Is it financially feasible to rent my house out? (Ft. Lauderdale)

8 Replies

I posted my introduction on another thread (http://www.biggerpockets.com/forums/55/topics/227341-new-from-south-florida-ft-lauderdale-b4-in-nj-union-county?page=1#p1506081) and thanks for all who replied. My employer is forcing me to relocate up north from my beautiful house in Davie, FL and I'd like to explore if financially, I could rent it out so I can keep it.

It is a 4/3, 1 floor house with screened in pool, jacuzzi (my profile picture), and solar power heater. Larger size lot than others in the neighborhood, great school area, not far from higher education places, and with lemon, orange, ackee, and mango trees. Already had granite counters in the kitchen, hardwood floor on the master bedroom and hallways, and this really nice floor (marble, stone?) in the kitchen. That's probably why previous owners short saled, and I bought in mid 2014. Added new appliances, adding laminate flooring to all rooms not previously mentioned, celing fans in all rooms, had the house repainted, and fixed things that needed fixing (pool, outdoor sprinkler). The house is fantastic; I asked my wife what she would change, and all she could say was paint some postings on the screened in pool, and fix some pebbles (and some nicks in the paint). We've been to open houses in our neighorhood and they don't look at nice as our house.

Zillow is suggesting houses in my neighorhood are renting for $2800 - $3200, though I have no idea if the bed/bath and amenities are comparable. I pay $2120 on PITI, though taxes will go up due to the reassessment from us buying it. Not sure if insurance cost can go down if I turn it into a rental. I pay about $90/month in lawn care, $90/month in HOA, $100/month for pool maintenance, and $60/month for home warranty on appliances. Since I will move far away, will probably need a property manager. Looking to start renting in March / April 2016.

I have a 5/1 ARM at 3%, and if I sold right now, I'd probably make $30k over what I bought/put into the house, and $40k profit of mortgage + down payment + what I put into it, given that employer would pay all commissions and fees. But I'd cry too. Hence why Iam considering renting it out:

1) Is renting it out financially do-able?

2) Is renting it out March / April 2016 a good time, or should I try earlier; my employer will glady move sooner

3) What else should I consider?

If it was mine I'd try to keep it & let the tenants pay down the mortgage. Florida has consistently had big population growth so good chance you could make some nice appreciation in a few years. You should talk to a local agent or property manager & see exactly what rent you could get but sounds like you should about break even. Keep in mind too that you'll need to set aside at least 10% (maybe a little more) for repairs & vacancy in your calculations.

@Sean Cupertino  My thoughts............

If you can rent for 1% of market value (how much could you sell it for) , it would definately be a keeper for me.

I have found Zillow to generally be low in their estimates of potential rental values as they quote averages and my houses are more upscale than average. It sounds like yours is also. 

Renters should pay some of the operating expenses like lawn care and pool maintenance.

Your insurance will probably go up. And you should consider adding an umbrella liability policy. ( 3-4 hundred dollars annual for a single house for maybe $3,000,000 liability)

But, be careful, interest rates are rising. 

Just my thoughts, not a recommendation.

@Sean Cupertino Sorry about your job and having to leave sunny Florida. I own a property management company down here in Ft. Lauderdale.. Your numbers as a rental are very tight, however; it can cash flow positive.. If you and your wife want to keep the home for down the road then it is feasible.

I wouldn't leave lawn care and pool maintenance up to a tenant. If their finances get tight, that's what they'll stop paying first. Charge enough rent so that it's covered. If you can't get that much rent, pay those things yourself anyway to make sure they are taken care of.

Thanks for the suggestions. On lawn and pool, I'm already paying folks to do that via automatic payments, and had planned to keep doing it. Renters would have to agree for them to have access.

On umbrella insurance, I was planning on that too, even before I thought of rental. My employer offered one in March, but I didn't act quick enough. They are offering it again soon and I've already talked to the company (CHUBB) and adjusted my car insurance up, for their limits, and brought my home insurance down, since I had more than umbrella needed. Hopefully be effective Oct 1, but I'm still living in it. On insurance going UP, I thought homeowner insurance would go DOWN since I wouldn't need personal articles, but what is why I'm here, to learn.

About rent prices on Zillow, I was looking at actual homes for rent on Zillow in my neighborhood. But where Zillow is wrong is on sq ft. Some houses in my neighorhood, with the same model, are listing 300 more sq foot and I see it a lot, even on an open house I saw yesterday. Not sure why, but perhaps they haven't been appraised, but it makes my lower sq ft look bad, even though I have the exact same model as them.

While extra income would be nice, I guess that is why I'm going to relocate, for more money (maybe) from my day job..... though I am still keeping my eyes open for opportunities here.

@Sean Cupertino

First, let me inform you that Zillow values should not be taken seriously. Information in Zillow is ok for a quick check, but is often inaccurate and you should look at rental comps to determine a more accurate rental value from your home.

Now, assuming you can get $3000 a month, your PITI + Contracts are going to run you $2640 a month and a property manager will run you around 10% a month. That leaves you with $60 a month cash flow to address vacancies, capital expenditures, and repairs for the home. It also doesn't take into account that you are going to have your ARM adjust upwards after its initial term and the tax/insurance increase which you already mentioned.

I would also consider that tenants seldom take care of a house as well as you would as an owner. It sounds like you have a fabulous place, but it may not be as nice after you rent it out. Additionally, I don't like having a pool or jacuzzi in a rental - too much liability. There is also the very small possibility that you may get a very destructive tenant.

So, it really depends on what your goals are down the road and how comfortable you feel speculating on future home appreciation. Based on what I've read, it is unlikely that your property is going to cash flow and likely that it is going to cost you out of pocket when you have unexpected vacancies or repairs. I would personally sell that property and opt for something closer to your new work location, should you decide to actively invest in real estate. 

-Christopher

Thanks Chris, but I think PITI + contracts total $2460, not $2640, so $240 in cashflow, if I calculated it correctly?

What is the fundamental reason you are thinking of holding onto the property?

Is it because you are planning to move back to Lauderdale some day and would like to keep the house?

Or is it because you have an emotional tie to this property and you can't let go?

Or is it you feel this is a great investment property and you are beginning to look at getting a foot into buy and hold real estate?

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