Who to talk to regarding renting vs selling

[mrsjrd23]

We are planning to move and trying to figure out whether we want to rent or sell our home. We are meeting with some property management companies (as we would be moving out of state and would need someone local to manage if we rent) as well as a realtor to determine what our house could sell for.

However, I'm having a hard time understanding the best scenario finance wise for us.  Who would I talk to about this - a financial planner? I have access through fidelity from my retirement to meet with a finance person but not sure if they are the right person or not.  

Also, if you have a rental, any advice on being a landlord? money tips for savings to manage the rental?  

[puppylove64]

Why are you considering renting? Do you think you might move back? Do you want it for the investment? Have you lived in the house for the past several years? Did it is appreciate much since you bought it? These are some questions you need to answer when deciding

[ellipses84]

I think the best thing you can do is talk to other people you know who are landlords in your area. They can give you an idea of what the experience is like and if it’s been a profitable investment. Research rent and laws/ typical leases in your area and talk to a lawyer if you decide to go through with it.

Talk to a property manager about their management fees.I 💯 recommend a property manager if you are not local. The biggest benefit is they can deal with urgent maintenance issues and usually have a network of repair people who can come quickly.

Looking at rental ads, like on Zillow or FB can give you an idea of the rental properties and rent being charged in your neighborhood. You could crunch the numbers yourself but include all the costs associated with it. Also make sure you have enough purchasing power for a new house while still owning the current one.

[dr.girlfriend]

I don't have much experience in the area but my first thought would be to talk to an accountant? The realtor, property management company, etc. would give you an idea of what kind of money you could pull in by renting versus selling plus the costs of each. Other landlords in your area could let you know how much of a hassle it would be. But I would expect the biggest difference would be the tax implications of having a secondary residence that's a rental, and I don't know if either of those individuals or even a general financial manager could advise you about that since I would guess it would be very state-and-local-tax dependent.

[gt7301b]

Has your home value increased significantly? If you are married you pay no capital gains on the first $500k in gains. You need to live in the home 2 out of the last 5 years to recognize this benefit. If I was moving out of state I would just sell the house, it is more than I would want to manage out of state.

www.investopedia.com/ask/answers/06/capitalgainhomesale.asp

www.nolo.com/legal-encyclopedia/taxes-when-you-convert-your-rental-property-your-personal-residence.html

www.merriman.com/advisors/beware-of-the-tax-cost-of-turning-your-primary-house-into-a-rental-property/

[mrsjrd23]

Thank you all for responding!

To answer a few questions:
We've lived in this house since 2010.
We would probably get between 4-500K over what we paid if we sell.
After speaking with a property management company, we would probably be able to rent for at least 1K over what our mortgage is, maybe as much as 1500.
We live in HCOL on the west coast and would be moving to MCOL about 2000 miles away.
We are walking distance from a university that many students opt to live off campus in rentals and we have a 4 bedroom house (plus a large non legal bedroom in the basement we plan to put an egress window in) so would be easy to rent.
We're moving to be closer to DH's family (and mine but still hours away from mine), moving from a liberal area to a much more conservative area. I'm worried that I'll hate it and want to move back but if we sell, there's no way we could afford another house in this area. But the schools are....not great. So I don't even know what the likelihood of moving back would be. We'd have to do private school if we moved back (kids are 6 and 9 so we have a lot of school years left)

Besides potentially freaking out and wanting to move back, the other reason we were thinking renting is as an investment. DH is behind on his retirement, I'm doing ok if I plan to work until 67 but unfortunately my job is very physical and there's no way I can do this job that long. (I've been doing a lot of research about other avenues I could pursue with my already established degree and skills/expereience) So likely would have to take a significant pay cut to get out of the field I'm in at some point meaning less going into retirement.

[midwestmama]

If you sell now, would you plan to invest the earnings from the sale? If so, having that lump sum to invest will certainly help close the retirement savings gap. That route will be much faster than monthly earnings over time. (Plus with renting you are guaranteed to have costs related to repairs and maintenance, which will reduce any income from the property.)

[seeyalater52]

It does sound like your want to talk to an accountant about the pros and cons of this plan. Given the details in your post about the likely rental demographic and your distance from the home you will need to plan for a property management company and their associated fees. Renting to college students can be a huge pain in the butt (obviously with many exceptions but you don’t know what you’re going to get.) You want an expert to handle the drama of multiple unrelated people living together and potential moving out and breaking leases, wanting to sublease, and the increased likelihood of damage or at least more than average wear and tear to the home. Once you budget for those expenses and the other costs of maintaining the rental, are you still coming out ahead? It may make sense to go into it with the goal of it being short term and reassess when you are more settled in your new area and more sure if you are going to stay or move back. The one caveat is that the housing market is pretty good for sellers and home values right now, and it’s difficult to know how that will compare to a couple of years from now. It could be worth speaking also with a real estate agent if you haven’t already about what they think they could get for the house if you sold now.

[wanderingback]

I don’t have practical money advise, but renting to university students does not sound like something that I’d want to deal with. I guess you could be selective and only rent to professors or something like that but first thing that came to mind was nooooo when you said it was near a university.

[clairebear]

I have been in real estate for the past 12 years and I've done sales and property management. I would 100%, absolutely positively sell. In my area, the market has reached the highs of the last bubble, and I truly believe (and honestly hope) we are headed to some sort of correction. With the market so high I wouldn't count on the house continuing to appreciate at such a fast rate. Since you'd be selling it as a primary home you'd be exempt from taxes on a huge chunk of money. I would sell, take the profits and invest the money. I'm getting an average of 17% return on a general index fund with Vanguard and have been for the past 8 years. That is going to beat your house value appreciation anyway.

Also, I've seen the property management side of things and honestly it's ugly. You'll be on the hook for all sorts of repairs and maintenance issues. And college students sound like a nightmare. I know the additional $1000 a month over the mortgage is tempting, but you also have to factor in vacant months between tenants, repairs, new flooring and paint between tenants, as well as now it's much harder to evict tenants if need be. Most of my property management clients only get between 5-8% return on their money after all expenses. Feel free to ask any questions about management, I'd be happy to answer them.

But if it were me, I'd sell.

[awkwardpenguin]

Do you want to be a landlord in a far away city? I wouldn't, and therefore I'd sell.

Remember you have SIGNIFICANT capital tied up in your existing home, which could almost certainly be better deployed elsewhere.

[midwestmama]

Jan 13, 2022 9:19:51 GMT -5 wanderingback said:

I don’t have practical money advise, but renting to university students does not sound like something that I’d want to deal with. I guess you could be selective and only rent to professors or something like that but first thing that came to mind was nooooo when you said it was near a university.

Renting to university students is definitely a gamble (and not something I'd personally want to do).  I rented a house with friends for two years when I was in university, and I would say we were probably the exception to the rule when it came to taking care of the house.  (And even with that, the living room ceiling fell in while we were living there, which was a big repair bill for our landlord.)

[jg183]

I would not want to be a landlord right now. I know here currently there are all kinds of rent exemptions where tenants do not have to pay and landlords are still stuck with the mortgage. Besides college students- nope.

[gt7301b]

With the updated information I would sell and not look back. Nothing in your update would make me want to have this home as a rental. I would not want to leave 4-500K of equity in the hands of a bunch of college students, no thank you.

[dutchgirl678]

mrsjrd23, congratulations, how exciting! I would most definitely sell! That kind of profit over what you owe could easily go into a retirement account and will help fill that gap significantly! In the current market, your house will sell asap with multiple offers. The only downside is that if you wanted to move back here in the future, you might have a hard time affording the same kind of house since you are putting all that equity in retirement. I would definitely not want to deal with renters though, especially college students. That sounds like a PITA.

[formerlyak]

We are in a HCOL area on the west coast and just bought a new house in the same area. Our old house was paid off and we decided to rent it out. We have 7 figures in equity in that house and it rents for more than half of what our new mortgage payment is. For us, it was worth a try. Property isn’t going to go down significantly where we are because property a mile from the beach rarely does. Is that the case for you? Even if the bubble bursts, is it likely you’d retain significant equity? Then it might be worth holding on to and the rental income becomes income in retirement.

That said, you could get tenants who are a pain. Read my CE&P post to see what we are dealing with. But from taking with friends who have rentals in our city, the tenants we are dealing with seem to be outside the norm.