Tim@CrossRoad, Both Buyer and Seller in 90720

Sell vs Rent?

Asked by Tim@CrossRoad, 90720 Mon Jul 28, 2008

I have been offerred a corporate relocation package with a "guarantee home sale", meaning they will buy my house if I am not able to sell it. It's a good thing in today's real estate market.

Fortunately for me, the market analysis came back showing that I am not upside down with my property and may even make a very slight profit. The property is brand new (less than 1 yr old) and it is in a desirable school district (Los Alamitos, CA).

I am struggling with sell vs. rent. My wife & I like the idea that we will come back to Southern California someday, and it would be nice to have a home to come back to. It looks like we maybe able to break even between the mortgage vs. rental income, or a small negative cash flow. The place we're moving to is a lower cost area and we will be able to buy a new house without having to sell this one.

What do you recommend?


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Tim@CrossRoad’s answer
Sometime has past since I posted this question. I want to update everyone our situation and thank you for your ideas & suggestions.

First, we were grateful for getting some very good advices along the way, including from the real estate professionals that had our best interest at heart and not focusing on near-term listing opportunity. These are the professionals that we will not hesitate to recommend and/or utilize their services in the future.

We've also received several referrals to professional property management firms and, after researching and interviewed several of them, we selected one that we felt will provide the best service for us.

At the end, we were able to lease our house after less than a month on the market. We actually received multiple applications and the firm was able to select the best-qualified applicant for our home.

After having gone through this process, I would highly recommend using professional property management firms for the same reasons why using real estate professionals when selling your houses.

Meanwhile, we were able to purchase a new home at our new location. It's under construction now, but we look forward to move in & start our lives in our new home soon.

Thanks again everyone for your advice.
1 vote Thank Flag Link Sun Nov 9, 2008
Any chance your home is in Rossmoor? I have clients looking for a rental in Rossmoor only (west of Los Al Blvd.). If it applies, please drop me a line.

Going back to your original question, we know firsthand many past clients who sold and moved out of state and tried to get back and couldn't afford to. Even with the lower prices throughout most of OC (yes I said most..not all), the hits that clients who moved to AZ and NV are taking are way worse. They still cannot afford to come back.

I guess the question to me is, if you are comfortable with breaking even or even some marginal negative cash flow, why sell? If I could buy a house where you are moving to, and keep mine here with no additional out of pocket expenses, then why not? Los Alamitos has amazing schools and is typically one of the most stable markets in OC. If you retire in 30 years (I have no idea how old you are), how much income do you think you will be making on a rental home in OC with no mortgage payment? It could be a nice piece of your retirement pie.

Finally, taking into account that I may be biased, I think most experienced Realtors will give you better service than a lot of PM companies. I personally use Realtors out of state but typically find my own tenants from here. I can give you a lot of reasons why but it is way past my bedtime. :)

Thanks and good luck.
0 votes Thank Flag Link Mon Aug 11, 2008
Typically, I like to take the approach of buy and hold, but Joe hit the nail on the head on this one. Having investment property myself, I have had some pretty bad experiences, and covering the cost of the mortgage when the tennant doesn't pay is a real pain. It's not a bad idea in your case to take the money, reinvest it for the short term, and then buy 1 or even 2 properties when we hit the bottom. You are in a great position.

On a side note, I just spent most of today previewing property, a lot of which recently had tennants living in them, and it wasn't pretty. Some of these homes were very nice at some point, but completely destroyed, including the fixtures and appliances.

Good luck either way you go.

Jeremy Lehman
Century 21 Beachside Realtors
http://www.Lehmanhomes.net (Home Search/Foreclosure Search)
Web Reference: http://www.LehmanHomes.net
2 votes Thank Flag Link Thu Jul 31, 2008
Sell vs Rent? That's a no-brainer when your employer has a relocation package. Take it and get out of Dodge while you still can. If you rent, your tenant may trash your home. Who knows when the market may reach bottom in California. Qualifying for a loan with 2 homes is going to get harder and harder. Lenders are requiring that you have 6 months of reserves on both properties to qualify for the 2nd property. I wouldn't hesitate here Tim.
2 votes Thank Flag Link Tue Jul 29, 2008

I would strongly suggest selling your home. We are still in the middle of a downturn in California with no end in sight. Why would you want to own something that is depreciating in value every month? With you company buying you out, I would sell, bank the money and wait for the bottom in California. If you wanted to buy a home to rent then, I would say that would be a good idea.

I have ten homes that I rent out in this market, althought rents are increasing it's not as easy as getting a lease and having someone manage it for you. Reliable management companies are difficult to find and they don't have a problem spending "Your" money for repairs. A renter is a renter is a renter, the best of them will damage your home. You will not recognize it when you return. I plan for all this as an investor, but you should not in this market.

Also, consider that you and your wife, if your married, can exclude from any gain up to $500,000 in profit. This all goes out the window if you decide to rent and sell three years later. My opinion is cut and run now!

If you need any further advice you can go onto my website, email, or call anytime.

Joe Homs
Realty Partners
Web Reference: http://www.joehoms.com
2 votes Thank Flag Link Mon Jul 28, 2008
Using a Realtor as a property manager can be good as long as they have experience and proper qualifications. A lot of real estate brokers do not allow their agents to be property managers under their broker's license. It is true that Realtors might have access to a better caliber of renter because we are working with qualified buyers who might have to rent instead, so one thing you might consider is giving agents a commission for bringing in a qualified renter.

With my rental properties, we use a property management company and keep a close eye on them. I recently switched companies because our last company took too long to fill the vacancies and waited to let us know about issues with the properties and renters.

I hope this helps.

Jeremy Lehman
Century 21 Beachside Realtors
http://www.Lehmanhomes.net (Home Search/Foreclosure Search)
Web Reference: http://www.Lehmanhomes.net
1 vote Thank Flag Link Fri Aug 8, 2008
Thanks everyone for your valued opinions. We're still deciding, literally went back-n-forth several times on the decision. Please chime in. We continue to look for your comments.

One more question on Property Management firm vs. using Realtor as "rental agent". I talking to several PM firms and frankly I was less than impressed with what they do. For example, I asked how they will advertise my property and answer range from stick a sign in from of my house to place an ad in the penny saver. For that I am expect to pay 6~10% of rent for their management fee?

One realtor approached me and said that he can advertise in the MLS database where I'd get a "higher caliber" of renters. That sounds pretty good to me. But is it a good idea to use Realtor as property manager in general?

Thanks again.
0 votes Thank Flag Link Thu Aug 7, 2008
I recommend renting it out if you believe you will return especially since you are in Los Alamitos. I've looked at the market trends for that area and don't believe you to be in great risk of signifcant declines in price. (If your home was in the Inland Empire, the story would be different.)

That is also a desirable rental area and you should do fine finding long term tenants. Look for a great management company. You will be happy many years from now to be able to move back to such a wonderful area. Most people who sell and move out of state can never afford to come back to the neighborhoods they left. (I am assuming that you will be gone for several years.)

Good Luck with your relocation!
Web Reference: http://www.OCBeachBlog.com
0 votes Thank Flag Link Tue Jul 29, 2008
Great question! There are so many reasons why I think you should just go ahead and sell... Your insurance coverage will be off the chart, long distance management of property is the most unbelievable headache you can imagine, you have a "sure thing" in your relo company's promise to buy (which gives you an edge on about eighty percent of all other home sellers right now) and I don't know about your state, but in our state the tax rate schedule for out of state homeowners is much higher than owner occupied homes. Besides, you may move to the new area and fall in love with it. I moved to my town 13 years ago thinking that I would absolutely hate it and it would only last a while and I would beat it back to my hometown. I totally LOVE my town now and would not move back to my hometown if someone GAVE me a house there. That is just a few reasons... if you really want me to dig, I can probably find some more. Good luck with your decision.
0 votes Thank Flag Link Mon Jul 28, 2008

Congratulations on the new position! I won't go into a huge analysis here but think you should keep one thing in mind. That is, are you in a position to be able to cover your current mortgage payment, your new rent (or mortgage payment) as well as fees that the management company will charge even though your Los Al home is vacant. I too have out of state property and finally got it rented after being vacant for over a year. This is the harsh reality of owning rental property, especially out-of-state rental property.

Wants and desires are wonderful things but, in making this decision, you have to try to step back and be totally objective. A spread sheet might prove invaluable to you in trying to determine the dollars and cents aspects of your decision. If you find that things are "close enough" then you should factor in the emotional items.

Best of luck in your decision and your new position,
Web Reference: http://www.TimKunze.com
0 votes Thank Flag Link Mon Jul 28, 2008
There's lots to think about. The fact that you aren't upside down after less than a year is amazing, even if not having to factor in commissions is helping just a bit. (I almost always recommend the rent option for clients who are upside down.) Nonetheless, a new home hasn't reached it's full potential and in a good school district, you could realize some significant gains.

The fact that your true desire is to move back to Southern California, is an other plus for the rental option.

On the flip side, it's not easy managing rental property from out of state. A tenant will never treat your asset as well as you will. You'll probably need to hire a property management company and add to that "normal" (best case) wear and tear expenses and you may end up out spending your future appreciation.

Keep in mind, you may do quite well in your new market area too. It's a great time to be a buyer!

Good luck.

Stacy Carter
"Realize the Value in Your Home"
0 votes Thank Flag Link Mon Jul 28, 2008
Hi Swelman -
Thanks for your advice. I think that's a good way to go if I can find a reliable property management company.

Hi Walter-
Yes, in the "relo" package they will pay for my closing cost selling as well as buying. The "offer" is good for 2 yrs, so I don't need to exercise it right away.

If we decide to rent out the house, we will be utilizing property management company (we will be out-of-state) and seek 1-yr lease type arrangement. We'll certainly do credit check to avoid the scenario that you describe.

For the new location, we plan to rent first to get to know the area before we buy regardless of our sell-vs-rent decision with the existing property.

Thanks for your inputs.
0 votes Thank Flag Link Mon Jul 28, 2008
Hi Tim,
I suggest you consider two things before you decide. First, I assume your employer will pay all closing costs of selling your new home and might even pay some of your closing costs on a new home. These amounts can be meaningful and might be lost if you don't sell. Second, I would check with a lender to make sure you can qualify for a new loan without selling your existing one. What if the renter stops paying and it takes months to evict? Will you be able to make both payments? I hope that helps.
Good luck, Walter
Web Reference: http://ocnorth.com
0 votes Thank Flag Link Mon Jul 28, 2008
If you do not have to sell don't. Even with the current economy California is one of the most desirable states to live. You should have no problem renting out your home if you don't price the rent slightly below market and get some good longterm tenents. Seeing how the housing recession is long from over renting is very wise at the moment. Alot of us are waiting out the shakeout of REO's and short sells. Sellers are still holding on to yesterdays prices . When that turns around we'll be on the way to recovery.
0 votes Thank Flag Link Mon Jul 28, 2008
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