Am moving out of area...would it be worth it to try to rent my home instead of taking an estimated 80k loss?

Asked by Stuff2sell4, 95355 Sat May 1, 2010

If I sell, I would basically lose my down payment & hopefully the only out-of-pocket expenses would be closing costs, which would be enough! Don't know if I can get a rent to cover my mortgage, tax, ins, etc and fear that I'll just get further in the hole if I try to wait until the market gets better, which I've heard can take anywhere from 3-12 yrs for this area. Are homes in 95355 easy to rent & what is the avg or median rental amount for a 4 bd/3 ba 2900 sq ft home w/ 3 car garage & pool? Keeping this home will probably prevent me from being able to buy another home in my new area so I am just thinking of cutting my losses now so that I can move on.

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11
Rick McGrath, Agent, Modesto, CA
Tue May 21, 2013
For those who are considering renting as an option when you are moving to another location, my rule of thumb is "Its strictly a math problem. If I can't get enough rent to cover my costs, I sell. Why pay for others to live out of your wallet? While there may be some appreciation and the theory that someone else is paying your mortgage, you have to factor in, what if they lose a job and can't pay you? What if something needs repair or the tenant messes up the place. All of this costs. It's simply a math problem!
0 votes
Molly Mooney, Agent, GIG HABOR, WA
Thu Feb 14, 2013
adverage price per sg ft in the 95355 area is about 99 sq foot but there is value in the pool call me I need to see it and the street yoour on Molly Mooney 809-5365
0 votes
Molly Mooney, Agent, GIG HABOR, WA
Thu Feb 14, 2013
Pease make appt with 3 realtors the market has gone up 30% since October 2-12 home in the 95355 area code are in that 30% I would be happy to comp you home at no charge call me 209 809-5365 Molly Mooney PMZ I dont know where you heard the 3-12 yrs from call me 209 809-5365
0 votes
Michele Some…, Agent, Peoria, AZ
Tue Sep 18, 2012
Invite 3 brokers/agents to your home to discuss your options. This forum is great, however it limits your ability to openly have a full discussion of options for you. Ask for a free CMA for it's current market value as well as a rental CMA. By speaking with 3 agents, you will get a greater perspective of what your options are. You may get different answers, options or suggestions but they should all be within range on the comps if good agents. Speak to a tax attorney regarding any issues with doing a short sale and/or a bankruptcy attorney to discuss options so you are more informed. Also, check out the mortgage forgiveness act is this is your primary residence. You may have to rent in your new location depending on your financial situation. If you rent your home, consider how much a new lender will credit you as income vs debt.. speak to a lender in your new area and get pre-qualified.
0 votes
Truong.lilian, Home Buyer, Modesto, CA
Tue Sep 18, 2012
If you are concidering selling by owner and cut costs. I would take into concideration of buying your home from you. I am currently looking to buy my first home in 95355 at the moment. Please email me truong.lilian@gmail.com for further details
0 votes
Michael Newt…, Agent, Knoxville, TN
Wed Jan 26, 2011
One more thing...you mentioned being concerned about buying another home with this one still having a mortgage on it in your name. That could very well be true, however, once you get a signed lease agreement and collect at least the first months rent...when you go to buy another home the lender will credit 76% of the rental income to you which will decrease your debt to income ratio that is one of the criteria that the lender will look at. You might be fine but I would get it rented first otherwise your debt to income ratio will be much higher under the lenders criteria.

Mike Newton, Broker
Keller Williams Realty
http://www.linkedin.com/in/michaeljnewton
0 votes
Michael Newt…, Agent, Knoxville, TN
Wed Jan 26, 2011
Definitely, IF...you can cover most or all of your financing costs, taxes, insurance, etc... and you can get a good tenant. Tenant Check http://www.tenantcheck.net/ is a national company that can screen your potential tenants for you. Get their fees for your area and charge the potential tenant the equal costs (in cash) when they fill out the application (Tenant Check has an application form). Do not bother with getting references..they will be a brother, friend or whoever the potential tenant decides to write down that they can call and ask for them to give them a glowing answer to your question. Tenant Check will do all of the back ground check, employment verification, credit check, etc...for you and will provide you with a full report. Also, cash the security deposit check and first months rent check (they need to be separately written checks) at the new tenants bank to ensure that they are good. Letting the tenant move in than after you deposit their first check in your account and it bounces will put you in a very precarious situation. Check the landlord/tenant laws for your county/state in Modesto, CA 95355. The security money needs to be in a separate account than your own money, don't commingle it. The rent checks will be fine to deposit in your checking account. The tax implications are ALL POSITIVE, so don't worry about that. The passive income you make each month (ie.: $2500 rent collected minus $1800 in carrying costs leaves $700 as PASSIVE INCOME and is NON TAXABLE per the IRS (irs.gov). The IRS will depreciate your home over a 26.5 year period (on paper) and you will pay Capital Gains tax on the difference between what you originally paid for it and what you sell it for. However, if you refinance before you sell it and pull out as much money as possible you will negate a large amount of the tax that you will have to pay because you can't tax borrowed money. Also, the property will be considered investment property and you can write off every single penny you spend on it while it is a rental property even during vacancy periods because it will not be considered your primary residence.

A Lease Option is a much better way to go so that you don't have to play Landlord and you will get at least 2% down payment (non-refundable) that I recommend you put back as a reserve fund.

I could cover a lot more but it would be easier by phone.

Call me if you would like more info, I will not charge you a consulting fee.

Mike Newton, Broker
Keller Williams Realty
865.694.5904 (o)
865.332.0164 (c)
mikenewton@kw.com
http://www.linkedin.com/in/michaeljnewton
0 votes
Keith Sorem, Agent, Glendale, CA
Mon May 3, 2010
I would recommend you consult your CPA regarding the tax implications both during the rental period and most importantly, when you decide to sell.

We were in the same situation, held the property for 18 years, and made a ton of money when we sold.

Remember...measure twice, cut once.
0 votes
Aaron Lewis, Agent, Modesto, CA
Sat May 1, 2010
As a local agent in the area, I unfortunately see this situation frequently. For example, a family that put down $190,000 on a home 4 years ago, and are barely able to sell it now in order to pay the costs and pay off the mortgage, but little-to-no proceeds. They had considered the same thing--possibly renting it out and hoping for a good market recovery in the near term future without a disastrous landlord experience.

I just completed a post that addresses the question of how long it will take to reach peak real estate values for the Modesto area from 2005-2006 and the reasons why. Short version answer: after 2039. The full article can be found at
http://weworkharder.housingstorm.com/2010/05/01/return-to-pe…
Even if it doesn't take quite that long, the point is that is wwaaaaaaaay far out in the future.

With that in mind, let me address the rental information. An ideal rental is a smaller home with a low rent that isn't in excellent shape to begin with. That way it doesn't deteriorate much, and it is affordable to many prospective tenants. The larger and nicer the home, the less your ROI/rate of return as a rental. For example, $1200/mo rent may get you a nice 3/2 with 1500 sq ft in the 95355 zip code. However, a home such as the one you've described may only get $1700-$1800/mo. More difficult is that many well qualified people in that price range are using that monthly budget to buy instead of rent. Even if you got $2000/mo for it and had ideal tenants, would that cover all costs of ownership including taxes, insurance, landscape and pool maintenance, as well as cover you through periods of vacancy and possible property management expense?

And you answered your own question about that mortgage payment staying on your debt obligations and hindering you from purchasing where you're moving to.

While you could rent out the property, I agree it would be a highly risky proposition in light of the outlook for real estate values, and it may not even be enough to cover your costs of ownership and get in the way of buying. AND it's a huge hassle.

Depending on your equity position, if you are able to sell the home and get out, even with nothing, that may be the best overall solution long term. Even if the market value isn't high enough for a full payoff on your loan, a short sale is still very feasible (and if you wouldn't get any money out anyway, it would theoretically make no difference). Clearly this is not pleasant news, but it may be a choice between bad and worse. Getting out at all still makes you more fortunate than most homeowners in our area. For the folks I mentioned at the beginning, that is their situation. The good news is they will have this monkey off their back and be able to start fresh in their new location. Cutting your losses is probably the best thing to do, and knowing what I do, it's what I would do in your situation.

It just so happens I know a really good agent that can help you.... :-)

Please contact me. I can get you the highest net proceeds in the quickest amount of time so you can make the best of a tough situation and move on.

Aaron Lewis
The Lewis Team at Prudential California Realty
209-633-2727
aaron@weworkharder.com
http://www.weworkharder.com
Web Reference:  http://www.weworkharder.com
0 votes
Glen Mitchell, Agent, Half Moon Bay, CA
Sat May 1, 2010
When you factor in your costs and expenses dont forget to add in your tax savings. You will be able to depreciate the property. So even if you are a little short in terms of rent you may be actually making a little after taxes. Have you looked into the government making homes affordable program? You would want to apply prior to moving but thta may be one way to reduce your current costs and get to a better break even/profit scenario. as perry said below search craigslist and find similar rentals in your area and see what they are asking.

Glen
0 votes
Ruth and Per…, Agent, Los Gatos, CA
Sat May 1, 2010
Good morning :

Start with 3 web sites such as:

http://www.Craigslist.com

http://www.rentometer.com

You should be able to find renters and get a good idea for the rent.

If you are thinking of doing a short sale, call your bank first or an agent who has done a
few. But 3 years is a short time to wait.

http://www.ruthandperry.com

Best Regards
Perry
0 votes
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