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To those wise investors out there who want to help a nieve homeowner:
I'll try to be brief, I own a house in a up and coming area of Atlanta Ga. It's a highly sought after neighborhood because of access to downtown and the interstates as well as being the latest 'bohemian' hotspot. It's also in extremely close proximity to project the city is working on called the "Beltline". This is set to be complete in approx. 20-25 years but work has already begun and it will create a rail line that surrounds the downtown corridor and connects numerous city parks. Along the beltline there will be a jogging path and the city is providing numerous incentives in my area in order to encourage development along the train tracks. The property is also located within a 'Tax Allocated District' due to it's location to this project.
I owe $88k on the house and my monthly payments are $750 including tax and insurance (this is as a owner occupier so it may increase if the property becomes a rental). I have done some research and I think I could rent the place for about $1350 which would be about middle range for similar 3 bedroom rentals in the area. If I were to sell, as is, I could sell for about $175k.
I'm relocating out of state and trying to decide if I should sell the property or rent it out. I am not planning on buying a house in the state I am relocating to because I am not sure I will be there 5 years. So I don't need the money from the sale to buy another place. I have tried to look at moderate level investment options in which to invest money from the sale of the property (would be about $60k after I paid off debt.)
If I rent it out I would have about $500 a month positive cash flow after paying a management company. The renters would also be paying down my principal about $1000 a year and I would be able to take advantage of the tax breaks.
Looking for advice as to what to do, rent or sell, from some of you out there with more experience than I have. What would be the better investment, selling and investing the money in a moderate risk investment or renting it out? I should say that right now my eggs are all in one basket so to speak, I have a small 401k but no other savings. I have a minimal amount of debt., $8k on a 9% interest credit card and some other very small debt's.
I thank anyone out there who is willing to share their wisdom!
I would lean towards using a reputable property management company and lease it out after talking to a good financial planner if in fact I believed some day I might be returning to live in the area again. If no chance I would be returning I might still rent it out but probably not. Sounds like you have a good situation...
Thanks. I won't be returning to the area. How do you go about finding a good property management company? I'm looking here:
NARPM® : Search for a Chapter
At the National Association of Residential Property Managers but I have no idea if they are legit or if all their members have to meet a certain standard.
Do property managers deal with repairs? If so, are they included in their fee's or do they do the repairs and then charge you?
And, do they deal with evictions? Is that included in the fee's usually or can it cost you thousands if for some reason you have to evict?
I'm also wondering if I would qualify to offer a 'rent to own' or owner financing in order to attract more potential buyers or renters.
Anyone know of any place to find info on this? Maybe I'll start a new thread.
Thanks, I am in a good situation. I worked HARD to get there though. Busted butt finding a foreclosure in a good area, worked hard finding out what the good area's were in Atlanta as a new resident with no family or friends for guidance, put in a TON of sweat equity myself (as a 5'2" 100 lb. lil' lady). Anyway, you get the picture. I'm not in a good place because I was lucky, I'm in a good place because I worked hard to get there. It's nice when someone notices though and it validates all the work I did! I tell you, I've been on the other side and I learned my lessons. I don't ever want to stress about a house again, life's too short!
Zev, it is hard to make a definitive call on whether this is the best for you but I would say that if you don't have anything better to do with the (approximately) $75k from selling, I would keep it as a rental.
The numbers look pretty good. If I came across a property for $175k that I could lease for $1350/month, I would strongly consider it. Add to that he future value you describe, it looks like a winner.
I use property managers. What they provide and how much they charge varies. Certainly getting tenants is their big thing, including the screening. How much they assist in an eviction will vary. They generally do all the maintenance under guidelines you describe.
One thing I will strongly recommend is become familiar with the tax laws. Do not depend on an accountant. You can use an accountant but they don't always know what is right, believe it or not. Also, routine decisions you make during the year will depend on the tax law and you can't call the accountant every time you need to do something. As an example, a stove breaks, should you repair it or should you replace it? Should you upgrade carpeting before before the tenant moves in? How will you depreciate improvements? These are basic things you must understand to run this rental effectively.
You also need to evaluate if you should set yourself up as a LLC (Limited Liability Corp) or just have high liability insurance. There are advantages to each.
How far are you going to move from the property? If you are more than a couple hours driving distance, you will have to depend on a property manager more. But it is important how the contract reads between you and the manager, not just on what services you can expect but how the IRS will interpret your involvement.
and I would ask if you have anyone in the area who is friend or relative who could also keep watch on the property--
frankly it sounds like a better idea to keep the house and rent it out--IF you can get good renters--bad renters can tear a house up faster than you can spend the money to repair it...
consider who is likely to want to live in that area--if they are people who might be renting because they really don't qualify as homeowners--I don't know that makes them a viable choice...
ideally the person renting your house would be a ministry student, married with small child or maybe older couple moving into the area to be closer to family and who love gardening and home repair
Lots of pluses to renting it out, almost so many that I wonder if you have over estimated rents and /or overlooking the demand for rentals.
$175K for a good condition 3 br is not crazy cheap, but it sounds like you have quite a bit of equity, and it sounds like you got a lot of that the old fashioned way by finding a run down bargain and making it worth much more. If you have the desire to do that again it MIGHT make sense to sell and go shopping in your new town for a similar opportunity. Really depends on you tolerance for "hands on" equity building with or "hands off" cash flow from renting , as both do entail rather different kinds of risk...
If you are very confident of positive cashflow, it seems like you can't go wrong with renting. Have you also factored in maintenance costs for the house?
If you are very confident of positive cashflow, it seems like you can't go wrong with renting. Have you also factored in maintenance costs for the house?
Maintenance (that a PM could sub out to a high rate), vacancy, 10% to PM etc...
Be diligent in who you pick for a PM. I picked one from the same organization above and they skipped the screening placing people in my home that decimated it in three months. I would have had better luck opeing a phone book and picking any name. I took them to court were we fought for two years before they finally settled. A huge hassle, huge stress, and very little for me at the end. I would NEVER rent a home out again unless I was the landlord AND I was close by.
I'd sell it and call it a day. Management companies sometimes are fly by nights even if they have been in business for years, doesn't mean they are great watchdogs over the place. If something breaks, YOU have to pay for it, not the management company, they just set up the repairs.
Now, if you were staying in town and investing in a number of properties where you could manage them yourself, I would think differently about it.
Again, it's just my own opinion on the topic at hand.
Best of luck and enjoy the change of scenery in your move!
This is coming from a full time landlord of 25 plus years sell just with the numbers you gave it probably not a good deal to keep it. By the time you add in the 8k on 9% on the credit card the money you would make with investments and just one bad tenant in five years you will lose money.
8k at 9% with a min payment of 3% is $240.00 a month
]60k at 8% for 5 years compounded one time annually average 469.32 a month
If nothing ever goes wrong and it is never vacant you have a loss of 209 dollars a month and you still have a balance on your credit card after 5 years. After all this you will need to spend money to fix it up to sell it I would do your homework
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Thanks!
