So my lady and I are looking at taking the next step and have started looking at houses. I currently own a home that’s valued at around $165K, I bought at $79K, I still owe around $35K, but it’s too small for the two of us. At this time I’m relatively cash poor as all my money is tied up in IRA’s and other investments that would be rather costly to pull out. I was originally planning on turning my current house into a rental but seeing that I don’t have cash on hand for a good down payment on the new house I’ve started to think about selling it instead.
I have a home equity loan from many years ago with zero balance that’s still active but I’m afraid if I use that for the necessary upgrades to my current home to make it rent ready and for the deposit on the new home that it will ding my credit when purchasing the new home. Thus the thought of selling.
So what’s your advice, should I rent, sell, or something else?
Rent.
Why is it too small for you?
You have an almost paid off house. That in itself is all th freedom you need. I suggest paying it off while saving as much as you can so that you can either purchase a second home and rent your existing. Or you can purchase your next home with cash.
In 2-3 years you could be in a VERY advantageous position. Of course it might mean that you are dealing with a small house. But that, IMO, is better renting where you will likely be paying more than your mortgage and saving less.
After paying real estate agent fees and such when selling the house, you’ll probably have $150-155k on the house. So you’ll net 120k or so. Why not use about 80k of it as a down payment and bank the rest for now? Buying a $200-250k house would still give you a very reasonable mortgage with rates being so low. You’ll bank $40k and not be cash poor.
If you have never been a ‘slum lord’ for lack of a better term you could be in for a serious challenge on your wits. I did it for years, but am now completely out. Have you figured out what you need to pocket every month to be profitable and what the going rate is for a rental like yours? These things are highly dependent on your particular locale. You might be able to find out that after you secure rent and pay a management company it’s a money loser…or maker…break even. This can help clear some of the fog.
I just tired of it and knew the risk of carrying the notes coupled with the extremely sketchy rental crowd less management fees wasn’t worth it. I had been doing it all myself to keep my margins healthy. Unfortunately renters can destroy your home and walk off with all kinds of expensive items far exceeding first/last/deposit. Recourse is almost non-existent the smallish percentage of renters that are serial scam artists disappear like a fart in the wind. You only need one of these clowns to make your life a nightmare!
That said there are people making money hand over fist in the right areas so it CAN be done. Just wanted to impress upon you a few thoughts you may not have considered.
As noted above I think you should really consider why it’s too small. I have a decent sized home. My wife and I thought for a moment we needed a bigger home to accommodate the kids. Then we looked around and our home is plenty big for the 4 of us and allows us to conceal a bunch of crap we don’t need. I have a friend in Atlanta with a wife and kid. They moved from Texas to there, left a 3 bedroom home to live in a 1000 sq ft open space and while it was challenging they learned they had a lot of things they didn’t need.
I am no financial expert but one lesson I am learning/have learned- don’t take on debt if you don’t NEED it! Good luck.
I’m simply seconding several of the other posters.
First “Why to small?” If it’s you and someone else, no kids, you shouldn’t need all that much more room then you need “Just for you”. You can then lower your costs for a couple years and make a huge dent in your existing mortgage.
Second, have you looked into the finances of renting. It tends to not be all that profitable and many times a huge PIA for single family homes. This is very often the truth when you’re carrying a mortgage on it.
~Matt
Maybe this will help you out in deciding between selling and renting.
We bought a townhouse condo in 1999. In 2006 we started building a house that we really like, moved in April of 2007. Thought we would rent the condo for a couple years while we made some upgrades to it and paid down the mortgage on it so we didn’t have to bring money to the table on sale (the market for these condos was already in trouble in 2006). I can’t remember exactly what happened but some time in 2008 I’m told some bad things happened that affected real estate pretty heavily, I think it was in the news.
So we have been landlords for the last 7 years. For the most part it has been uneventful other than the PITA of maintaining two homes. Then last February it got colder in Columbus than it had in around 30 years. A pipe in the common wall froze and our condo as well as our neighbors got wet. No real damage but I spend three days drying things out, pulling up carpet that was less than a year old and pulling out carpet pad, then spent a couple hundred getting new pad installed and the carpet reinstalled.
That tenant has been a challenge and we were really counting down the days until she was gone. Once she had moved out the beginning of this month it became clear just how filthy the carpet was and how much dog piss there was. Then I’m standing in the kitchen in the afternoon sun and in that light I see for the first time that I could see all the seams in the living room ceiling. Upon closer inspection (I mean really, how often do you inspect ceilings) I can see where the ceiling has been patched, on the first floor of a 2 story condo. So clearly something bad happened. I text her and she tells me there was a ‘minor’ leak with a washing machine hose. And since it came right after the pipe froze she thought she’d do me a favor and just take care of it. Well fuck me. This was no minor leak, the ceiling damage goes for about 20 or 25 feet from where the upstairs laundry is. Before I sell I will have to pull down the ceiling and have it re-drywalled. How do you tell a prospective buyer that it was just a minor leak and nothing to worry about, that ceiling is juuuust fine.
Of course I could sue her, but she had so much money that she moved back home with her mom and a new records check shows a new judgment against her, which would also explain why we changed from getting checks to getting cash.
Unless you want to make a living in real estate and have the time and energy to devote to it at or near full time, sell the house if you can.
If you like your neighbors, sell. If you hate them, rent.
Sounds like, for several reasons, you need to sell it. Nothing bad with having the sale proceeds vs. having something more to take care of and hope it makes you some money. Bird in the hand…
The house is a 3BR, 1.5 bath, 1,200 sq ft ranch so rooms are tiny. A king size bed would take up almost the whole master bedroom. She needs an office for her work as do I, then of course there needs to be a space for the pain cave and my drums. I take up all the space with my stuff so adding her to the mix makes it problematic at best.
Part of owning a home is enjoying your home. If you don’t have space- move. Renting is throwing money away and with low interest rates as well as reasonable home prices, it makes sense to buy.
Put $100k or so down and bank the rest when you sell your home. My opinion
Rent your house only if you can get $1650 a month rent, 1% of the current home value. Otherwise, it’s not a good rental income scenerio.
Your current house is the size of my house and we have two kids. How much space do you need?
The simplest solution seem to be to sell.
Here’s what we did in a smaller setting:
Room 1 is the Master bedroom. Bed and end tables. That’s it.
Room 2 is the closet, with our dressers. I hung shelves and rods.
Room 3 is the guest bedroom with the Wife’s office.
One of the bays of the garage has become the cave. Now, if you’re unwilling to give up garage space, maybe you could consider buying a nice shed. A smidgeon of insulation and a space heater gives you an escape, which is sometimes desperately needed.
Just to repeat what others have said and obviously this is entirely based on personal choice, lifestyle etc so there is no “Right” answer.
That being said if the goal is to maximize financial health and minimize financial strain then 1200 sq feet with three bedrooms and only two people, I would think is completely workable. IS there a basement that can be converted for more space? Is there garage room, Attic etc that could be used? Granted it may take a little investment, which might pay off by adding value and a little compromise, which can be a bit stressful, but one wold think entirely workable.
Depending on climate you’re in as others have mentioned you could easily build a small shed and make a “Pain cave”. Yes more then likely you will both have to get rid of some stuff.
OTOH if it’s really not about the money then I would suggest getting rid of the house, selling it, and not renting. Odds are that a single home like that is a “Break even” at best anyway and probably more headache then the minimal amount of profit you might make. Sell the house, but a bigger one, carry a larger mortgage.
Again, all of this is a “Lifestyle” choice.
~Matt
The house is a 3BR, 1.5 bath, 1,200 sq ft ranch so rooms are tiny. A king size bed would take up almost the whole master bedroom. She needs an office for her work as do I, then of course there needs to be a space for the pain cave and my drums. I take up all the space with my stuff so adding her to the mix makes it problematic at best.
I’m going to second what several other people have already stated, think really hard about whether the current home is really too small. We (wife and 2yr old) currently live in a <700^ft bottom half of a duplex and are going to be adding a second child early next spring. We very easily could afford more (our rent+utilities is ~7% of our household income and we’ll buy in the next year or so), but we’d rather just limit “stuff” and retire a decade earlier instead.
You are currently in an extremely advantageous position, with your residence having doubled in value and having it nearly paid off. If you are hell bent on more space, I’d sell. You have no clue what costs may come up being a landlord and that’s not a fun proposition with limited liquidity. Just ask my landlords, they’ve dumped probably $30k into our unit (which probably is worth $110k) in the last year or so, and that is with good renters (backdoor brag) who pay rent 6-months at a time and keep the place immaculate. There is the risk that it could be a lot more hassle than you anticipated. Being a landlord is not always easy residual income, it often turns into a second job.
No garage, only a carport and no basement.
No garage, only a carport.
Are you opposed to the shed idea?
I get the feeling that you simply do not like this house. For whatever reason, it’s not meeting your expectations and are looking for a reason to get out of your current establishment. I think what I, and others, are trying to tell you is that your situation is not bad. However, if you’ve already made up your mind, you should sell.
Also forgot to mention that we would be looking at homes on the other side of town from my existing home so we’d be much closer to work. Our drive times would be cut in half and we’d be much closer to her two offices.
What he said. If you transfer your equity to a larger house you are still going to have a stroke that is probably less than renting.
** I would wait until you are actually married to do this!