a homeowner considering to rent

[talla462]

I bought my first home roughly 2 1/2 years ago when I was 27 years old. I had gone straight from living with my folks to buying my own home. (I come from an old school family where you don't rent and you only move out when you're married.) Needless to say, marriage wasn't on the horizon and I was desperately in need of getting my own place... so when I found a really quaint brick tollhouse for sale just a couple blocks down from my folks I decided to check it out. One thing led to another and I ended up putting an offer and subsequently buying it.

One would think that after buying the house, you'd want to dig in and move in ASAP... not so much the case with me. I barely had anything to my name and all my income was going towards my mortgage. To top things off, within a couple months of buying the house, my property taxes were reassessed and my escrow went up by $300/month. So I was paying about $2200/month for my house alone and another $300 in utilities. My monthly income at the time was around $3200. And so what remained went towards my $550/month car payment and whatever bills I could pay at the time. I know, I know... this scenario was all sorts of wrong.

I didn't move into my house until a year later, when with the help of my parents I could furnish my house and pay for the oil heat, etc etc... And even still I was obviously scrambling. So I put an ad for a roommate and the first one lasted for about 4 months. Then I had another temporary roommate and he left because he was there on a temporary basis. And just this past month I've let go of my third roommate for a whole slew of reasons that made my home intolerable for me.

*sigh* I can't say I didn't try. I bought a house and realized after the fact that I couldn't afford it. Now I'm bringing slightly more income, about $3600/month, but things are still tight. I can't sell my house in this current market. My house is assessed about $100k less than what I bought it for. So I'm stuck with a few choices: 1) rent the house out, move back in with parents (please God no); 2) rent the house out, get an affordable apartment (better); 3) turn the title and property over to parents (they are willing to take the house from me. i don't want them to buy it from me, I feel that they've put in more than enough of their share in the house. plus if they can foot the bill until the market picks up a little bit and then sell it and take the difference then it's a win/win situation for all parties involved.); or 4) suck it up and live in the house, either find another roommate or get a second job to make ends meet.

At this point, I don't know what to do anymore. I know what I want to do and that is to just do what I wanted to do in the first place, rent an apartment far far away and start over. But I'm nearing 30 now and I can't afford to make any other uncalculated decisions. At the same time, I don't have the energy for a second job. I work long hours enough as is.

Any advice would be appreciated.

[disneysteve]

I was paying about $2200/month for my house alone and another $300 in utilities. My monthly income at the time was around $3200. And so what remained went towards my $550/month car payment

Now I'm bringing slightly more income, about $3600/month

How the heck did you qualify for a $2,200 house payment on a $3,200 income? That's 69% of income with another 17% going to the car loan. So 86% of your income sucked up by house and car. Even in the midst of the housing disaster, I'm surprised any bank approved that loan.

Obviously, you need to get out of that house (and probably out of that car). Can you rent the house for enough to cover all of your costs? If so, that's a fair option but don't do it if you'll be losing money in the process. Your 4th option (suck it up and live in the house) really isn't an option at all as you can't afford to do that. Maybe if you get a couple of roommates it might work though. Selling it to your parents might be an option. It depends on their financial situation and if they are able to support it without negatively affecting their own finances and if they want to be landlords.

[GrimJack]

At the very least challenge the increased tax assessment. Then, yeah sell it to your parents and rent from them. I doubt you will be able to rent it out for enough to cover your mortgage - with that option though, is there a university in your town? You might be able to rent to a professor who is there on sabbatical.

[dczech09]

I concur that you should sell the car. A $550 payment per month is rather unsustainable for the long run.

One question I had is that you mentioned that you don't rent? Why not? Whats wrong with renting?

No I am not a property manager or anything of the sort. I have been studying the "rent vs buy" argument for a while and have found that this notion that renting is bad, or throwing away money, is completely misguided.

What you should do is check out the rates for comparable rentals in your area. Take the annual rent rate and divide that buy the value of your house. This will be your "rent ratio." A rent ratio alone will not tell you if you should rent or buy, but it will tell you if renting is overpriced or if the home is overpriced. Generally speaking, a pretty solid figure is 15. If the rent ratio is around 15, then rent or buy are mathematically sound ideas. If your ratio is like 30, then the house is likely overpriced.

And finally a word of wisdom: do not buy until you are absolutely ready. I don't care how interest rates are, or how good of a deal you come across. If you are going to take on a sizeable mortgage (like you currently have) you should have these five criteria met:
- No debt (aside from the mortgage)
- 3 to 6 months emergency fund set
- Mortgage payment does not exceed 25% of of your income
- Only take on a 15 year conventional fixed-rate mortgage
- Have at least a 20% equity position when you buy

These criteria may seem like a lot to require for people, but keep in my that I hold myself to an even higher standard than these criteria

[snafu]

talla, how I wish you had dropped in at this site before choosing to create such giant debt with house and car you can't afford. Digging out won't be easy.

Your experience with room mates gives you an idea of how difficult it can be to take on the role of landlord. You certainly should follow up on the suggestion of appealing your property tax assessment.

Since you don't want to try for a short sale, [selling for a loss and making up the difference with the mortgage holder] you are stuck for at least 5 years depending on specifics of your community. Due to amortization tables, you are paying mostly interest, little principal making the break even line more difficult.

You have more control if you continue with room mates; 2 better than one financially. As a landlord you are on 24 hr. call to fix it, update, decorate, landscape etc. The risk is increased as tenants can be wonderful or gawd awful, no matter how careful the selection. the mortgage and utilities will need to be paid whether the property is rented or vacant.

If your parents can take-over can they do it financially and work-wise? What does that do to your relationship?

[Hector]

sell your car. rent house if it can cover the cost. if not, get room-mates.