Guys, I am waiting to hear back but I will try to breifly explain my situation.
Just bought a house in May 2018. Have a possible job offer out of state. If the offer makes sense, might take it, as I have been waiting for a long time for it.
Looking at my house see the details below.
Loan on House : 241,900 (1210 / month mortgage)
Potential rent : 2,500 /month (based on comparable rentals)
HOA fees : 150 / month
PMI : 150$ / month
Insurance : 1900 / year (includes flood)
Taxes : 5,500 / year
Utilitites : On Tenant
After vacancy (5%) and maintenance (10%) and property management (10%) I am at a loss (-200 cash flow) each month. If I include the equity, I make about 120$. If I try to sell the place I might get similar to what I paid for it, maybe more as we have done some repairs and cosmetic uplifts.
Im trying to figure out, should I try to rent it out or sell it? Selling it I assume I will lose money on the realtor commissions or break even as I have about 6% in equity at the moment.
Thoughts are appreciated!
If you need more details, let me know. Thanks in advance!
When considering renting out, make sure you factor in the "headache" cost of managing your property manager, getting phone calls for things that can and will go wrong. Sometimes it's worth just breaking even to retain your peace of mind. If you're at a lost renting it out then it already doesn't make sense, unless your goal is to build a portfolio for future generations.
I agree with Ray on this one. Even though you have already accounted for the management fee, there will be time that issue with the property come up that need your decision to move forward. Since you will be out of state it can get complicated. If you already losing month each month for it then it does not make sense to keep it at this point.
Just my curiosity, i noticed you said your loan is $241,900 and your tax is $5,500. With my calculation using property tax of 1.1% the purchase price of your house should be around $500,000. Why you have PMI if the loan amount is around 50% of the value?
I would sell and hope to break even or not lose too much before I would allow a tenant into the property. You will end up losing money if you rent it and you will need to renovate before you sell to get it back into descent shape after the damage caused by a tennat.
The headache factor of having to deal with tenants will not be worth your trouble and could end up being extremely costly. High damage, eviction, rent collection issues, dogs, cats, kids. The list is endless.
Leaving aside the lesson learned of only buying a home if it's a potential flip or would make a great rental until you're settled in a relatively permanent position, it's likely better to sell now if you can break even or even if it costs a little rather than attempt to deal with an out-of-state rental that is not cash-flow positive, as you need to factor in turnovers, repairs, management if you're not close enough to get there when needed, etc. If it's your hometown and you will be returning to the area and love the home, then that may be a factor in choosing to rent it rather than sell. But tenants don't treat the property the same way you would, and turnovers can be expensive, so if it doesn't make a great rental property from a business perspective, sell rather than rent it out.
Wow, that is a very high tax rate. Thanks for the information.
No brainEr. Negative $200. Sell.
Thank you all for the advice, and yes I think after reading all your posts that if this pans out, selling is probably the best course of action. I appreciate all your thoughts!
So guys, I did have one option I didnt really think about until i started looking at Airbnbs for a trip coming up.
What if I rented out my house to a Airbnb host, at an elevated monthly rate, and let them sublet the property for Airbnb?
The monthly elevated rate would need to be enough to make it worth it, and may need to look into possible maintenance increases due to the changing of hands all the time.
My idea was, rent to them, let them run the business, they profit with low up front costs and I get a profitable rental.
Anyone have experience with this?
If you can raise the rent to $3000 a month and lower the cap ex and repairs to 6% each the numbers work. My quick calcs give you $2160 (x2) for cap ex and repairs. This gains you ~$400 a month cash flow. Now ask yourself what can you fix for $4300 after a years time? Is the house new or older. Now you have to look at airbnb rates for your area.
@Jim Adrian , I have looked at the rates in my area, and it looks like with about 20 days of occupancy each month, they should be able to pull in about 5k-5.5k in revenue. This assumes the same rate for every night, but around my house, most charge more for the weekends, so number is probably closer to the 5.5k a month.
Yes, the maintenance numbers were a little high for 1 year, as I don't see us having to do that much maintenance, but wanted to be a little conservative. With 3k a month, that would be 3600 a year in maintenece and vacancy may also not be an issue with that sort of arrangment. That should actually make things look a little nicer.
Also property management, im not sure how that would work in this situation. Do you have any thoughts on how that would work? I have some local contacts that can assist with repairs when they come up.
I have no experience with airbnb. You will still want to keep that number in the equation no matter what. Either you are paying someone or yourself with that figure. You probably should have a local company check on the place but they also need to be on board with the sublet/airbnb process.
@Dustin Bergeron your concept it accurate, and I am sure you can find a local Airbnb host to help you run your house as an Airbnb while you are gone. I do that for clients, and it was so successful that I started a company to do that for clients. We know manage 18 houses in the Midwest. If you would like, I could help find someone to do that for you in Houston. Just think, you can leave your furniture in place and not have to move it. You can make money I’m not only your house, but also your furniture while you are gone. If you ever want to come back for a day or a couple days, you can just block off your calendar and stay back at your own house.
@Benjamin Vail That is very neat, and I would love to hear how you make that work for your clients, to see what I can expect and what sort of benefits it may have for me as the home owner.