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March 20, 2009

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I don't think selling at $180k should change the decision you make. It's not really selling at a "loss". Sure, you're not making a PROFIT on the sale of your condo (which 99% of sellers won't be doing now or for the next few years), but if you've owned it for 5 years, look at the mortgage you paid as your "rent" of about $1000 a month. 1000*12*5 = $60000, or approximately the exact amount you've paid your mortgage down.

Sure, it may have made better financial sense to have rented over that time period (taking into account taxes, maintenance, HOA fees etc.) that you are eating, but you're in a much better situation than most people who are underwater and needing to move!

The headache factor of being a trans-continental landlord would be enought to prevent the renting option. I agree with the first poster. You are going to make with your head above water. Sell it and move on. Another way to look at: you will be buying a new place at a discount to make up for your loss.

The fact that your moving thousands of miles away should be motivation enough to just sell the condo, even at a loss. Renting is an option only if you are close by and are able to keep a watchful eye on you investment.

But like you said, the next house you purchase will be that much cheaper.

Let's look at the math:

5 years ago, you spent 220,000 on a condo that's worth 160,000 today. Ouch! But on the flip side, that 4 bedroom in the Western city has gone from 500,000 to 300,000.

You lose 60K but make back 200K. Nice.

On top of that, the recent Federal Reserve decision to vastly expand their purchase of various types of debt is gonna push 30 year mortgage rates to around 4.5%, maybe even 4%. The average rate back then was likely around 6%, maybe even 6.5%.

Thus, 4.5% on 300K is around 13,500 a year in interest payments. Contrast that with 6% on 500,000 which is around 30K a year. Another win on the financing front.

I think the math clearly supports option 1.

Good luck.

I'd say option number 1 is the best, too.

Sell it. You're looking at the sunk cost, but there's nothing you can do about that.

I agree with the other commenters that recommend selling the property.

Its not a good idea to try and be a landlord long distance. THink what would happen when the woman stops paying the rent. What then? You're 3000 miles away.

Just sell it and avoid the headache.

Jim

If you try to rent or rent to own,you would have to hire a management company which will cost about 10% of your monthly rent. That would need to be a factor. Although rents in my area have not dramatically dropped, they have dropped because there are a lot more people out there trying to rent out that home they can't sell. So, no direct advice, except to carefully weigh all the costs associated with renting.

How much can you rent it out for? Consider condo assn fees, property management company fees, some savings for repairs and broken appliances, taxes, insurance and mortgage payment. Are you making enough to make it worth your hassle? This counts as income...more complicated taxes...turbo tax may not cut it and have to hire an accountant...maybe a higher tax bracket. You decide.

Sell and use social (both on-line and off) networking to move the property. Chances are someone in your network is looking for or knows someone looking for a condo in that area. I've assisted a few friends in using social networking to sell or find new housing. It's basically free targeted marketing.

One more vote to sell the condo for whatever you can get. Look on the bright side . . . in buying the condo you essentially put a chunk of your money in an investment vehicle that (even if it lost money) still wildly outperformed the market as a whole. Many investors right now would be thrilled to get those kind of returns over a 5 year period.

I agree with the above commenters that selling the condo seems to make the most sense, especially if you don't plan on returning to the East anytime soon.

!ithout a doubt, #1. You don't need any baggage accompanying your move to the West. I hope your Honey would agree.

I did very well on renting out my condo, but I wasn't far away, I was 5 minutes away... Also, I did it during the 90s when the condo prices were depressed on the East Coast just as bad if not worse as they are now, but were just starting to go up. I didn't do option to buy because I believed the prices would go up and didn't want to set the purchase price yet.

Renting can be very lucrative tax-wise - in addition to being able to deduct all the expenses except for principal - interest, common charges, repairs, management fees - you are required to claim depreciation. In your case, assuming the current value is 180K, if I remember the formula correctly, it'll be a little over $6000 a year in tax deductions (on schedule E, so it doesn't matter if you itemize or not). If you sell your property for more than 180K-claimed depreciation, you'll have to return all or part of this money depending on how much you get. But, reclaimed depreciation is taxed at 25% top, so if you are in a higher tax bracket, you'll pay less in taxes than you gain. Plus, it may be years before you have to pay it back to the government and at the moment you can put this money in a bank and earn interest.

You need to consider everything carefully:
1) your expenses vs how much rent you are going to get; adjust for tax breaks
2) difficulty of managing the property long distance
3) having sufficient income/savings in case a property is vacant
4) state of real estate in your area - do you think the prices in your area have bottomed or there is more downside. How much downside you think there will be? The relationship of rents vs ownership cost is one clue, affordability i.e. cost of buying vs salaries is another. You can also go to any real estate and ask them to show you recent sales info - how long properties stay on the market, if the prices continue to fall, etc. If you decide on renting, this could be something to consider when you think about just renting or renting with option to buy.
5) Is a potential of making more money enough to justify extra headaches involved in renting.

If you decide to go the renting route, check out your tenants, don't just trust the management company. One other thing that worked well for me is to ask for both 1st and last month rent in addition to a deposit. Not only an extra month in rent provides extra protection, the ability to give you 3 months worth of rent in cash tells you your tenants actually have some money.

Whichever decision you make, it could work out well or not. The posters here tell you what they'd do, but you should consider everything and decide what is right for you.

Cut your losses. You don't want to be a long distance landlord and the whole rent-to-own option leaves you on the hook still...she can walk no matter what. Damage deposit usually won't cover what has been done and the cost to after a bad renter isn't going to recoup your costs either. Try for the private sale so that you can save the commission.

by the way people, what is the general level of commission for realtors in the States? Up here in Canada it is 7% on the first 100k and then 3.5% on the balance.

In my experience the standard rate for Realtors in the U.S. is 6% of the sale price. I've sold two properties in the past 5 years and in both case I was able to negotiate down to a 5% rate. In one case I got the Realtor to agree to only 4.5% if the property sold within the first 30 days (it did).

Sell it and take the loss as a deduction on your taxes. You don't want to be an absentee landlord. Also, Fannie Mae and Freddie Mac are making it more difficult to finance condominiums , so the condo market will get worse way before it gets better. I am a Landlord, condo owner,a mortgage broker, and I live on the east coast so I know. Good luck.

Sell and get it behind you. If you lose money on it, that could be considered a cost of entering your new life.

Consider your entire investment portfolio and make sure whatever decision you make fits into a well-diversified asset allocation model.

Since you are moving, the choice is to either turn this into an investment property or sell. You need to look at the different scenarios of how it may perform as an investment and compare it to your options (how much of your total investment % do you want in one real estate holding?). It won't be easy, since you need to consider tax implications, depreciation/appreciation, 10% management fee expense (since I assume you'll want to avoid the 3am plumber calls), vacancy rates, current and future real estate market and the illiquid nature of the holding.

If this fits in with your overall asset allocation model (stocks, bonds, cash, real estate, foreign) and the scenarios you anticipate show it to be a favorable investment compared to other places to put the money, then your keep it. If not you sell.

As others have said, your initial purchase price is a sunk cost and should be completely ignored. This is difficult to do, but you need to approach it this way.

My guess is that unless your current investment portfolio is above 1.2 million, you should sell it, otherwise, once you add in your new home, you'd have over 30% of your holdings tied up in two pieces of real estate.

Just an FYI, I do not think you can take the loss on your taxes, unless something was put in one of stimulus bills.

I am currently renting my condo from 5,000 miles away. The only reason I did so was that one week prior to me moving overseas it still had not sold and I was able to have someone I trust renting it for me (he is also an experienced landlord). I got lucky and rented it in 3 days. Knock on wood, no problems for over 6 months now, but I would have preferred to have sold it. In fact, on my next trip back to the states I plan on offering the renter an opportunity to buy it considering the $8k government handout to new homeowners.

I would say sell it. Based on my experience, it is not something that is always on your mind, but it is always is there in the background with a possible broken a/c or furnace to deal with. I might not have to handle it, but I would still have to pay for it.

I don't think this is as clear cut an issue as the above commenters felt. It's definitely possible to be a long-distance land lord, especially if you know the person you're renting to. Flying back east to rent out the unit once per year (maybe less, maybe more) is an added cost, but if you're interested in visiting old friends and whatnot maybe it wouldn't be so bad.

You could rent it out for a little below market, then be VERY picky with the tenant (credit checks and the whole deal).

If you aren't interested in being a landlord, selling now and putting the proceeds into another investment isn't a horrible idea. Even though real estate in your market is down, its down elsewhere too. And the stock market is way down. If you sold it then just sat on the cash, I think that would be a mistake, but if you move it into another beaten-down investment you haven't really lost.

The rent-to-own idea isn't a terrible one. It's a good way to get a tenant who will take good care of the property and stick around (since they have hope to one day be the owner).

If you *do* sell it, definitely send the time determining what its worth and don't just assume its dropped to the level you think. "Sell your house in 5 days" is a good book that might give you some ideas on how to quickly sell it yourself for market rate.

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