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I agree, being a lanlord isnt as rewarding as everyone thinks. We are going to most likely sell and just walk away to start over in a new area. I was just curious to what others have done because it is a huge financial risk.
Looking to move out of state and would love to keep our home as a rental. The mortgage and taxes are about $500/month less than what I could rent it for. Unfortunately, I need the equity( est $100k) to buy the new house.
Is it a smart move to take a full line of credit to use for the DP of the new house and rent the current one? The rent would cover the mortgage, taxes, and the LOC.
Do you have any experience being a landlord? If not, I vote no. It's really more like running a small business than investing.
This is not something you want to start whilve moving out of the area. There is an excellent multi-part blog series I always recommend to those thinking of becoming landlords. This is from someone who is a landlord himself....but he isn't one to glorify it and say everyone can do it. He lays out some very specific facts that you don't typically see in most online articles:
If you are going to need your old house back because the relocation is temporary, then of course you should rent it out. Some of the cautions in this thread are worth paying attention to, but selling your old house and then buying a similar one in the same area is also very expensive and time-consuming. I did this and still live in the house. My tenant was not very good but it worked out OK.
If you are not going to need your old house back to live in, I would sell.
are you going to hold the old house more than a rolling 5 year period? you could blow the tax free money from any gains on that house if it was your primary.
up to 250k in gains if single and 500k if married could go bye bye if you exceed selling it within a rolling 5 year period that has you living in it at least 2 of those years.
Location: Chapel Hill, NC, formerly NoVA and Phila
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I did almost the exact same thing - although I did it because I thought we might be going back to the old house - not because we wanted an income producing property.
Anyway, here's how it went down. We owed $100K on our old house (worth $550K) in a nice, desirable neighborhood in Northern Virginia outside DC. Took out an interest-only home equity loan for $250K and paid off the $100K mortgage. That left $150K.
I took $120K and put it as a down payment on a new house. This left $30K to play with.
Monthly income and expenses were as follows:
Rent: $2600
Property Taxes were about $575 per month
Homeowners Insurance was about $50 per month
Equity Loan Payment was about $800 per month (weren't building equity, though since it was interest only)
Monthly Repairs was about $25 (had one repair in a one-year period)
Found tenant and managed property myself (one-time cost of about $180 so $15 per month)
Break Home Equity Loan Fee (had to pay about $420 fee for having home equity loan for less than 3 years so $35 per month - when after one year, tenant moved out. We were both only looking for a one-year lease and we decided we were not going to be moving back, so we sold it.)
Our property went up about $25K in that time frame. We cleared about $1100 per month for one year ($13.200 yearly) plus the $25,000 increase in property value, so we made about $38K ($25K tax free).
On the other hand, had we sold the house, we would have gotten about $450K in cash. Taking the same $120K out for a downpayment for the new house plus $30K aside, we would have had $300K to invest. Depending on how we invested, we may have done okay (this was 2012-2013), but not without risk either.
Looking back, I wish we had rented it for another year (to still take advantage of tax free gains), because property values have only gone up. The person we sold it to got transferred and just sold it after a year. It went up at least another $25K.
Anyway, all this to say, I had no landlording experience, our house was 60 years old and we lived 4 1/2 hours away. While caution should be taken, it was not doom and gloom at all. We lived in a family-friendly, desirable neighborhood which created demand for the property. I ran credit checks and checked out employment and landlord references. Everything looked good and we had great tenants. I can call a plumber just as easily as a property management company can for 8% of our rent - no thank you! Perhaps we just got lucky. And maybe with slightly different circumstances, it would have all gone to pot. But I'm glad we did it - everything worked out well.
I did almost the exact same thing - although I did it because I thought we might be going back to the old house - not because we wanted an income producing property.
Anyway, here's how it went down. We owed $100K on our old house (worth $550K) in a nice, desirable neighborhood in Northern Virginia outside DC. Took out an interest-only home equity loan for $250K and paid off the $100K mortgage. That left $150K.
I took $120K and put it as a down payment on a new house. This left $30K to play with.
Monthly income and expenses were as follows:
Rent: $2600
Property Taxes were about $575 per month
Homeowners Insurance was about $50 per month
Equity Loan Payment was about $800 per month (weren't building equity, though since it was interest only)
Monthly Repairs was about $25 (had one repair in a one-year period)
Found tenant and managed property myself (one-time cost of about $180 so $15 per month)
Break Home Equity Loan Fee (had to pay about $420 fee for having home equity loan for less than 3 years so $35 per month - when after one year, tenant moved out. We were both only looking for a one-year lease and we decided we were not going to be moving back, so we sold it.)
I'm confused. You say the $120K was a "down payment", which implies that you got a mortgage on the rest.
Yet your expense layout does not include anything about that mortgage.
What's going on?
(Or are you talking only about the old house and not the new one?)
Location: Chapel Hill, NC, formerly NoVA and Phila
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Quote:
Originally Posted by ncole1
I'm confused. You say the $120K was a "down payment", which implies that you got a mortgage on the rest.
Yet your expense layout does not include anything about that mortgage.
What's going on?
(Or are you talking only about the old house and not the new one?)
We got a mortgage on the new house - putting down $120K. Yes, there was a mortgage expense on the new house, but there would have been one no matter what, so it's not factored into the equation. The alternative to renting would have been to sell the house, take the proceeds (~$450K) and put $120K of that down on the new house (plus $30K for misc.), leaving $300K to invest. So the comparison is the income I made on renting out the old house versus what I would have made investing the $300K had I sold the old house (or I could have put the additional $300k down on the new house, essentially "making" 4% or $12K).
Besides a few small older rental homes, we rented out our last home when we had this one built...for us it
has worked out well so far, but we live in the same town where these rentals are...I would not like to live
far away, we like to check on them almost daily.
We got a mortgage on the new house - putting down $120K. Yes, there was a mortgage expense on the new house, but there would have been one no matter what, so it's not factored into the equation. The alternative to renting would have been to sell the house, take the proceeds (~$450K) and put $120K of that down on the new house (plus $30K for misc.), leaving $300K to invest. So the comparison is the income I made on renting out the old house versus what I would have made investing the $300K had I sold the old house (or I could have put the additional $300k down on the new house, essentially "making" 4% or $12K).
So really you should include that $12K in the costs then, since you wouldn't incur that expense if you ceased to own the old house.
Location: Chapel Hill, NC, formerly NoVA and Phila
9,779 posts, read 15,793,171 times
Reputation: 10888
Quote:
Originally Posted by ncole1
So really you should include that $12K in the costs then, since you wouldn't incur that expense if you ceased to own the old house.
If you do that, is it still profitable?
I did include it by saying we'd invest the $300K (and hopefully have made more than $12K), but yes at the very least, we would have made $12K on it if we put it all toward our new mortgage with a rate of 4%. In either case, renting the house out was profitable. We made $13K in income plus the house went up in value $25K (minus 5% realtor fees). But, remember, that is not why we did it. We did it to hold on to the house in case we wanted to move back in a year. So even if the profit was equal, it would have been worth it to us.
But, honestly, I probably would not have rented out the house just to make a profit. The profit margin was too unknown to us as most of the profit did come from the increase in the property's value. Plus it tied up a lot of money. I don't know OP's situation and his expenses, but I thought I'd share what we did, because it was so similar to what he wanted to do.
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