Ask the grumpies: Should we rent out our house that hasn’t sold?

Amanda asks:

We moved (and we are renting in our new town halfway across the country).   Our house isn’t sold yet and the “summer season” in a university town is coming to an end.  We’d like to be buying a new house in our new town in the winter/spring.

In the meantime, we are pondering whether we should try to rent the old house or not.  The cost of the house (interest on the mortgage, taxes, insurance, utilities and lawn care) ~= $9000 to hold for a year.  We think we could rent for a little less than our total mortgage + escrow payment.  What other issues am I missing as I think about pros/cons?  How would you set up the “math problem” for this decision?

Ugh– not a fun situation to be in.  I hope someone sweeps in this August so you don’t have to make the rental decision.

The main thing to think about:

How much do you hate hassle?  vs. How much do you need/want the 9K/year?

All of my sub-thinkings are basically in the form of how to deal with the hassle should you decide to rent.

  1. Are there any good managerial companies in the area that you trust to take care of things for you?
  2. How would you react if the tenants trash the place or fail to pay?
  3. What are the eviction laws in your old place?
  4. Who can you rent to– anybody or just single families?
  5. Are you thinking of doing a short-term or long-term rental?  (If it’s short-term, then, since you’re moving from a university town, you may be able to use sabbatical homes or your local university website to rent out to a temporary academic).

You may also want to think about how much you would be willing to lower your house price.  Staging it may also be worth some effort.

Here’s a Washington post article on the “math”— it goes into all the literal costs of renting.  Note especially what it says about capital gains taxes if you’ve lived in the place 2 out of 5 of the previous years.  Though this cbs news article talks about the tax advantages to rental depreciation.  This blogpost has a few more things to consider.

I guess you could set up a math problem with expected probability and expected utility, but you don’t actually know what the probabilities are.  It would probably be some dynamic model where you have some probability of selling each month and that right-hand-side would have to collapse to being less than 9000 for you to not rent it out.  Probably too complicated to actually be practical.

Grumpy Nation– Can you be more help to Amanda?  How would you make this decision?  What would you consider?  Any stories about renting/selling/etc.?

5 Responses to “Ask the grumpies: Should we rent out our house that hasn’t sold?”

  1. Zenmoo Says:

    One issue might be insurance- some companies won’t provide cover if the house is unoccupied for a certain amount of time.

  2. katherine Says:

    I ended up a landlord after the recession as I moved in with my boyfriend and the house was way under value to sell at the time. I did my best to find a great property manager, but they were awful. And it was a PITA. The tenants were awful. The property managers told me it was because of the recession – no one who rents has good credit. I believed her. Then there was such a crazy tenant issue (think abandonment and theft) and I moved on. I found a great property manager and, while I have never had a lack of tenants or tenant problems, changing tenants every year gets expensive. Really expensive. It eats up a lot of our profit, which isn’t great to begin with. First there’s general maintenance, the wear and tear, then the costs for the new tenants, etc. It doesn’t end. I think the only reason we are hanging on to the house is because one day it will be paid off. I would suggest that if you end up renting, make sure that you have something reasonable in place if the tenants want to buy it. I signed a contract saying the property manager would get 6% commission, which is crazy because she only has to do minimal work for it as there’s no listing/showing, etc.

  3. jjiraffe Says:

    We leased our condo (with an option to buy) to a couple after we couldn’t sell it during the Great Recession. They ended up buying it 9 months later, which was a pretty good solution.

  4. chacha1 Says:

    I would definitely consider the distances involved. Even with a management company, being more than a half-day’s drive from your property means that emergency visits are seriously inconvenient and/or expensive. And there are often, if not always, emergencies when dealing with rental properties.

    As Katherine noted, tenants can be nightmares.

    In this situation I think that I, personally, would lower the price of the house – if you can do that and still clear the mortgage – and/or try harder to sell it. Maybe it needs some cosmetic upgrades or staging. Have an agent look at it and give you advice. If it hasn’t had a home inspection, pay the $300 and do one, and do any necessary repairs, so that you can give potential buyers a clean bill of house health.

    But … if you can’t realistically expect to make a profit (covering ALL costs, and then some) by renting, I’d say don’t rent it out.

  5. Debbie M Says:

    I know you can try to sell while you’re renting (the best of both worlds!), but the buyers have to honor the renter’s contract. If the buyers actually want it to rent it out, then already having renters can be a plus. So you could ask a local real estate agent whether most buyers are investers or future homeowners.

    Also, it helps if you know someone good who wants to rent. It sounds like you don’t, but maybe you haven’t actually asked.

    It’s sad that you can’t cover your costs renting, even if no maintenance or repairs are required. (It sounds like it makes sense for people not to buy.) How would you handle the deficit? Since there would be a monthly deficit, it sounds like it could make financial sense to sell even if you can’t get enough to pay off the rest of your mortgage and have to add some extra. (You’d have one big deficit and then it’s over.)

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