Lengthy "rent or sell" question

**Lola** · 03-20-2010, 07:02 PM

Hello and thank you for visiting my post! I have a lengthy question.

I own a 1925 bungalow. I purchased the home with my ex in 12/2002 for $110,000. We divorced, then I bought him out and refinanced in 12/2008. The house appraised for $140k in 12/2008, and currently my loan is $121k. My PITI is $915/month. I forgot what it appraised for in 12/2002, but that's a ~3.5% appreciation rate for 7 years. Kind of mild?

At some point I will be moving in with my fiance. It could be August this year, May next year or later. There is no hurry.

I am trying to decide to keep or sell my house. I have researched, and rent for a house of my size/age could go for $750-850/month. I would have to cover the rest of the mortgage myself. Also, home values are kind of stagnant in general (at least not upside-down here), but according to a local Real Estate blog from January, "Real estate in this county is pretty healthy for homes priced less than $160,000. This price is the median point for home sales, meaning that half of the homes that sold were $160,000 or less." So there's a chance my little 2BR home on the river is out of that stagnant pond if I want to sell.

Also, this is a highly coveted house from what I hear. Even though it's old, it's in good shape, and I've remodeled 70% of the inside (the kitchen is not remodeled, but very functional). It has a long deep lot with lots of flower gardens, mature trees and a river in the back. There are only so many homes on this river. Some people wait years for them to go up for sale. This leads me to believe I should hold on to it for a bit longer.

Here's my constraint: I went back to school and have since lowered my salary 50%. That means my salary can now only pay my mortgage and utilities. For everything else, I use student loans. I have no savings (all in student loan form). There's money there if the furnace goes, but it's borrowed money. This will be my pattern for another 13 months until I graduate with a Master's. Then my salary will be back up and with raise. Not the best predicament, but it's only temporary.

RENT IT:
- lose money each month
- BUT renter will help pay down mortgage while I build equity
- deal with property management and renter issues
- house could go up in a few years

SELL IT:
- no more hassles
- profit could leave me completely debt free (no student loans!)
- finally able to build savings since mortgage is freed up
- BUT lose possible appreciation

I am sure in the long, long run it will be profitable when the values start increasing again, but is it worth the hassle?

**maui** · 03-21-2010, 06:01 PM

Lola, what will be your living situation when you move in with your fiancee? Renting or owning?

From what you said, it wasnt immediately clear, but can you afford to keep it? With your lower salary for the next year or so, can you pay for your living expenses AND what you would need to cover for the mortgage?

Personally, I would choose to sell it at this point. Not only would that free you from the hassles of dealing with a renter (which I can tell you firsthand can be a pretty big hassle and there is the potential for liability issues arising from being the property owner), but it would also free you from your financial worries.

Good luck and keep us updated.

**Lease_Abstract** · 03-22-2010, 01:03 AM

Actually it depends on you, choose the one that causes you less expense yet provides a lot of benefits and less problems on fees. I think you have mentioned already the pros and cons of your question, so goodluck.

**Greg** · 03-22-2010, 06:12 AM

Never sell income producing real estate if you can afford to hold on to it. A year from now your income goes back up and 5 years from now you have the mortgage paid down to where the house is generating a profit and 15 years from now you owe nothing on it and pocket all the rent. All while the property accrues appreciation.

This is one of the only foolproof, wallstreet proof nestegg available.

**Lola** · 03-22-2010, 09:37 AM

Thank you all for replying. I will add more info to help clarify things.

When I move in with my fiance, we will be living in his house that he owns (it's bigger/newer/nicer). He lives literally 1 mile away.

From what we've discussed, he will not ask me for any rent/mortgage money, as my name is not on the house, nor would we refinance to get my name on after we marry. Further down the road, we plan to buy a different house together where we will have both names on it.

I would help with other household expenses given that his income is 3.5 times my income right now. Very helpful for me. The money that I am no longer putting towards my mortgage will go towards savings and paying down my student loan debt (which will be about $16-20k after this is over).

Currently, my PITI is 56% of my GROSS income. OUCH! Take home is $1215, household fixed (PITI, utils, gas, internet, cell) comes to $1094 (it's bare bones everything), leaving me $120/month to live on. I use about $500 in student loan money just to eat, put gas in the car, etc.

Once my salary goes back up in 13 months to the normal, pre-Master's salary, the PITI will be 28% of my gross income. This income is guaranteed, in fact I will go back to full-time just for the summer months (May-August). I want to avoid taking out loans again for this last school year. So Yes I could afford the house in 13 months. However, I have no real money/savings to be fixing big things like a furnace and pipes breaking, etc. It'll take a few months after graduation to build up savings.

If I get a raise, which has been the plan all along, the PITI will be an even smaller percentage maybe like 24% of my gross income.

Let's say I can get $800/month rent for the house. That leaves me $115 to cover on my own, plus $80 in property management fees (one company charges 10% of rent). I would be using $195 of my own money each month to keep the house if it's rented out. I did hear the insurance goes down because you are no longer insuring your personal property, in addition to the building. So that's a small savings there.

I have lived in my house all of 2003-now. I was reading about some tax breaks/penalties that depended on how long you've lived in the house, but I did not understand it all. Still researching.

If I sell, I could very well be debt free, but the only thing I will have to my name is a 12 year old car. However, I just refinanced in 12/2008, and I am pretty sure since it hasn't gone up much in value since then, I could be losing out on a few thousand.

The part that I am struggling with is how much it could be worth down the road ad Greg said and what a loss it would be if I unloaded it now. I'm trying to learn all the hassles with renting, being poor for a while longer, so I can properly weigh this out.

I guess I can let it go for a while and revisit it in a few weeks/months. Obviously there is no one answer popping out at me yet.

**Lola** · 03-22-2010, 09:06 PM

My post had way too much detail and it was a bit much even to explain it all, X income during this time, Y income during this time. Yadda yadda yadda. Well, this has been weighing on me and it's not a good time to be thinking of this with school and all. I get easily distracted from my studies.

So I think I'll just stay in my house for another year, continue living as cheaply as possible, and just wait until school is over with. Hopefully by then we'll have a date picked out for the wedding, I'll have my salary again, and things might be more clearer on what to do with the house. Yes, moving in with him would save me money, but the simplest answer is to not move yet.

**REITrainingWhse** · 03-23-2010, 10:33 AM

Lola -

Well, reading through your first post and my first question is how did you get that rent figure at $75-850? Is that what SFRs in that area are going for, or is that rents for duplexes/apartments?

If it is for SFRs, then what are the conditions of the SFRs in that range? If you could add a few minor improvements/amenities maybe you could ask for more. (You did mention that it is not 100% up to date, and some times minor improvements are not that expensive.)
If the rents are for a multi-unit place, then SFRs always are higher in rents, so you might actually have something that could cover the mortgage.

So with that, I can't comment on if you need to sell or hold it.

Then we need to get into what does the market look like around your area? Are there "for sale" signs on practically every other house or are you in one of those rare conditions where everything is sold quickly...(if they exist anymore.)

Lola, too many questions to make an informed decision.

Let me know.

Later!

**markbrian** · 03-24-2010, 05:23 AM

Lola, while both Greg and Michael gave you some excellent advice, it is hard for us to know everything about your situation and the real estate market in your area. I would suggest talking with several local real estate agents or REALTORS and see what they say about possibilities regarding renting or selling the home.

It may be best to hold it for the future income OR it might be a great time to sell and then pay off your student loans. Since we are not experts in your market, it is hard for us to say for sure what is best in your unique situation.

Also you might want to consult with your tax adviser about the consequences if you sell the home.

Oh and good luck with your plans for a wedding! I am sure it is an exciting time for you!