Life just threw us a (potential) curve....

[Frugal Nurse]

My husband works for a doctor who does stroke research, and has become sort of a right arm for her. he told her today that she is being wooed by a hospital in S.C. (we live n Kentucky), and if all the details get worked out, she is considering relocating, and asked if my DH would relocate too, to work under her at the new facility. I am a nurse, so me finding a job wouldn't be an issue. If it happens, we would really like to go, we've always wanted to relocate away from the cold KY winters, and this is the kick in the pants we need! The move would happen in roughly a year, so we have time to plan.

My issue is: We own a house that is currently worth about $5K less than our mortgage. I know, I know, it isn't a whole lot, but it bothers me. When we bought we thought we'd be here at least another 7 years. I am contemplating 2 things: A) keep the house after we move, rent it out, and hire a property management company to help us find renters, etc or B) Put the house for sale, bring the cash to the table, and just take the hit.

What would you recommend? Are there other options I'm not considering? We aren't going to short sale or foreclose over a few grand, but I do want to come out of this with the smallest financial blow possible.

P.S. This may all be for nothing, we just got news of the potential relocation today, but I'm a planner and really won't be able to rest until I have a plan, just in case.

[Deleted]

I would sell it.

[Urban Chicago]

For 5 grand, no way would I put up with the hassle of being an out-of-state landlord.

[Frugal Nurse]

Feb 18, 2011 16:04:28 GMT -5 Urban Chicago said:

For 5 grand, no way would I put up with the hassle of being an out-of-state landlord.

What kind of hassle? We'd be coming back to Kentucky several times a year anyway to visit family. I've never been a landlord, but I hate to lose money on this house. Plus, that $5K would make the move even easier. Idk if we'd get relocation expenses paid or anything. We'd have enough money to make the move even if we have to bring the 5 grand to the table, but it would be nice to keep it. This is also assuming home prices don't fall again.

ETA: That sounded smart-mouthed. I don't mean it like that, I'm truly curious

[hoops902]

"I've never been a landlord, but I hate to lose money on this house."

You've already lost the money, it's a sunk cost. What if the house continues going down? How much do you think you can rent it out for vs the mortgage costs?

The question is this...if you could sell your house break-even or for a small profit right now, would you still want to rent it out? Or would you cash out and start over? Be honest with yourself. The answer to that should be your same answer being $5k upside down with the cash to cover it.

[Frugal Nurse]

We haven't already lost the money. We haven't sold for less than we owe and lost 5 grand. If the house continues to lose money, then that would be a bummer. The housing market in our area wasn't hit very hard, but there was a slight decline.

If we would break even, I'd sell in a heartbeat. I had just envisioned us living in this house for a whole decade and getting back some equity. We'll have been here 4 years this May. And who knows, by this time next year we may have more equity in the house and lose less.

I guess I was just making sure I'd considered all my options. There are so many knowledgeable people on this board who offer great advice (usually).

[Urban Chicago]

I have been a landlord, and it's a major pain, IMHO. People don't pay, neighbors complain, still loose money every month, and being back in town would a few times a year will hardly be enough. Instead of visiting your family, you'll be at your old house dealing with problems.

[resolution]

I don't think the $5000 should be enough to impact your decision on whether or not to rent out the house. If you are interested in becoming a landlord the decision should be based on the fundamentals of the house and local market rather than not wanting to lose on the sale. Is the house something that you would buy as a rental if you didn't already own it? Is the current market rent commensurate with the value of the house? What is the local vacancy rate for rentals? Does renting it out still make sense after you pay 10% of the rent to a property management company? These are the kinds of things you should be looking at rather than how much you don't want to come out underwater by 5k. You should probably get a book on landlording and plug your numbers into the formulas to see if that specific house makes sense as a rental.

[hoops902]

"We haven't already lost the money. We haven't sold for less than we owe and lost 5 grand. If the house continues to lose money, then that would be a bummer. The housing market in our area wasn't hit very hard, but there was a slight decline."

The 5K is lost. You haven't sold it and realized the loss yet, but it's gone. If you have the money to cover the loss then whether you are 5k underwater or 100k in extra equity shouldn't really affect your decision. If your home is worth $100K and you owe 95k, your decision should be roughly the same as if your home is worth $100K but you owe 105K (assuming that you have the 5K to bring to the table). It's worth what it's worth, being upside down, even, or on top is simply a function of how much you've paid off already.

This seems to be one of the hardest things for people to come to terms with.

Think of it this way, if you'd put down an extra $5k for your downpayment, you'd be break even right now and you'd want to sell and not rent. You would "profit"/"lose" the exact same amount as you would bringing an extra $5k to the table.
The amount you have paid off should not factor into your decision at ALL in this case. The factor should be whether you think this is a good investment or not. If you were 100K profit but thought the market would soar higher and higher, you should hold onto it since you don't NEED the money. Your decision should be based on the profitability of renting it out, whether you will bring a small amount of money to the table should not factor into the decision (this is the same reason people cling to losing stocks, they dont' want to realize they've lost money, they want to hold on until they "feel" even)

[Deleted]

I'd sell, also be aware you normally have to pay 6% to sell the house.

[whoisjohngalt]

I would wait and see, bc as of now, your $5K loss is imaginary. It can be a $15K loss if you don't get the price you want, it can be $0 loss if you do get the price you want. Who really knows?

In the meantime, I would research property mgmt companies in case you do decide to rent out.

I would also consider lease-to-buy option.

Lena

[resolution]

I just wanted to add that I did convert a prior residence into a long distance rental. The fundamentals of the house made sense and we have a positive cash flow. The property management company has handled all of the hassles for me, in exchange for their cut of the rent. However before they rented out the house they did require some upgrades, repainting, cleaning, a new irrigation system, etc. It cost me $1500 to make the required changes and another $400 as a lease fee when they found the tenants. So if you are going the rental property route it will still cost you some money up front, possibly as much money as you would bring to the table to just sell it.

[hoops902]

I'll try to be a bit more succint since I realize you're really trying to decide.

Whether your home will be profitable as a rental has zilch to do how much you owe on it right now compared to it's value. It's no more likely to go up in value because you owe 5K more than it's worth than it would be if you owed 5K less than it's worth. The "correct" answer to keep it or sell it is the same in either case. The fact that you seem so vehement in your idea to sell it at break even if you could indicates that selling it at a 5K loss is almost definitely right for you. If you choose to keep it being 5K underwater, you should choose to keep it breaking even. If you think it's going to go up in value so much that you want to keep it and turn a loss to a profit, you should want to keep it at break even now in order to make an even larger profit. The financial decision should not be swayed by how much you have or haven't paid off on it so far.

[simser]

I've been in exactly the same situation (science research, boss moved had to sell house). We sold. It was worth it to us- even though we took a 20k hit.

[cronewitch]

You also didn't talk about closing cost to sell the home. Our state charges a tax to sell a home and you might have commissions it could end up costing about 10% of the value of the home. The underwater amount is small if it is only the mortgage.

I would look coldly at your current home, would it make a rental that you would have wanted? If it is big and beautiful would you worry tenants might want instant service if they paid a huge rent? If it is average size and condition will they treat it good enough to be worth the rent?

I wouldn't look at rental properties the way I look at a home to live in. I would look for a basic house, 2-3 bedrooms, easy to maintain and on the small side. It would work for singles and couples or small families. Extra rooms you might want in a home like a family room, bonus room, finished basement don't add much to the rent and cost you to maintain. Same with landscaping, I would look for basic only landscaping, mostly grass with maybe a bush or two and flower bed, nothing extra like a water feature or future rotting deck.

If the house is under 1100 sq ft I would keep it as a rental if I was willing to be a landlord. A management company is expensive, they hire things done at full price I think. As your own manager if they have a drippy faucet you go yourself and change the washer, calling a plumber is an overkill.

Unless you know landlord tenant law or are willing to learn I would avoid it. Laws are complicated and bad tenants know them. They also look for new landlords who might have soft hearts or don't know enough about evictions to start one the first legal moment. Do you have the heart to kick a women and baby out on the street with nowhere to go because her husband was arrested on outstanding warrants and she can't afford the rent? If you consider that her problem and up to her and her friends and family not the landlords problem you might be fine. When you consider it your problem is she is homeless then you are the landlord the bad tenants were looking for.

[Frugal Nurse]

As far as rentals go, the house next door to us, which is the exact same house as ours, is a rental and rents out for what we pay in mortgage payments every month.

I looked at housing prices in the area where we'd be moving, and houses there are roughly 30-40K cheaper than where we live now, so I guess selling wouldn't be so hard, since we'd be able to get the same amount of house for WAY less, plus we'd be near the beach (always a bonus )

I guess I am just a little worried that DH will get homesick and want to move back. If we sell this place, buy a new place in SC, then move back, it would be such a pain. DH has lived here his entire life and his parents and friends are here, he doesn't know what it is like to be away from everything that is familiar. Renting the house out for a year or 2 until we'd break even would also ensure that we'd have a place to come back to if he decided he hated being so far away.

Our house is modest- 1600 square feet, 2 levels, 3 br, 2.5 bath, nice sized lot, backs up to a cornfield ( a plus in my mind, since we're in the middle of a decent sized city). We've maintained it well, but we need to replace the carpets and get it painted if we are going to sell (nothing major, but normal wear and tear).

[Frugal Nurse]

Thanks everyone for the advice, you all have brought up things I hadn't considered before. Like I said, I figured we'd be in KY forever, so this is kind of a shock, but a welcome one!

[phil5185]

always wanted to relocate away from the cold KY winters

LOL - I never thought of KY as 'northern' before.
Where is the Mason-Dixon Line? (aka the IHOP-Waffle House Line.)

I would sell it. I'm a longtime landlord - it's a hassle that you don't need in the middle of moving, buying a new house, getting into the new jobs, etc. Something will go wrong, the tenant will screw up, a hail storm will wreck the roof, a water line will break -the tenant will move to a motel and send you the bill, have you pay for his movers, his wet furniture, yada. Or take the motor out of his motorcycle, wash it in your bathtub, put a hole thru the tub floor.
Later, in a couple years and after you're settled in SC, you may want to become landlords.

[Frugal Nurse]

Feb 18, 2011 16:59:29 GMT -5 phil5185 said:

always wanted to relocate away from the cold KY winters

LOL - I never thought of KY as 'northern' before.
Where is the Mason-Dixon Line? (aka the IHOP-Waffle House Line.)

I would sell it. I'm a longtime landlord - it's a hassle that you don't need in the middle of moving, buying a new house, getting into the new jobs, etc. Something will go wrong, the tenant will screw up, a hail storm will wreck the roof, a water line will break -the tenant will move to a motel and send you the bill, have you pay for his movers, his wet furniture, yada. Or take the motor out of his motorcycle, wash it in your bathtub, put a hole thru the tub floor.
Later, in a couple years and after you're settled in SC, you may want to become landlords.

Hahaha- I moved here from Alabama- all my friends and family back home call me a Yankee! Kentucky tries to be southern, but we're in Lexington, and they're a bunch of northerners at heart! And these winters...sheesh! I've never seen so much snow and ice! My southern blood wasn't made for this!

[wvugurl26]

There's a Waffle House in Frederick, MD and that's pretty damn close to DC which I don't think anyone would ever mistake as Southern. We also have Popeyes here. There are IHOPs as well. That was always the first place we went upon arriving in Panama City Beach was the Waffle House.
As for the house, I'd save all the cash I could leading up to the move and try to sell it and start over. I know it can take awhile to work out these employment offers so start saving. Look at how long it is taking houses to sell right now. That's something else to consider.

[midjd]

Frugalnurse, you're near my old stomping grounds! I went to college about 30 miles from Lexington

Phil, I'm in Indianapolis and we have IHOPs AND Waffle Houses here... I think the unsweetened/sweetened tea line is near Louisville, though

As far as the OP, if it were purely financial I'd say take the $5K loss and sell the house, but if you think there's a decent chance you might be moving back soon it may be worthwhile to hang onto it. Luckily you have plenty of time to mull it over! It's really one of those things you'll have to weigh for yourself to find the right path... financially it seems to be a wash, so the emotional factors may take precedence.

[wvugurl26]

I don't know if they have sweet tea here in DC. Have to ask my brother, I don't drink it. When I first started college in Morgantown a lot of places didn't have it. The Wendys finally got it. Chick Fil A always had it though.

[Deleted]

Feb 18, 2011 20:32:42 GMT -5 wvugurl26 said:

I don't know if they have sweet tea here in DC. Have to ask my brother, I don't drink it. When I first started college in Morgantown a lot of places didn't have it. The Wendys finally got it. Chick Fil A always had it though.

It varies by place, but the majority of the time MD is unsweetened. Frederick also has an IHOP, so all your pancake bases are covered.

On the house thing, I would sell. It just isn't worth the headache. If you decide to come back, you can buy a different place. I wouldn't buy in SC though, if you have any inkling that this is not a permanent move.

[wvugurl26]

I don't really like IHOP and I never suggest it. I never stop in Frederick on my normal trip bc that is where I-70 slows to a crawl again when I-270 dumps in. My guess was going to be unsweet though.

[Peace77]

I was a long distance landlord. I kept my townhouse as I planned to move back after finishing school. It didn't happen and I sold it. I would never do it again.

My tenants were disasters even though I used a real estate company to screen them. They brought in additional unapproved pets that nearly ruined the new carpet. They up and left without bothering to tell me.
They left behind 14 garbage cans worth of trash, a filthy rabbit hutch and a flea infestation.

When I sold it, I couldn't return so I had to pay extra for the real estate agents to oversee the repairs.

I agree with the posters that say save your money. It will be useful for closing costs and moving costs.


After another year of payments, how much closer will the mortgage be to the current value of the house?

Renting a house for the monthly mortgage payment will cause you to lose money. There will be nothing for repairs, the time the house is vacant between tenants, or the property manager. Those expenses will have to come out of your pockets.

[debtheaven]

Is this a house you would want to move back to one day? In that case, I'd be inclined to hold onto it.

But if you one day come back and would want a different house, then I'd be inclined to sell it.

Kudos to you for looking into things now. But, if you do opt for the move, you have at least three months (maybe six, and even up to nine) before you actually need to DO anything.

I would reevaluate the situation in three months (and keep doing your homework).

[Deleted]

"Is this a house you would want to move back to one day? In that case, I'd be inclined to hold onto it.

But if you one day come back and would want a different house, then I'd be inclined to sell it"

I agree with Debt. I wouldn't let $5,000 drive the decision in either direction. We're long distance LLs with properties in CA and AZ. I manage all but one (it's in Vacation Rental service) myself. We hung onto our SF Bay Area house when we moved to AZ. And when we moved to Germany for a 3 year contract we rented that house as well. Our SF Bay Area house is rented to the same folks. When their lease is up in a year they will have been in the house longer than us!

Property management isn't rocket science but you do need to know what you're doing. I often recommend Nolo Press' Every Landlord's Legal Guide. Although state laws differ, it's a good basic primer. You can also find out a lot by going to your state's Landlord Tenant website.

Good luck whatever your decision!

[Deleted]

Just wanted to mention that the wrong tenant (and believe me from former experience, you cannot tell initially what kind of tenant they will be) could easily cause $5k in damage.

Even if they aren't that destructive - they will probably eventually move and then there will be some fix up - there always is. It cost us about $500 to a $1000 just go get the house ready for market each time a renter moved. So there are ongoing costs besides routine house maintenance. Also - management fees aren't cheap.

[998fbird]

IMO, I would suggest you sell the house. It will be worth the $5K NOT to have to deal with the hassle's of being a landlord and out of state to boot. It only takes a couple of months for things to get really f'd up with tenants and the damage to your property can happen quickly. SELL, SELL, SELL!!!
Being a landlord (and I only lived 15 minutes away) was one of the most eye opening experiences I've ever had. Unless you have several properties and great insurance agent/company and can DIY almost any thing it can be a major pain and expense.

[bean29]

I am a landlord too and I agree with the others SELL!

We have cleaned up thousands of dollars of damage several times. One set of Tennant's left a Car on Blocks, Dirty un-contained oil (it was in a litter pan). Tons of Garbage, a nice bike etc. Holes in the walls, Damage to the blinds that were about 8 months old and on and on.

Another tenant was evicted through the courts. By the time they left our judgment was close to $5,000. We have never collected any of it. She was a friend of an employee of my DH's.

You don't like Kentucky and don't intend to return so just sell the house. You Should be able to make up the $5,000 + closing costs in a short time.