Moving Back to US: What To Do With My California Rental?

**adrenalix** · 02-20-2008, 02:53 AM

Hello all.

First, I would like to say that I'm happy to have found this forum. Seems like there is a good group of knowledgable and helpful people here.

I'd like to get your feedback on my situation and hopefully get some advice on how I should handle this. I suppose the best way to go about this is to list out the details:

Background:

Four+ years ago, I purchased my first home in California. A 3+2 SFR for $396K.
Had a 5 year ARM with a decent interest rate.
Close to two years ago, I accepted a two-year contract job overseas.
The plan was to rent out my home during these two years, and either live back in it when I return, or buy a new house (keeping the rental) after 2 years.
Knowing that the fixed period of my 5 year ARM was going to end soon, and hearing of the stories of the upcoming gloom, I decided it was best to refinance before I left.
I ended up refinancing for an interest-only loan with the intent of keeping the payments low enough that the rent would cover all expenses. I just wanted to keep my headaches to a minimum while I was half a world away. (I'd probably do it differently in hindsight, but that's done with.)
I have a good job and expect to have a similarly good job when I return to the US.
The only debt I have is my mortgage.

Flash forward to current time:

I will be moving back to the states in six months.
I'm on my second tenant renting the house, and their lease expires in November.
We would really like to upgrade to a larger home, one that we can live in for the next 30 years at some point.

What do you think my next move should be here?

Option 1 is to move back to my house, then sell/buy when the time is right. I'm guessing that I'll get the least value for my current house in this case since I'll be selling when I think it's the best time to buy, when the prices are low(est).
Option 2 is to keep my rental and keep renting it out. I've read in a few places that the rental market is getting stronger due to the many foreclosures and defaults. This may be feasible, but I'll have to address my current interest-only loan. Should I refinance now? Or wait later? If I go with this option, how long could I expect to keep renting the house until I am in a position to sell for a reasonable profit?
Along with Option 2 above, I would have to buy a place of my own to live in. I can wait a few months or until next year if the that the market dictates it. Do people with rental properties normally have a hard time getting a loan for a second home? I have no idea what's involved there.
I'm sure there are other scenarios to choose from here that I haven't thought of and am open to hearing suggestions.

I have a trusted REALTOR in California with whom I will bounce these ideas off as well, but other input would always help.

Hope to hear from you, and thanks in advance.

-A

**carlam** · 02-20-2008, 05:45 AM

Hello from Tampa, FL and welcome to the forum! Wow, you have a lot to consider and it sounds like you are well on your way to making an informed decision.

How's this...
If the rental market is better than home sales are in your area and you can obtain a loan - look for that larger home you would like to have. Buy low - sell high. If the renters you already have in place do not extend their lease, how hard would it be to find new tennants?

If refinancing the current home would not allow you to obtain another mortgage, why not rent a larger home?

I would talk with my mortgage person as well before making any decisions. Their advice could be helpful in any decision made.

**TobyMunk** · 03-12-2008, 02:03 PM

I would look at it this way:

You have owned your home for 5 years. Chances are that you still have quite a bit of equity in the deal. If the tenants are paying the interest it would make sense to keep the property. Maybe you can up the rent on the next tenant to start paying more than the interest so that your mortgage will be paid off over the next decades. Look at it as your retirement project.

If you have the money for a down payment and get pre-qualified for buying another home then do so over the next 12 months.

Not sure about your local market, but confined cities like Manhattan or SF will do a lot better in the down turn then lets say Houston which is very spread out and has lots of land still to be built.

Let us know what you are doing.

**karyljm** · 03-13-2008, 10:35 AM

So much depends on where in California your rental is, as some of the San Francisco area is still good for buying and selling. But then there is Riverside County, oh and the Stocton area the have mounds of foreclosures and you can pick up a new house with at great prices with so many new houses still being built it's all in your favor.