Unsure what to do with my current primary residence

Ann Arbor, Michigan
Buying & Selling Real Estate
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Unsure what to do with my current primary residence

Dan Deng
New to Real Estate · San Diego, CA · Member since 2022 · 5 posts · 4 votes

Hello All,

I have decided to come to the BP forums to ask for your advice and or thoughts on my current situation.  I currently live in Ann Arbor, MI and own a primary house here.  Due to a new job offer, my family is moving to San Diego, CA.  I currently own a house in Ann Arbor which we purchased back in 2019 for $550k at a 2.1% mortgage interest rate over 15 years.  It's now worth almost $700k.  Normally, I'm sure most people would sell their house so they can put the money into a downpayment on their next house. However, I'm in a fortunate situation where I will be able to move in with my parents for at least the next 2 years so I don't have to purchase or rent a house in San Diego for a bit.  Now for the dilemma:

I really like my house I purchased and put a lot of money into the house not cosmetically but upgrades that I wanted like solar panels, 2 Tesla Powerwalls and a BRAND new super efficient heat pump and 99% efficient furnace.  Unfortunately, these upgrades do not improve the price of the house nor are typical things that new home owners are looking for especially in Michigan.

I am trying to decide whether I should sell my house and put the money in a CD until I'm ready to buy a house in San Diego or to keep the house and rent it out.  Houses of my size and type are not commonly rented in Ann Arbor and the rent ranges I got from a local real estate agent ranges from $3,100 - $4,500 based upon when and how new the houses were.  My current cost for the house is about $3,700 for mortgage + insurance + taxes.  Thus the house will likely be cashflow negative once you include cost of maintenance and increased costs for insurance and taxes due to no longer being homestead.  I'm really reluctant to give up a low interest rate.

The way i see it... I have 4 possible options:

1. Sell the house - Save the money on a CD (Or something else similar) until about 2 years in the future
2. Sell the house - buy something in San Diego as soon as possible
3. Keep the house and find a long-term tenant for it
4. Keep the house and find a long-term tenant, sell in 2 years then buy a house in San Diego

So, anyone want to give me their take on what they would do if they were in my situation?   



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Max Reynolds
Property Manager · San Diego · Member since 2022 · 24 posts · 19 votes
3y

Dan - my recommendation would be the following:

- Confirm with your insurance agent what exactly your price change in insurance will be so that you can better understand your monthly payments will be.

- Complete a rent survey yourself because that is way too big of a range. Check Zillow, apartments.com, Craigslist, and other marketing platforms to look up and see what is available for same number of bedrooms, similar SF, and similar renovations (excluding powerwalls, etc.). Call each listing to see what the leasing activity has been like and create a list of those properties to follow up with after it is leased to confirm what price it leased for.

- Vet each listing you call to see how active that agent/property manager is in the area to see if they are the most qualified to rent your house out for the highest price. I know you have already talked to other agents but see what those you call have to say about their pricing for your home and if the fair market rent you came to a conclusion on is feasible. Keep in mind that unless you are actually considering using the agent/property manager to market your home for a future sale or lease, they might be a "yes man" and be agreeable to get you off the phone if they feel they are providing free information with no opportunity to work with you.

- If you are at or close to a break even and are in the financial position to do so, I would hold onto the property. At such a low interest rate, majority of your payment is paying down principle. Additionally, you benefit from appreciation, depreciation, and other tax benefits that come along with owning real estate. No one has a crystal ball but IF rates drop next year, your home value might increase (don't know the supply/demand in your market) and if so, might be a better time to sell if you choose to.

- I am wary of CD's because you are typically locked in for extended periods of time and the return is not all that great. My savings account currently pays me 4.3% where as a CD I bought last year is only  4.5%. What if you come across a good deal on a property you want to buy but your funds are tied up in a CD? This happened to me and wished I had more liquid funds to put into the deal.

Now, I don't fully know your situation/market and can't give tax, financial or legal advice but this would be my real estate advice and personal opinion if I had the same situation here in San Diego.

Reach out with any questions about the San Diego market.

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  • Eric FernwoodBusiness Member
    Realtor · Las Vegas, NV · Member since 2014 · 995 posts · 1k+ votes
    3y

    Hello @Dan Deng,

    The goal of investment real estate is to provide a reliable passive income. To have a reliable income, you need the property continuously occupied by what I call a reliable tenant. A reliable tenant is someone who stays many years, always pays the rent on schedule, and takes care of the property. Reliable tenants are the exception, not the norm.

    A Property Attracts Only a Single Tenant Segment

    Each segment has specific housing requirements, and individuals within a segment are unlikely to rent any property that does not meet all of their needs. Additionally, each segment exhibits different behaviors. Conversely, each property only meets the housing requirements of a single segment. Therefore, it is important to understand the behavior of the tenant segment that your property will attract.

    My recommendation is you do some research with property managers to determine what you should expect from the segment who is likely to rent your property. If the vacancy rate is too high, I would be inclined to sell the property. If the vacancy rate is low enough that the expected income from your property will cover all expenses and repairs, I would hold onto the property.

    Also, you cannot afford to manage the property yourself. While you research the behaviors of tenants likely to occupy your property, I suggest conducting interviews for a property manager as well.

    Some property manager considerations:

    • Selecting the lowest-cost property manager can be your most expensive option. One non-performing tenant will cost you more than several years of the incremental costs of a skilled property manager. Focus on the value delivered, not the lowest cost.
    • I prefer medium-sized property managers. The big property managers don’t have time for individual owners. Mid-sized property managers have all the needed software and processes but will still have time to work with individuals.
    • Never work with a property manager with an in-house repair staff. Property managers make more money from repairs than from collecting rent. Don’t let your maintenance expenses be their financial gain. An in-house repair department is an inherent conflict of interest. All the property managers we work with utilize third-party service providers.
    • The most important skill of a property manager is the ability to select a reliable tenant. Understand their process for screening prospective tenants. Some property managers choose tenants based on FICO scores. A FICO score tells you nothing about how long they are likely to stay and if they take care of the property. Also, a high FICO score can mean they will be buying a home soon and will leave your property after only a short stay. The property manager should use one of the tenant screening services.
    • Do not expect investment advice from a property manager. I've worked with many, and none knew how to analyze a property. The best source of such analysis is an investment realtor (NOT an "investor friendly" realtor).

    If you would like my guide (free) on how to select a good property manager, DM me.

    [email protected]702-358-8884
    FERNWOOD Team, KW VIP Realty520 Reviews
    WebsiteView Page
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  • Jeni Nikolova
    Member since 2020 · 36 posts · 4 votes
    3y

    Listen to your gut.

    You have put a sufficient amount of funds into the house. Do you see yourself coming back to the area?

    If you don’t, selling the house, either now or within the next two years makes sense.

    Mortgage at 2.1% is unthinkable these days.

    Once you fully pay off the house, it will be a good source of passive income.

    My family was in a similar situation 4 years ago and decided to keep the house. I am glad we did we had to put in time and effort into managing the house, which from a distance is not an easy task.

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