house headache!

[MichelleCarmen]

Ah, okay, I''ve been in a terrible mood for the last few weeks!

We bought our current house in October and moved into here in December (so we''ve lived here, what, four months???) and we HATE our house and the neighborhood.

Originally we planned to stay here for two years and invested a sizeable amount of money in remodeling this place. . .but now we want to move SOON! We''re already looking for another house.

What I''m wondering is renting a better investment than selling??? If we sell it (by owner) now, we''ll break even. If we rent it, we can rent it for enough to cover the mortgage - but we may still need to pay $200 or so toward the mortgage & then sell after a few years and some appreciation accumulates. . .

Okay, this is the dilema -> HOW risky is renting? Any stories you can enlighten me with?

Also, is it unrealistic to ask for a $1K damage deposit?

Thanks for any thoughts!

 

[pqcollectibles]

Unless you are "in the biz", renting the house can be a huge hassle and liability. We had to rent one house we were selling. We ran into insurance hassles on a rental property. We couldn''t carry "Home Owner''s" policy on the house as a rental. We had to convert the insurance to a "Fire Policy". It was pricey and didn''t cover us for much more than damage from Fire. Houses tagged as "Rentals" don''t sell as fast, for as much as "Homes" do. You could bite it big time on the asking price later. And that''s not counting damage that might potentially happen to the property by people you may rent to.

A lot of pricing on your home will be dependent on where you spent your money in improvements. Kitchen and bath upgrades have great ROI. New windows don''t have great ROI. You might call a couple of Real Estate Agents and ask them for a CMA (Competitve/Comparative Market Analysis) on your property. REA''s will pull listings of comparable properties located close to you that have recently sold and closed, take a look at your house, and give you a real good ball park guesstimate of what your house is worth, including the improvements you''ve made. You may find you''ll be lucky enough to sell immediately and cover yourself/make some profit. Otherwise, it may be best to tough it out for a bit and make a move later.

Just some thoughts for you, MC. Hope things work out well for you.

 

[MichelleCarmen]

Thanks for the heads up re: insurance. I''ll check our policy (if I can find it - lol!)

My mom was in the rental business for a number of years, so I''m a bit familiar with the process, but only HER process - which ended up being successful for a number of years, but then went down hill, so I''m really desperate for a better process than hers to help us out.

 

[perry]

While you hear lots of peope claiming to make money on the rental housing market. Much of that is self illusion because they do not want to admit to themselves how bad of an investment it really is or has been. You never seem to hear people talk about the losses they have taken.

While I admit you might find that "perfect" tennant that would work out for you and take care of the house (even do some remodeling for you as part of the rent package), I caution you that this is a very clear "might." More likely you will find someone who trashes the place and greatly reduces its resale value.

My advice is to cut and run, and feel lucky if you can break even (and you might have to take a modest loss).

I''ve been in my house for 4 years and may have to move next year as part of a company reorginzation (if I wish to stay in my job field). I now have to spend over $5000 to repaint it (and most of the houes is brick) because the people who slapped on a coat of paint the year before I bought it did not proprerly prepare the surface and most of that paint is pealing off (ugly). This just to get it into the right conditions to be able to sell it for a reasonable price. I will feal fortunate if I can sell it next year and just break even (i.e - get enough money to pay the mortgage and pay the cost of the paint and other repairs I have done).

Perry

 

[movie zombie]

there are also tax consequences. contact the IRS re write offs, rental rates, etc. it really is complicated.

also, did you know that if you do NOT occupy your home for 2 of the last 5 years, you will get stuck with capital gains tax? so if you rent it out and then sell, there is no way you can get around the capital gains...unless, of course, you can prove a loss on it to offset a gain in market value or move back in for 2 years.

peace, movie zombie



peace, movie zombie

 

[MichelleCarmen]

Perry - Sorry to hear about your house. That sucks. . .

Do you think it is reasonable to ask for a $1K damage deposit, plus first and last? I was hoping this would deter any dead beats.

Our house wasn''t that bad of an investment. The problem is that we decided AFTER we moved in that we''re flat out burned out with city living and want to move to a smaller town. Regardless of where we live, there always seems to be freaks running amock. Our second to last house had CCRs and was super nice & classy and even so, we found a BUM sleeping in our yard one morning! I''m fed up!

 

[longtimelurker]

IMHO renting out a house rarely a good investment idea. Your expenses include: mortgage, property tax, insurance, maintenance costs, costs to rent (broker, tenant screeing, signage, etc), vacancy costs, etc etc. *Most* renters don''t take the same care of a place as someone who owns it, so also factor in that you''ll probably need to hire a landscaping service...and who knows if the renter will let you know that the toilet is leaking (and rotting out the floor...).

I know the Seattle RE market is hot right now, but what if there is a correction? Your rental idea is predicated on the thought of the housing prices increasing.

I would only consider renting out a house if I had to temporarily relocate to another area/state and planned on returning within the next few years (and loved my house/area).

Wow. Sorry to be so negative, but I work in commercial RE. Residential just doesn''t pencil out from an investor perspective.

 

[fire&ice]

I know several successful people who own rental houses - but - and a big but - they bought the houses with the intent on renting - knowing the proformer, tax implications (which is quite good and one of the last loupe whole - only when one looks to the long term though), etc. And, when looking for a house, they target a certain audience.

That said, I couldn''t advise you to rent it out. No one will treat your house the way you would. Yeah, the insurance thing is an issue. Also, your mortgage company may have issues - especially sooooo soon.

To answer your question regarding the security deposit - it really depends how much your house is worth & how much it''s renting for. Prior to us buying, the company rented an apartment for us. Our rent was around 850.00. Our security deposit was $500.00 PLUS a NON-refundable pet fee of $750.00. We had to one months rent on the contract but not two.

If you get the perfect situation and rent to an exec who will only be there for a short time, 1k security is not unusual. People who do that usually plan on returning to their house - doesn''t sound like the case.

Sometimes you just can''t make the money you want. Sometimes your happiness will cost. Are you sure you can''t make this work? I can assure you that small towns have their own set of problems. We do live in the city and in the country. It''s great to have BOTH since NEITHER is perfect.

Good luck with whatever you do.

 

[pqcollectibles]

We were trying to sell our house when we were relocated many years ago. The rent agreement came up as part of a "Contingent on Sale of Property" sale agreement that fell thru 6 months later.

Our insurance agent would not allow us to keep a traditional type of insurance. We had to go with a "Fire" policy that cost much more than our Homeowner''s policy had. The policy would basically only pay off if the house burned down. That was the extent of the coverage. Tornado, storm damage, not covered. If something had happened, other than a fire, we coulda lost our butts.

Monthly rent was a problem too. Due to the market our house was in, we couldn''t ask for more than the monthly mortgage payment. That meant we paid the taxes and insurance out of pocket for the months the other people lived in our house.

Within a few months, the people decided they did not want to purchase our house after all. We wound up having to move back to the house and Hubby commuted 125 miles each way to work for several months until we sold the house. Since the people did not have a good reason for backing out on the deal, we decided not to refund their earnest money deposit. They sued us to refund their earnest deposit to them. We finally decided to settle and split the deposit with the buyers just so we could be done with it all and move on with our lives. We had paid $750 in attorney''s fees and court costs to defend ourselves and we got back $500, our half of the $1000 earnest money deposit.

When we moved back to the house, we had to pay for some abuse related repairs. The last 2 months the people were in the house, they didn''t mow the yard. Grass was waist high. Once we got it cut, the yard looked terrible. So much for curb appeal. We had to hire a landscape service to restore the yard. The people had also had dogs, and built a pen. They cut holes into a storage shed for the dogs to get into as shelter. We had to repair the storage shed, fill post holes, and clean up, and reseed the whole pen area as well. Plus, we had to repaint the house and clean the carpets all over again to freshen up for prospective buyers.

Of course, this all didn''t happen in one tax year. So, having a rental house screwed up 2 year''s taxes. The year that we moved back in and subsequently sold the house, we also changed states of residence, and had a child. All that added together caused our taxes to get spit out and selected for the ever fun IRS Audit. The IRS Audit actually went smoother than selling the house.

And, FYI,........... That house was out in the country, outside of a smaller town, in the midwest. Life ain''t necessarily easier or better outside the ''burbs. People are people no matter where you go. You can run into nice people and nasty people no matter where you go.

 

[cflutist]

MC, when I was 28 we bought our second house and thought we'd try to be landlords by renting out our first house.

WRONG .... We had bought that house as a new property, lived there 4 years, and I can say that the renters did MORE damage to that house in 6 months than we did in 4 years. We paid a realtor to screen tenants and manage the place for us but still had damage after they only lived there for only 6 months. Lets see: cigarette burns on the kitchen floor, a hole in the hallway bathroom door from the inside (wonder what they were doing), chips in the kitchen sink, chips in the tub etc. Although we did have enough money from the security deposit to fix these things, what bothered me the most was that there were marks on the walls in almost every room. Thus we had to paint the entire house and could not dedcut the cost for that since it was considered "wear and tear". Thank god they only had a 6 month lease. I couldn't imagine the damage if they would have stayed a year or more.

When we finally sold the place, we did take a $9K loss.

 

[AChiOAlumna]

My parents had to rent out their house when my father was transferred out of the country for a year. They used a property management company to screen candidates and take care of collecting rent and problems as my parents were 6,000 miles away. when they returned a year later, they found that the tenants stole their top-grade Maytag dishwasher and replaced it with a piece of c**p and drilled holes into the side of the cabinets to move the paper towel bar to where THEY wanted it moved!!

We heard from neighbors that the tenants were loud (played rock music in the garage at all hours) and weren''t good for the neighborhood dynamics. But to steal property and damage the house?? The neighbors celebrated my parents'' return!!

 

[perry]

Michelle:

I''m just glad it is only the paint. Otherwise the house is in decent condition. While properely scraping and sanding will take time - I''m willing to pay it to have it done right so that the new coats of paint will stick. If that job position does not appear then I may be here yet for many years. However, I need to get rid of all of that pealing paint regardless.

Concerning your question on deposits:

When I was in college I residient managered for 76 units of property in exchange for a rent break.

I wish I could be more positieve about the situation; but, there are pleanty of people who will gladely pay 1 or even 2 months rent as security deposit, trash the place, and walk away without expecting any security deposit back. Trust me that repairs often cost more than that - and then you have to sue them for the rest.

Because of my experience as residient manager, and talking with other people who entered the rental market, I decided that you realistically needed 10 units to spread the risk of bad tennants unless you were going to live in the building. Given 10 units I figure that you will be able to sort through the bad ones and do well. Anything less than that gets very risky.

I would never recommend that you rent out a single unit - your house - on a straight rental agreement due to the risk of poor upkeep or outright damage. While there are good people out there - it is hard to figure out who they are.

I would consider a lease purchase agreement that was structured right (where part of the rent applies to eventual purchase). That is what I did when I purchased this house. I offered a lease purchase agreement where 25% of my rent applied to purchase until I got past probation at work and could arrange financing. I paid a premium rental rate for the area - but that less than the monthly payments on a full value home loan (my monthly payments went up when I closed on the house).

Perry

 

[Dancing Fire]

Date: 4/17/2005 2:37

3 PM
Author: perry
While you hear lots of peope claiming to make money on the rental housing market. Much of that is self illusion because they do not want to admit to themselves how bad of an investment it really is or has been. You never seem to hear people talk about the losses they have taken.

While I admit you might find that ''perfect'' tennant that would work out for you and take care of the house (even do some remodeling for you as part of the rent package), I caution you that this is a very clear ''might.'' More likely you will find someone who trashes the place and greatly reduces its resale value.



Perry

i agree with you plus wait until the housing market bubble burst

that''s why i never invest in rental property all you get is headaches,take the same amount of money and invest into the stock market and you would come out ahead in the long run without the headaches.

 

[Mara]

my dad is actually taking classes right now to learn how to (hopefully) successfully invest in RE for the long-term (appreciation) in order to supplement retirement funds...he has alot of money in stocks but wants to diversify more and have some fun in the meantime and try his hand.

anyhow...we are planning on taking a class with him in june which talks about hot areas to buy now. one that was hot starting a few years ago and is starting to peak is scottsdale, houses were $100-200k back then, and now are double that i have heard. a mini-tech boom happening and lower cost living..alot of people left the bayarea to move out there. i think colorado is another one. and austin tx?

I think if you are in one of those areas where the prices are very low and can get in and it goes up, it makes sense to buy a rental property, but if you are in an area where pricing is already high and you are just hoping it will go higher, it''s alot more risky.

Also our accountant told us something we didn''t consider...he noted that not any place is going to be a good rental property. we talked with him last year when buying our place, we wanted to get something we could love to live in, and then be able to rent it out if we ever moved to the East Coast (where greg is from), since it''s very hard to move back to the BayArea from anywhere else, without a property or someplace to come back to. Esp if the valley is booming, rental prices will kill you. But he noted, renting a luxury townhouse is not going to be a good investment and we may be lucky to even break even. He noted we should sell this place if we moved, and get a true rental, aka a small apartment or condo, which would at least hold it''s value if not appreciate, and where the rent value would help us break even with all monthly expenses (including property management)....so we could come back if we needed to and not lose out--whereas here with our place, i doubt someone would want to pay what we pay in total monthly expenses to live here, also the rental market right now is not super great as there are alot of places on the market for rent...so our market here would not allow us to get top dollar for anything--more middle of the road.

so those are just some comments we have heard made around here, mind you i have absolutely no experience with rentals...we are considering trying to spread out some investments around and seeing if it''s a positive effect. apparently it''s become a hot thing to invest out of state in cheaper areas for long-term retirement $$''s. since obviously just 401k is not going to allow you to whoop it up in retirement, hehe.

i guess my questions to you would be...could you cover all expenses (incl prop taxes, HOA, maintenance etc) with the rent? is the rental market there stable? what would be plusses and minuses of selling vs renting? do you take a tax hit if you sell this soon? (i think so) but don''t you take another tax hit if you move a principal residence to a rental within a 1 year? (i think i recall this?) etc etc.

 

[Sparkster]

I had an investment property in Australia. We had it for about 4 years and made a profit 3 out of those 4. The only problem is that with every profit made, tax had to be paid on it! But on the other hand, we claimed all losses.

I don''t know what the laws in the US are like when it comes to renting properties. Do the tenants have to provide bond money (here it''s one month''s rent). When tenants move out, they can only get their bond back if they comply with certain things - ie must leave the property in a clean and tidy state, steam cleaning carpets (receipt required), gardens must be maintained, etc.

Also, can you get tenant insurance cover? That is, if there is any damage by the tenant, then insurance will cover it. We made sure we had it because there are some real mongrel tenants out there (just as there are mongrel landlords) who destroy properties. It cost us about $200 a year which we believe was worth it - also we could claim the insurance as an expense.

Whatever you plan on doing, good luck with it.

 

[fire&ice]

Mara, you have a very good business head on your shoulder''s, an open mind & you do your homework. Any investment can be just that with these talents.

We have had rental props in the past. Like anything, bought right RE is an excellent investment. But, what do we know, hubby is in the field? The corp owns several commercial properties. On a personal level, we prefer to buy, fix and flip. Though the market has been tooooo hot lately - hard to buy right.

Michelle, I wish you luck with whatever you decide. Having rented in our early years & in the apartment a few years back - I can assure you that this tenant left the property in BETTER condition than when we moved in. Everyone can tell a story of horror - truth be there are TONS of successul tenant/owner relationships.

 

[clammer]

I am dealing with the decison on selling or renting so I have been trying to teach myself everything I can about both. This is what I''ve learned so far. Please make sure you double check everything as I am still in the learning stages.

If you rent you can deduct the following:
rental management fees
any association dues
mortgage interest
property tax
property depriciation


If you sell:
This is not my situation so please DOUBLE CHECK: Capital-Gains tax is the tax payable on a gain resulting from the sale of your home. This is the best part for you, capital-gains is only on a property that you have held longer then 12 months.

A question you need to ask yourself:

Do you need to use the equity (do you have much yet) in your current house as a down payment on the new home?

A few final points I''ve learned about renting:

1. If your adjusted gross income is less than 100,000 you can deduct from your taxable income the cost of the home (not the land)
2. Mortage lenders assume rentals are vacant about 25% of the time
3. You will incur fix-up cost when a tenant moves out
4. I am not sure what area you live in, but where I am our home has actually depreciated instead of like the rest of America which seems to be apprciating. So this may not pertain to you but it is VERY important. Every dollar depreciatation saves you in taxes lowers your cost basis. But this means that when you sell your home you will pay a larger capital gains tax.
5. It''s difficult to refinance a rental property


OK. I''m not sure if I''ve helped at all, but I hope I''ve at least given you some things to check into.

nikki

 

[MichelleCarmen]

Nikki - thank you so much for sharing all you''ve learned. Good luck to you!

Thanks everyone - you''ve given me a lot to think about. . .one thing is for sure; we''ll be taking our Maytag gas convection oven with us if we rent the place out (lol)

 

[MissAva]

Just a thought but...this is the primo time to sell your house. You get the most $ between April and August. However this also means that if you buy right now you will be paying a premium. It is a buyers market in the winter. If you are goign to redo just one thing I would vote for the kitchen as it is often the make or break room in any house...then the master bath so on ans so forth.

 

[MichelleCarmen]

Date: 4/18/2005 2:24

9 PM
Author: Matatora
Just a thought but...this is the primo time to sell your house. You get the most $ between April and August. However this also means that if you buy right now you will be paying a premium. It is a buyers market in the winter. If you are goign to redo just one thing I would vote for the kitchen as it is often the make or break room in any house...then the master bath so on ans so forth.

We''re just now finishing up the kitchen

I''m so glad as we''ve been using plywood as countertops this entire time while waiting for those crooks at Home Depot to finish our cabinets. . .

 

[lost on 5th]

just to chime in here... (first off not knowing city location, so may not apply)

i would also suggest against renting.. i think you would be taking on more of a headache than its worth.


if you are truely unhappy... sell. simple as that. however i think it is very improtant to make some noticable upgrades. take your recent shopping knowledge of the area, consult with a realtor about the best value increase upgrades, and make some of those changes. (which it sound like you are). you would benefit from updating paint and finishes to bring them up to date. make the house showable and sell

*** reason for improvements. you closed recently and are now selling again. that flags "problem with house or location" a quick turnover without upgrade/fixup will reduce your selling power.


good luck. and to answer your deposit ammount.. make it more than 1 month rent. a lot of tenants will stiff you on the last month rent... using the sec. deposit to cover it. then simply move away.