Sell or Lease my House

[adamYao]

Hello Everyone,
I'd like to hear anyone's input whether I should sell or lease my house. I purchased my home 10 years ago and my outstanding balance is $100,000. The house monthly note is $1,200 and could be leased for $1,500 or $1,600 per month. My current property taxes and HOA is 4,200 per year. I am planning on buying a bigger house at the moment and I have $40,000 on my savings account. Should I sell or lease the house? What are your thoughts and why? Thank you!

[wincrasher]

I'm assuming that the HOA and taxes are in the $1200 payment. So, at most, you could clear $400 a month. Your property taxes will likely go up if you report that you are not using the home as your primary residence. In my state, they are 50% higher.

If you plan on this being a rental over the long haul, then there are many things you could do to improve that margin. Ideally, you would form an LLC and put ownership under that. That shields you from liability and opens up alot of tax benefits. That would be tough, considering you have a note on the house. Talk with an attorney to see if it's possible.

But you should look into being able to depreciate the house, and deducting any maintenance expenses from the income. You'll need a system of keeping meticulous records. I'd also get additional liability insurance to protect yourself.

Screening tenants will be vary important. It may be worth some expense to check these people out before you rent to them. Is the $400 a month income worth it for the risk someone will tear up your house? Typically renters are hard on houses - so expect some reno work when you are done being a landlord and ready the house for sale. So either the reno costs will come out of these "profits" or you will discount the property to sell as-is.

Also, when you do eventually sell - you'll have to pay taxes on the gain, if any. Rental properties aren't subject to the tax exemption that your primary residence enjoys.

Sounds daunting. Good luck!

[jpg7n16]

Do you have any interest in being a landlord? Dealing with tenants, vacancies, and that whole deal?

If you decide to lease it out, that's the game you'll be getting into.


I'd only consider it an option if that's something you want to do. Then evaluate it as a business idea on it's own merit. Cashflow, income analysis, etc.

Otherwise, I'd see selling as the only option.

[FrugalDad123]

Thinking:

Scenario A = Sell
I=Equity E=0 A=0 L=0

Scenario B = Lease
I=rent E=mortgage A=house L=mortgage

I don't know... I'd sell it.

[adamYao]

Sell or Lease my House

Thanks for everyone's response. I am also inclining into sell as well. The only thing I really dislike is the fact that these 10 years most of the money went to taxes and interests. Moreover, almost two years ago I spent close to 12,000 on upgrades and this money I won't be able to recoup but it makes the house more attractive to buy. I did the math the other day and noticed in ten year period my house went up on price approx %3.00 . There is something wrong with this picture.
This is one of the reasons I am inclining on selling as well.

[kdice]

Lots more expenses

I think you are forgetting about a lot of the expenses involved in being a landlord. There are vacancies, damages that exceed security deposits, maintenance issues, costs of screening tenants, costs of evictions, and on and on.

When I was thinking about this, I found a site called BiggerPockets (with whom I have no affiliation) that was helpful. They have lots of forums, including one about being a landlord with lots of experienced people. A lot of people there use a 50% rule that your expenses should not be more than 50% of your rent because of all these added costs. You might do some reading over there.

[snafu]

Whoa, what would your house been valued listed at the top of the market, 2008 before everything went off the track? Perhaps you could see this as as a learning experience now that you know the first 5 yrs of any new mortgage is nearly all interest unless you are making balloon payments to the principal. Over the 10 years mentioned did you add value to your home by DIY updates/upgrades buying supplies without borrowing? Can you bring down the principal by making balloon payments? Can you re-negotiate your mortgage to the much lower rates currently on offer? What will your current home be worth in 36 months?

You need to do pros and cons of taking on the work and financial impact of a landlord, on call 24/7. Selling means you will have to clean, scrub and 'stage' your home for strangers traipsing through making disparaging remarks. Be realistic and add up realtor, moving and legal costs; packing up, unpacking, and making a thousand big and small decisions. If your family has significantly expanded, if you're moving for employment, if your moving expenses are tax deductible or reimbursed that is a different scenario.

Your financial institution will love you, you'll be taking on huge debt and paying a dollar or two each month on the principal. [but you know that]

[JoshuaHeckathorn]

I was in a similar situation in early 2009 and chose to lease out my place. Even though I read a lot of horror stories online, I've found the "landlord" job to be surprisingly easy. Perhaps I've just been lucky; however, I did spend a lot of time making sure we found the perfect renters, and that has certainly made a huge difference. I rarely hear from them, and they simply deposit their check into my account each month.

For me, since I bought in 2005 around the peak of the market in my area, leasing the place has allowed us to move a growing family into a larger place while riding out the storm in hopes that values will continue to rise. Luckily, that's seems to finally be happening in my area. I've shown a loss on the property each year too, which has lowered my tax liability to Uncle Sam.

[wincrasher]

Well if it actually went up 3%, then consider yourself lucky. Alot of people are underwater - meaning it's worth less than the mortgage - so they lost their down payments too.

There is this "blood in the water" mentality with buyers right now. Nobody want's to pay too much, they want a low-ball even though the price is a good value. Especially if they got hammered selling their old house. Don't blame them, just the way it is right now.

The patient people who wait out this crazy market may do all right. But it's gambling.

[zhuwh]

If i were you , i would like to lease my house , because it's possible for you to make lots money by selling your house when the rignt times come .

[Personal Finace Fleur]

it would be great if you would lease your house,i think you can gain more profit on it.