Sell Vs Lease

Asked by Rav, Plano, TX Tue Mar 16, 2010

Hi, We are planning to relocate to Dallas, Tx from Canton, MI. We have house in Canton, MI, which I bought in 2001. Current house value is justaround $230, 000. I am thinking of either selling the house for loss or lease the house and not able to decide which one is good. Any advice is greatly appreciated. Thx.

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Renee Badall, Agent, Ann Arbor, MI
Tue Mar 16, 2010
Hi Rav,

There are pros and cons to each scenario.

Not knowing your particular situation in regards to equity in your house, I can only give you a multitude of answers:


(1) If you purchased in 2001, you may have equity in your house. Yes, you will not get as much money for your house as you would if you were selling in a strong "seller's market,” but you would get out from under your current mortgage which would allow you to move on with your life. If moving on involves purchasing a house in Dallas, you may well be eligible for the $6500 home buyer tax credit available to current home owners. I say this because if you owned your current home since 2001 and have lived in it as your principal residence for at least 5 of the past 8 years – you qualify. This $6500 tax credit can be viewed as off-setting at least a portion of the loss in profits involved in selling your house in Canton. Please keep in mind that this opportunity expires in 2010 – here are the rules:
Must have a negotiated, signed sales contract by April 30, 2010
Must close by June 30, 2010

(2) If you have no equity in your current house -- perhaps you didn't put 20% down, or you have taken out a second mortgage to make certain improvements to your home in Canton -- you can still sell your current home and move on. This involves a process called a "Short Sale." By definition, your lender allows you to sell your current home for less than the total amount owed on your mortgage note -- short. You can do this even if you have more than one mortgage. The outcome of this involves many scenarios:
Sometimes the lender lets you completely out of the $ difference between sale price and mortgage amount
Sometimes you sign a promissory note for part of the difference, sometimes not . . .

I cannot advise you fully without knowing your particular situation. I can tell you that I am a NAR (National Association of Realtors) Certified Short-Sale and Foreclosure Specialist and if sitting down with you in person, would lay out all of the scenarios so that you can make an informed choice.


Certainly an option, but be this your decision, please undertake it with open eyes, considering the following . . .

a) You are in Texas and your house is in Canton, Michigan. You will have to pay someone to collect rent, answer maintenance calls, mow the lawn, shovel the snow and generally keep a good eye on the property and tenant, etc.

b) You will lose your principal residence exemption, and therefore, your taxes will go up 30%.

c) You need to notify your insurance company. It will cost you more to insure your home as a rental.

d) There are many, many, many bank-owned, foreclosed, a/k/a REO homes available for sale. This gives opportunities to buyers who may have been in a price-bracket to lease a home who are now able to buy. Of course, this will be a competitor to you should you decide to sell, but currently there is a 30% back load of REOs which the banks haven't even put on the market yet. Count on this going on and on . . .

I hope that you are getting some good information here – from my answer as well as others. Trulia is a good resource for this and you are wise to collect this valuable information so that you can make the decision that is best for you. I welcome the opportunity to help.
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Scott Peters…, , Canton, MI
Tue Mar 16, 2010
Hi Rav:

In this current market condition there are many Sellers that are in your situation. I have several clients that are struggling with this same scenario. Unfortunately, Homeowners that are upside down and have to relocate really only have three options: Renting, Selling on Short Sale, Selling for loss (bring cash to close). All of which have downsides.

There are several questions that you have to ask when considering renting:
First, Are you planning to return to Michigan. Is this a short term assignment or relocation? I would advise renting to an owner that is taking an assignment that was from 1-3 years. The Michigan market is going to take a long time to recover, and remaining in the home is the best option.
Second, Are you OK with renters treating your home as a rental. No matter how well tenants are screened, tenants treat homes differently than owners.
Third, Can you cash flow the property. Can you charge enough rent to cover: Mortgage payment, property taxes (which will go up after you claim Non-Homestead), Insurance, HOA, loss rent, repairs, management fees (if you hire a Realtor to oversee property)....

Many Landlords in this market find themselves contributing hundreds and thousands of dollars per month to cash flow their property. This can prolong the financial pain, but not solve the problem.

Short Sales - You can download an Information Report on what a Short Sale is on my website. But the short answer on Short Sales is that your mortgage company may accept the current market value for your mortgage discharge. Downside is that it will negatively affect your credit score, the mortgage company may seek the loss from you (essentially still have to pay cash to close) , and you may not qualify depending on your income and cash reserves.

Sell For Loss - Bring cash to close. While this may be the most immediately financially painful, it will allow you to move on and leave this problem behind.

Whatever you end of choosing to do, my Team can help you. We have experienced Realtors that can Property Manage, Sell on a Short Sale, and list and sell your home.

Scott Petersen
Canton, MI
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Caimano090, Home Buyer, Italy, TX
Tue Mar 16, 2010
Here in Italy We suggest to lease.
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Andy Hargrea…, Agent, Plymouth, MI
Tue Mar 16, 2010
I actually just listed a home in Plymouth under the EXACT same situation.
They're moving to another state and were struggling with the idea of what to do.
Essentially, we sat down, went over the pros and cons for each situation and wound up deciding to sell the home.
The primary reasons were as such: Renting for them was the more difficult situation. They didn't plan ahead on maintainability, what to do if the tenant stops paying, destroys the home, etc.

While selling the home for a loss entails a short sale or not will depend on your situation, but relocation is usually received more favorably in this situation should this be your need. You can see if your relocation package includes a loss on sale stipend and things of that matter.

Since I deal often with this (especially within the last week listed and had multiple offers on the listing) feel free to call, text or email me. I can gladly pass some references on for you to talk with as well to help with your final decision.

Talk with you soon!
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Todd Waller, Agent, Ann Arbor, MI
Tue Mar 16, 2010

The answer to your question depends on your tolerance. For leasing your home, your tolerance will be about being an out of state landlord, and all the potential work that may involve. For selling your property, your tolerance will simply be one of how much of a loss are you willing to take.

If this is a relocation for a job, is there a possibility of the company picking up closing costs or even possibly covering your loss? As for any potential loss you may incur, have you had a highest price analysis done on your home? If you have not, this could likely add some clarity to your decision.
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Derek Bauer, Agent, South Lyon, MI
Tue Mar 16, 2010

Good question, and one a number of people tuning-in may share with you.

You want to consult with both a real estate professional, and a tax and/or financial planner. The small picture is what would your loss be by selling now vs. your monthly cash flow going forward if you opted to lease it out ... but the big picture is what does this scenario look like 2, 5, 10 years down the road? What money will have to be invested into the property, and when? What does it look like when taking into account both non-homesteaded taxes, and also the tax benefits and implications?

I would be happy to speak with you further about this. Feel free to visit my website for more information, as well...

Derek Bauer, Associate Broker / Realtor
Real Estate One
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