considering renting it out. You may find your tenants right there. If you rent it - do a 1 year lease. If the market is appreciating, you may make up your loss in one year. If you end up with a good tenant, renew another year if the market is still going up. 1031s are only used for investment property. This is your residence. Once you start renting, it will become investment property but if you lived in it 2 out of the last 5 years you can still call it your residence and not pay tax on any fain - which you may or may not even have. Being a landlord has responsibilities - make sure you understand the law. I would agree you may not be ready to be a landlord so just hire a PM. But make sure the rent is high enough to cover costs.
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  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    9y

    @Brendon Botelho, your move out of town coupled with your situation may qualify you for an exemption to sec 121 and if there is any profit you may get it tax free.  Worth bouncing off your accountant.  

    Regarding 1031 - It can also be beneficial in a situation where there has been large amounts of depreciation taken against the property.  You've got neither large profit or large depreciation recapture.  So the 1031 isn't really a thing for you this time around.

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  • Mike HurneyPro Member
    Real Estate Investor · Boston, MA · Member since 2009 · 2k+ posts · 545 votes
    9y

    @Account ClosedI'd go to an Attorney that handles Real Estate, especially Evictions to set up your paperwork, pay them and now you have someone that will get involved if necessary. PM it yourself, most aren't worth it for one unit.

    I usually get all my Tenants from CraigsList, good for checking prices also. Good luck buddy!

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  • Michelle KrupaPro Member
    Property Manager · Kansas City, MO · Member since 2015 · 41 posts · 36 votes
    9y

    @Brendon Botelho, Look into a 1031 exchange or keep it as a rental. You'll need a real good property manager which honestly is hard to find or take on the task of self management. We self manage our long distance rentals and I spend less time self managing than I did managing the property managers. You just have to plan with a long distance rental. Plan on making annual trips down to check on the property which you can write off as a business expense and enjoy a trip to the beach while you're there. Check out The Book on Tax Strategies for the Savvy Real Estate Investor by Amanda Han on the BP Marketplace. 

    Since you are near a military base, look up BAH (basic housing allowance) for the area. It's public knowledge. Just keep in mind that BAH should cover rent and utilities combined. The sailors next door receive BAH. Of course, look up other rentals in the area for comps. You can also consult with a real estate agent or a property manager to help you determine your rent rate. 

    Best of luck! Congratulations on the new baby! PS - I started self-managing when my first born was just a few months old. You can handle it! Please feel free to PM me with any questions about renting to military, long distance landlording, or how to do it with a newborn! 

    1Reply
  • Natalie Schanne
    Real Estate Agent · Princeton, NJ · Member since 2016 · 1k+ posts · 1k+ votes
    9y
    Brendon Botelho - ASK YOUR NEIGHBORS - it's not weird. Maybe they have friends who would want to buy or rent your house or can tell you the websites where sailors look. 1. Post your house for sale on Craigslist with pictures. Maybe you can find an off market deal with a military person. 2. Post your house for rent on Craigslist with pictures. Look at craigslist for nearby rental prices. Price a little above that. 3. Find local military base housing boards and post your house FOR SALE and for rent. Give your cell on craigslist posts. Renew every 48 hours. If someone is acting weird or roomster, ignore them. There are some scam bots scraping cell numbers on craigslist. If people offer to rent your house at a good price, you can decide to say yes. You can even offer it furnished. You don't have to rent or sell it if someone is interested, but you can gauge demand. There's no need to hire a realtor to rent your home. You can do it yourself. If you get military people, they've already passed background checks. However, they are legally allowed to break a lease without penalty if they get orders to another base. So, be aware. If you don't hire a realtor to sell your home (as in you can find a buyer at a good price yourself), at a minimum hire an attorney for a fixed fee (in Jersey it's $850-1400). Good luck. Let us know how it goes.
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  • Jamie Engledow
    Boca Raton, FL · Member since 2015 · 249 posts · 52 votes
    9y

    This sounds so much like my situation!  I moved from FL where all our family was to NH in 2011 where my husbands job transferred him.  We knew no one here!  My husband died unexpectadldly and tradjectly in September of 2016.  That tradgedy meant my children saw over and over what had happened, so I moved them back where they were born, Boca Raton,FL closer to family, to escape the local scrutiny.   But, I have a good stable job.  For which actually had transferred me to N H when my now deceased husband,a job transfered him from FL to NH.  MY job then transferred me from FL to NH.  Now I am on the opposite spectrum..   I need to be transferred from NH back to where I was originally hired in FL, but the hiring freeze is causing issues.  I am separated from my children and it hurts, but if I want to keep my job, I seem to be helpless. My husband died in September 2016.  I sent my children to Florida October 2016.  It is currently February 2017 and I am still in N H with no orders of transfer to join my children!

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  • Jamie Engledow
    Boca Raton, FL · Member since 2015 · 249 posts · 52 votes
    9y

    I'm sorry the whole point of my previous post is that I now, like you, need to rent out my primary residence in order to purchase new primary.

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  • Michelle KrupaPro Member
    Property Manager · Kansas City, MO · Member since 2015 · 41 posts · 36 votes
    9y

    Hi @Jamie Engledow. I agree I wouldn't hire a real estate agent to rent out your property. I would only use them as a possible resource if you need help determining your rent rate. 

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