Renting is probably a bad idea. Please confirm for me.

Asked by Gary, Dayton, OH Fri Jan 11, 2008

I live in a 3 bd 1 bth 2car ranch in Huber Heights. I bought 3 years ago for 92K and owe 85K, $705/month. We are ready to move up (same general area) and are dreading the current "buyers market" (as a seller). I would love to get into rental investments but I doubt our house is a good candidate to convert to investment prop. If preliminary research shows that this type of house rents for 750 to 825 per month, how far off are the numbers to be considered a good investment decision?
I'm sure its not the best choice given that we don't have to move, we just want to. Please give any input on how to look at the numbers objectively. Local input would be much appreciated.

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Jenn All, , Bellbrook, OH
Sat Jan 12, 2008
All the answers thus far have valuable information, paying particular attention to what Bill Seufert mentioned... does your mortagage include taxes and insurance, and yes, come tax time, the bank will depreciate based on a typial 2 month vacancy estimate. I see three issues that need to be resolved for you to make the most educated decision.1) Do analysis (or get an professional agent) to see what the property will rent for) 2) If the numbers look good after taxes and insurance, speak to your lender about a refinance to lower your payment perhaps
3) Be patient and diligent when interviewing renters and have a well written applications and leases drawn up should you decide to move forward.
I personally own a multi-unit investment proprety and would consider $150/month cash flow suitable t cover the maintenance costs and those unknown costs for your home. Another option is to sell, as John Youker pointed out, if the home is priced strategically, it will sell and then I suggest you purchas a duplex!
Best of Luck,
Jenn All
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Don Tepper, Agent, Burke, VA
Fri Jan 11, 2008
If your numbers are right, renting out your current home may not be a bad idea. As Bill notes, you have to factor in vacancies (for calculations, figure 2 months a year, though it's not often that much), maintenance, repairs, etc. You also have to figure in the hassle factor of being a landlord, unless you turn the whole thing over to a property management company, which will then add to your costs.

Check with an accountant, because some of the decision hinges on your personal finances. For example, from the numbers you presented, you're likely to have a slight negative cash flow. Can you handle it? On the other hand, you'll be able to depreciate your rental, so that will help shield some of your income. How much of a benefit will that be? And, if you do rent out your present house (versus selling it), will you have enough cash available to purchase another house?

And that leads to another point: Lenders will discount/reduce the amount of income you're receiving on your rental by 25% or so. That means when they're calculating debt-to-income ratios, they won't allow $9,600 of income ($800 a month x 12 months) to offset the expenses. Instead, they'll cut it down to about $7,200. That's to account for vacancies, maintenance, etc.

Your payoff will come in appreciation when the market strengthens again. But you don't want to be struggling in the meantime with uncomfortable negative cash flow or the landlording hassles. Personally, what you're considering can be a great strategy. Just check with an accountant, know what your own tolerances are, and go into it with your eyes open.

Good luck.
1 vote
Maria Center, Agent, Middletown, OH
Sat Oct 24, 2009
I bet you're not upside down if you owe $85K in Huber- it's an area that a lot of buyers ask about and like. If you want me to run some comparable sales for you let me know.
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Christina Ca…, Agent, Washington Township, OH
Tue Feb 5, 2008
Well, I attached a website which answers the buying vs renting question. However, if you are afraid to sell in this market - have no fear! I don't know what price your home would sell for without seeing it and doing some research, but let's say hypothetically home prices are down 10%. If you are moving up, as most people are, then let's say you're selling a $100,000 home and buying a $120,000 home. The $100,000 home would sell for $10,000 less in that market, but the $120,000 home would sell for $12,000 less. Therefore, you just made an extra $2,000 equity. Please let me know if you have anymore questions.

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Doug Wagner, Agent, Beavercreek, OH
Fri Jan 11, 2008
3 BR ranches in Huber Heights (and the entire Dayton area) are popular rentals/investment properties. I recommend you pick up a copy of The Millionaire Real Estate Investor by Gary Keller. It’s a great resource containing strategies and formulas for building wealth through real estate investing. It’s no secret foreclosure are high in the Dayton area. Those displaced people will need to live somewhere. Bill Seufert’s remarks regarding the numbers and his cautions are solid. Make sure you thoroughly investigate the rental market in your neighborhood before making the leap. And be sure to speak with a lender about how to structure the deal financially. You will likely need to refinance the first loan.
As John Youker mentioned, every market is different and here in Dayton, the picture is not as grim as painted by the national press. Should you decide to sell, if you do experience a loss, your long-term gain on a move-up will far outweigh that loss. After all, market conditions affect everyone.
If you’d like an objective opinion on your home’s value, I’d be happy to provide a no-obligation, Comparative Market Analysis of your home. My contact info is listed on my website. Good luck with your decision.
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John Youker,…, , Beavercreek, OH
Fri Jan 11, 2008
I am a local real estate broker and I can help you much more than someone who knew someone who went to school here a long time ago! Please call me and we can get together and discuss how the market is not as bad as most agents and the media seem to think it is. I am sure you have heard nightmares, but as long as a home is priced right, it will sell. I am sure I can help you. If you cant price your home correctly for the market, I will tell you that too, as we are not into having listings that will not sell. We hav eflexible pricing plans that should fit your budget. Also, if you should choose to rent, we can help you there as well. My number is 937-974-5176.
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Bill Seufert, Agent, Lancaster, PA
Fri Jan 11, 2008
Although my brother and sister are UD grads iam not sure that qualifies me as an expert in your area. However numbers are numbers. If you can get $750 or more a month in rent and you are currently paying 705/month, that sounds like a pretty good deal on the surface. Assuming that payment includes your taxes and insurance you could have positive cash flow right away with someone else paying down your debt.
You also have to consider vacancy and maintenance expenses. If you loose your tenant for 2 months and have to spend some cash fixing it up for the next tenant, are you in a position to do so? I don't believe there are enough available characters to explain all of the tax benefits but that is something to speak with an accountant about.
Consider this, if you rent the house out for awhile and the market, which it will, goes back "up" then someone else paid your mortgage while you waited for appreciation.
Heed this warning, being a landlord is not all fun and games.

I would speek to a local Realtor so they can give you a good idea of where your market currently is and if there is anything happening that may effect the future housing industry in your area.
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