Rent vs Buy in Tucson>Question Details

Mijeninaz, Home Seller in Tucson, AZ

A rent vs. buy question. Do I bleed slowly or quickly?

Asked by Mijeninaz, Tucson, AZ Tue May 18, 2010

I currently have a 30 year-old townhouse on the market. In the last six weeks, there were only 4 showings and no offers. According to the market analysis provided by my realtor, I am overpriced compared to the comps in the area. There are four other houses on the market in the same neighborhood. The list price is only two thousand above what I owe, so selling it at list means money out of pocket to sell the property. She just informed me that I may have to lower the list by about nine thousand, making my out of pocket to sell close to $14,000. I have the cash to pay this, but it will drain ALL of my savings. My mortgage and HOA fee equal about $1000 per month. I could probably make 3/4 of that price renting out the townhouse. My question is do I bite the bullet and sell, or do I try to rent out the property hoping the market improves some so that I don't have such a large out of pocket expense at closing? Thanks.

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Dear Mijeninaz

These are difficult decisions.

Options including your own observations:
1. Rent it and raise rents later if market turns
2. Rent as a seasonal furnished rental, may pull in more dollars
3. Short sale, Arizona is a non deficiency state, will affect your credit rating
4. Sell, take the loss and move on
5. Help someone in the family out and provide them a place
6. Refinance the loan at a lower interest rate and reduce your expenses
7. Ask for a loan modification program with an adjustment in principal
8. Put flyers up in the clubhouse and see if your neighbors have family members that would like to move in
9. Put up a rent with option to buy. Credit a portion of the purchase price torwards a future purchase. Many buyers that have a home lost in a foreclosure will find this attractive. Also you can charge a higher rent with this option..

Just some ideas. The decision is yours as you know your personal financial situation and I do not. Talk to your Realtor, I am sure they can give you some more optons since they know your property better than anyone else.

May I wish you the best with your decision.

Regards, Jeff
Jeff Masich, Realtor
Arizona Homes and Land
http://ArizonaHomesLand.com
1 vote Thank Flag Link Wed May 19, 2010
That is a tough question. You should have titled this rent or sell.

It may be possible to short sale the property if you can show the bank that you have a hardship such as job loss. That means the bank would accept less than it is owed and call it even.

Renting has problems associated with it. Owning has problems, selling has problems. This is one of those things that you have to make a bet and hope you figure things out right.

Some think house prices will fall more through 2013 or later. This is based on foreclosures coming from bad loans resetting through 2012 which will likely take 1-3 years to clear that inventory.

Some thing prices will drop as interest rates rise which takes away buying power. Some think prices could go up as inflation drives prices up due to massive government printing of money recently.

Below is one price prediction site. It shows what they expect to happen for the rest of THIS year.
Your time horizon could change the end results. Perhaps 10 years from now (or 15 or only 3 years) prices increase once more. You end up selling breaking even. If you sell now you lose out. On the other hand if you sell now maybe you avoid a permanently much lower housing price that lasts for a decade or longer similar to what happened in japan in the 90's.

I can see downward pressure on house prices due to new foreclosures coming through 2012. It may take a year to clear them through the legal channels. That would be 2013. Give it 2 more years to clear out the excess inventory levels that is 2015. Perhaps at that time they begin jump through the roof and prices recover quickly. Prices would drop all of that time. And then are likely to go higher. A lot depends on how much you want to deal with the problems (and possible expenses) that renting brings compared to how much you want to wait a lot of years to break even.

The best answer is elusive. You could look at it from a different perspective. If you rent the property and have the renter pay most of the mortgage cost that means you are buying a property that will one day be paid for and do it for only 1/4 of the cost per month. Do you want to do that? Are you willing to do that? It is your choice to make.

Below is a house price prediction site. Consider what it says when making a decision.
http://www.housingpredictor.com/arizona.html
Improving home sales triggered by lower prices, near record low interest rates and the federal governments first time home buyers tax credit are slowly setting the stage for a recovery in Arizona housing markets.

However, Arizona will have to work through the over-supply of homes on the market and another tsunami of foreclosures that will hit in the early part of 2010. The new round of foreclosures is already in bankers' pipelines as more homeowners walk away from mortgages. Lenders will slash the prices on foreclosures to get rid of the excessive inventory, sending housing values lower before a recovery can get underway.

In Tucson the inventory of homes has been cut by eager first time buyers taking advantage of the government's tax incentive. But more homeowners who are losing their jobs and others who have lost any incentive to hold on to their homes are being foreclosed as the values of their homes plummet.

Tucson is a market that is making strides towards recovering from the downturn, but with more foreclosures prices are forecast to fall in the New Year. Tucson is forecast to sustain average housing deflation of 8.3% in 2010.
1 vote Thank Flag Link Tue May 18, 2010
Jeff has all good suggestions bit it all comes down to what is important to you. Is moving a need or a want? What is your time frame? Betting on rising prices when you are still paying a part of the expense is usually a bad decision. Possibly a HARP refinance would get you a lower payment so you are not coming out of pocket each month. But check with a lender to see if you can buy another place if you rent this one out. If you want to sit down and discuss, just let me know.
0 votes Thank Flag Link Thu May 23, 2013
Mejeninaz,

You are in the same situation many people are, owing more than your property is worth in current market conditions. It is a hard situation to be in but here are some things to think about.

Why are you sellilng? Do you HAVE to sell or do you WANT to sell? There is a big difference in today's market. If you have to sell because you are relocating or for some other reason you cannont control than you need to figure out the best option for you.

I know the out of pocket to close sounds like a lot of money but run the numbers. How many more mortgage payments and HOA fees will it take to pay out the same amount of cash? Would you be better off to just take the hit and move on?

If you rent the property, can you rent it for enough to pay your monthly expenses? If not, you are still going to have to come out of pocket every month to keep the payments current and how many months will it take before you are out of pocket the same amount of money? You also risk damage to the unit if you rent it and there may be restrictions in the CC & R's about rentals too.

Finally, if you really do have a hardship situation you cannot control than you should talk to you lender about the possibility of a Short Sale. If it has been a primary home and you have reason to NEED to sell the property, your lender might be open to selling it for less than is owed. You will take a hit on your credit but it should be less of a hit than if you lose the house to foreclosure. Talk to your agent about that possibility, he/she should be able to help.

It sounds like you need to make some tough decisions and your agent should be able to guide you through the decision making process.

Good Luck.
0 votes Thank Flag Link Wed May 19, 2010
Donna - I think you misunderstood............ Mijeninaz isn't asking about buying or renting for himself.......he already owns a home...........he is asking about selling or renting out the home he is currently living in.........he is asking this because he hasn't received any offers and will shortly be upside down with the numbers.
0 votes Thank Flag Link Tue May 18, 2010
With the prices of homes right now more than ever before you can not only reap the tax benefits of owning but you can pay less per month by buying instead of renting. It makes since to buy. Also there is great pride in owning that is not quite the same when you just rent.
Web Reference: http://www.DonnaLondot.com
0 votes Thank Flag Link Tue May 18, 2010
You left out one option..............stay there and pay the $1000 a month..............now, if you must move, for whatever reason - I'd go with the renting.....unless, of course, if the rental market by you is dead in the water.
Check with your agent in regard to the rental option.

It's a hard call............no one can say where the market will be a year from now.......you may have to use the rental option for a number of years to make up any deficit.
Do you want to be a landlord? Will you be living in the area, or moving far away?
All of these are things to consider.............

Good luck!
0 votes Thank Flag Link Tue May 18, 2010
Nobody knows, Mijeninaz. The future is uncertain, which gives some of us reason to hope and others reason to despair!

Personally, I think this is a buyer's market, and so, I'd rather be buying than selling. I'd also rather be holding rather than selling.

It seems to me that you're trying to avoid paying someone $14,000 to buy the place when you can rent it out and only have it cost you $250 a month plus a month's rent every year or so between tenants.

Then, again, I don't know anything about Tuscon except that Linda Ronstadt grew up there.

All the best,
0 votes Thank Flag Link Tue May 18, 2010
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