Evaluate my real estate situation (very long) - Page 2

SomethingClever · #11 05-30-2007, 03:01 PM

Note: Friend can afford it, it's just a question of whether he wants to afford it or not.

maxtower · #12 05-30-2007, 04:23 PM

I would rent it to my friend for 900. He will be grateful to get the better place at the same price, and you will have the piece of mind knowing that he will respect your stuff and perform whatever maintenance is necessary while you are away. The last thing you need on your trip is calls from a tenant complaining. And what if the tenant ups and moves out 1 month into your trip? You have no recourse.

Of course if you are sure you are going to be selling in 2-3 years anyway for family reasons, why not lock in the profit now if you can. This housing bust is only just beginning to play out. I don't know how Portland will do specifically, but prices are not likely to appreciate much in the next 2-3 years even if they don't fall.

SomethingClever · #13 05-30-2007, 04:26 PM

[ QUOTE ]
I would rent it to my friend for 900. He will be grateful to get the better place at the same price, and you will have the piece of mind knowing that he will respect your stuff and perform whatever maintenance is necessary while you are away. The last thing you need on your trip is calls from a tenant complaining. And what if the tenant ups and moves out 1 month into your trip? You have no recourse.

[/ QUOTE ]

Well, any tenant would need to sign at least a 6-month lease. If they want to get out before then, they will forfeit last month's rent and their security deposit.

So let's say they quit a month in. They've covered one month of rent, plus last month, plus security (which I expect will be about one month's rent). That covers 3 months. We could shorten our trip to 6 months and just flat pay the extra 3 months of mortgage under that scenario.

I'm thinking I will offer the place to my friend at 1200 and see what he says. Peace of mind is probably worth $200/month.

maxtower · #14 05-30-2007, 04:33 PM

Can you really get 1st month, last month and a security deposit from a renter? That would be over $3000 initial outlay. If you find a renter who can come up with that, they definitely won't move out in a month.

I think finding a renter like that could be difficult though. Think about it from their perspective. They have to come up with $3000, agree to only live in the place for at most 6 months and then move. Also they have to pay $1400 per month. Thats a tall order for a renter. I'm not saying it can't be done. If you have a really nice place it might be worth it to someone. Just know that a lot of your competition is going to look better to them.

DesertCat · #15 05-30-2007, 04:43 PM

Remember, when you sell you'll be incurring about $20k in transaction costs (6%). I wouldn't jump to do that before you are really ready.

I think renting to a friend makes sense, but make sure you are on the same page. If your friend doesn't take care of the house the way you want, not only do you have a sticky tenant situation, but also may have lost a friend.

Putting it on Craigs List with a below market rent and an above market security deposit requirement might be another option. That deal is structured to discourage bad tenants (those who don't expect to get their deposit back) from taking it, and encouraging good tenants (those who do expect their deposit back).

The lower the rent you ask, the more tenants you'll have to choose from, which could be good or bad.

SomethingClever · #16 05-31-2007, 01:58 AM

It will be about 18K to sell it. But we can also take that 140K profit and put it in a 12 month CD... should earn about 7K.

Doesn't fully offset, and doesn't factor in possible appreciation, but it's something.

Scorpion Man · #17 05-31-2007, 02:41 PM

Don't sell the house. Transaction costs are huge and you like it. This is not a hard decision.

SomethingClever · #18 07-02-2007, 01:47 PM

Update: Friend is definitely out.

I've taken pictures and written up an ad to list the house. But I haven't posted it yet, and I'm still considering selling.

One thing that I keep thinking about is the possibility that we won't live in the house long enough upon returning to make renting it out the better option.

That is: If we're just going to come back and sell it anyway, doesn't it make sense to sell now and avoid the hassle of renting?

Under that scenario, we will be paying the transaction costs anyway. And we can sort of hedge against the housing market by putting the profits in a 12-month CD. IE: 5.x percent guaranteed versus potential appreciation probably in the 8-10% range. Edit: Of course this doesn't factor in the extra leverage we have if we still own the house. But who knows, the market could easily break even over the next year, too.

I figure if we are going to live there for 2 years after our travel year, it's definitely worth keeping. But this is looking less and less likely. If we decide to have a kid right when we get back (which the wife is leaning toward), it'll be tough to move into a new place and get all the remodling/projects/etc... done with a pregnant wife, or a baby.

What about this plan:

We sell now for ~$350, take $140k profit and invest in 12-month CD (or something similar).

Upon return, we have ~$147k. We buy a place for $400k and put $80k down.

That'll give us a mortgage payment of around $2k/month, but we'll have about 33 months of payments liquid in the bank. What it do, BFI?

DrewDevil · #19 07-02-2007, 03:49 PM

[ QUOTE ]
If we decide to have a kid right when we get back (which the wife is leaning toward), it'll be tough to move into a new place and get all the remodling/projects/etc... done with a pregnant wife, or a baby.

[/ QUOTE ]

I wanted to respond to just this portion of your post, because my wife and I had a baby in November 2006 and bought our house in April. We both realized that it would make excellent financial sense to buy a fixer-upper and gradually bring it up to dollhouse condition over 4-5 years, but neither of us could stomach the idea of trying to renovate a house we were living in while raising a little one at the same time.

RikaKazak · #20 07-02-2007, 06:11 PM

If you've never been a landlord before...sell before your trip

If you have been a landlord before and know what you're getting into, then I would stay in the house till you have a 2-3 year old child

edited to add: my personal recomendation though is to keep the house and hire a property management company to take care of it all while you're gone (if the numbers make sense that is)