My house will be closing very soon (hopefully this week). I have moved in with my fiance in her condo. After we are married in January, we intend to start house hunting. We have two options with her condo. Rent it out or sell.
Using fake numbers, lets say it is valued at $150,000. She owes $75,000 and has a $500/month mortgage (she did buy at the absolute bottom of the market) + $200/month condo fee. After paying off loans and debts we'll be left with $50,000 if we sell. If we sold, we'd use the $45k for a deposit on the house + whatever I get from my house.
Using Zillow as a baseline (I know, not the most accurate), the rent estimate is approximately $1200 / month. What do we have to change mortgage/insurance wise if we rent it out? What do we get taxed on the rent? What else do we have to do?
WWGRMD?
Thanks!
mtn
MegaDork
9/22/15 9:11 a.m.
Would you be in close proximity to it? Would you manage/repair it yourself?
I've come to the conclusion that the only way I would START being a landlord is if I bought a duplex/triplex and lived in one of the units. Now, that being said, if you will remain close by, it wouldn't be a bad idea to rent it out since (warning: Politicalness coming) I think that with Yellen's latest announcement, rent is going to continue to be ridiculous. So potentially it isn't a bad idea.
What it really comes down to though, is where do you want your savings, and are you ok with the work? If you want your savings in real estate, it isn't a bad idea. If you want them in stocks, get rid of it. If you are not ok with the work, I would be strongly considering selling it and throwing your money into a REIT or whatever else you think is going to be the strongest bet for your future.
Your insurance will go up. Check with your carrier and get a quote for rental property if they will even do it. Mortgage can stay the same, nothing changes there. Yes you will be taxed on income but you can devalue the condo as you go along but you will take the hit when you sell the place. Pretty easy tax stuff but I'd use an accountant to make sure you cover your bases. You can write off any expenses for the property against the income so that helps.
If you have room in the budget you may want to hire a property manager. They take care of finding and vetting renters (this is a big PITA) and handling any issue up to whatever $$ you agree on. Set at $400 and they take care of water heater and you just get a bill. AC goes out and they call you immediately. If you want to hand it all yourself take the time to learn your state laws on rentals. In FL it is VERY hard to evict someone and many of the laws favor the renter. Also, do not budge on your security deposit. Make it at least a full months rent AND get 1st and last up front if possible. Renters can be dicks.
My wife and I went through this with her place when we got married. She was upside down so we rented until the market came back, which it did, but in that timeframe we had to put in a new AC (old unit was only 6 years old) and when the second renter left we had to pull all the carpets (replaced with laminate), painted the entire place and repaired/replace a bunch of appliances. I didn't mind it too much but my wife hated dealing with stuff so when the numbers worked we dumped it and walked away a little in the black which was fine with me. Plus it only had a one car garage. Seriously? Who buys a place with a one car garage?
Before worrying about insurance et al, make sure you can actually rent out the condo. A lot of condo boards only allow a certain percentage of rentals and as a result you may not be able to rent it out at all.
I'm also not sure how accurate the Zestimates for rent are. I was looking at a couple of houses in town as potential rental properties and while they're good deal on the Zestimate basis I have absolutely no idea how that translates into the real world.
Do the math on ROI. <1% of value in monthly rent does not look like a good investment to me.
I am leaning take the money and run. Thanks for the input!
