In loving memory of Kenis D. Keathley 6/4/81 - 3/27/22 Loving father, husband, brother, friend and firewood hoarder Rest in peace, Dexterday

Rent or Sell

Discussion in 'The DIY Room' started by LodgedTree, Mar 10, 2018.

  1. LodgedTree

    LodgedTree

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    Katie and I have decided we will downsize, which is move to one of our houses right across the street that belonged to my late-Grandmother. It is a decent place, needs a lot of work, and is a lot smaller in size, but that may require a different thread. This one is about what to do with our current home: sell or rent it out?

    Here home rental is pretty high, about $1200 a month for a house this size. That is pretty good, but we could also sell this house and make around $175,000 since we own this house outright. Doing the math on that, with some assumptions of 100% occupancy and other not-so-real-world experiences, we would have a return on investment of about 12 years. Put into other words, in 12 years time every month rented after 12 years would mean more money than selling.

    However, selling would make us 100% debt free, and at age 44 for me, and age 38 for Katie; that has its appeal. We would not put any money into savings because the house we would be moving into needs a lot of work, but are in decent shape savings wise. By that I mean, we have four daughters, but their college and weddings are allotted for financially, so other than building the farm up, I see no major financial hurdles on the horizon. Being debt free would enable us to do that in our remaining years.

    If we do rent our home out, then our property taxes would be high because my Late Grandmother's house would be greatly improved making for two nice houses in the same town, where as now we have one nice house and a crappy second one. However our net worth would also be higher as we would retain $175,000 in a paid-for home. That has its appeal too.

    The last part of the equation is, ease of sell. This is a nice house, but I built it myself so it is a jiggle-the-handle kind of home. Not every outlet is grounded, not every sink dispenses into the leach field, and most of the wood here has been rough sawn. Can it pass a home inspection? For sure, crappier houses are sold every day, so do I worry about an inspection and just rent instead, or do I go through the hassle of selling it?
     
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  2. DaveGunter

    DaveGunter

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    Have you considered the tax implications?
     
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  3. ironpony

    ironpony

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    similar situation recently, if you can get 175 lump sum why rent it and deal with it for 12 years?? I sold outright. Now if you were selling it for 35,000 and could rent it for 1200, rent it.

    IIRC as far as taxes, being your primary home you could get a one time 500,000 deduction? being married
     
  4. Canadian border VT

    Canadian border VT

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    What is the future value of the land market? There is certain deductions for rental real estate, would that benefit your income tax situation? A bird in the hand is worth two in the bush. What you do with the sale income and what you do with the rental income. Really makes this decision for you, good luck
     
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  5. Woodwidow

    Woodwidow

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    Being a landlord is a pain and there is always on-going repairs unless you get super renters that stay a while. If the house you are moving to needs a lot of work, what funds do you have for that? Is the house you are going to rent/sell part of the homestead/farm you own? Does the sale mess up your acreage and/or farm status? I am sure you have thought of all this.
     
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  6. JotulYokel

    JotulYokel

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    True landlord stories: When I went away into the army in 1970, my widowed mom re-married and moved away from the farm house I'd grown up in. She rented the farm house out and thought all was well. A year later the renter called her and told her he had accidentally burned down the 150 year old walnut tree that was in our back yard. Long story short when I returned home 6 months later the walnut tree had completely disappeared as had the renter. We figured out he'd sold it for lumber. And that's not the only problem renter we had. Another guy--a teacher at the local school--used to dump all his garbage down in our old orchard instead of paying for garbage service. It was only years after he moved out that I was bush hogging and ran over his garbage dump. But I've saved the best for last. Mom rented the house out and the night the new renters moved in they brought in lots of boxes packed with their belongings. They put down the boxes in the living room... right on top of the floor furnace. Early the next morning someone driving to work saw the house burning. Luckily insurance covered the repairs. So if you rent the house out, be prepared for the unexpected.
     
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  7. LodgedTree

    LodgedTree

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    I am not too scared to be a landlord because we already rent our third house out in New Hampshire and it has not been so bad. We do have a managerial company manage that because it is so far away (175 miles one way), but it has worked well. Part of it might have been having a two good renters in 7 years, and when one wanted to buy it, we said we would sell. However she later said she would just rent. Whay that was, I am not sure: not approved? Home by the river? No down payment? No idea...
     
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  8. LodgedTree

    LodgedTree

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    We are having our woodlot cut off. Not all of it, only 80 acres that we intended to use for additional fields for the sheep. Once we get paid for that which should be quite a bit of money, we intended to use that for our go-into home. The biggest issue is that it is not big enough and we need a master bedroom for Katie and I, but the kids are all taking care of room wise. It needs insulation, some siding and new windows, but has a new kitchen and bathroom so its not horrific. It's small size (1800 square feet) makes it inexpensive to rehabilitate at least.

    Yes and no. It would mean losing 3.5 acres of hay/pasture, but overall not a big part of the equation as we have more than enough hay/pasture elsewhere to feed our sheep. We cannot sell the other home because it sits on its own 30 acre plot and cannot be subdivided by my towns rules. because that 30 acres contains an 8 acre gravel pit, I would not sell it. It does however mean selling off our barn at the sell/rental house, which would be a loss that would be tough to take.

    We do have another equally sized barn we could use, but it is not ideally sited. We might be able to move it to our other go-into home though. Or just leave that one, and build a new barn. Alternatively, we could just sell all our sheep, move, taking the money from their sale to build a new bar and then start with a new flock.

    Really that is the daunting part of this all: starting completely over at age 44! Yikes!!!
     
  9. TurboDiesel

    TurboDiesel

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    My first thought is, take the money and run!
    Also, before I spent 175k on a remodel, I'd build new! Something small, one story, super efficient and hidden from view. Then remodel gramma's old house (with whats left over) and sell it off also or rent it out to help with taxes.
     
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  10. LodgedTree

    LodgedTree

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    This is your not your fault as these things are complicated and are hard to explain with brevity a farms resources, but we would not be doing a $175,000 remodel. We bought an additional 160 acres a few years ago for $50,000, so sadly, being debt-free means paying that off. It is one of the reasons I am interested in selling; I hate debt, and having it hang over my head like a lead balloon. Renting this home out would pay the payment on that land purchase, so while we would not be debt-free in a rental situation, it would free up our money too. The interesting part is; that is a phantom mortgage. Because it is a farm loan, it is not reported to the credit bureaus, so it neither helps us, nor hurts us credit wise. On paper we are debt free now to anyone who looks, but Katie and I have to factor that payment into our finance planning. Crazy huh?

    I would like to build a new underground house, but I am not sure now is the time. We still have (4) young kids in the house and would need a bigger place. When they are grown...for sure, that is in the plans, a tiny 24 x 24 underground house already planned out, but with our daughters, it would have to be far bigger. :-( We even looked into a double-wide, but that made no sense either. We got a house now that we can move into that has good bones, we just need to make it work. We had this decision 5 years ago and chose to remain in our current home, but now realize either renting or selling, we would be so much better off getting out of here and using what we have to increase our income. The one thing we do know, we like our current lifestyle and are willing to do drastic changes to remain as we are (retired) rather than go back into the workforce again. We just have to work the resourses that we have to their fullest. How to do that??? I have no idea!!
     
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  11. TurboDiesel

    TurboDiesel

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    Is this a low interest farm loan?
     
  12. savemoney

    savemoney

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    You asked, so here is my 2 cents. I can't help but wonder if you will obtain those numbers you have been looking at. To sell a home, you need a home inspection. All plumbing and wiring will need to be up to code, or the price will be reduced to reflect those upgrades. Banks need to and will protect their investments. I have had the same insurance for 30+ years. Yet they sent an inspector who went all over the house and land. They got after me about some peeling paint outside. That is just to keep it insured.
    In earlier post, you have mentioned issues with having a meth lab next door. That will have an impact on either the rental or sale price. Renters might just move out when they find out about the illicit goings on of your neighbors. We raised 4 kids, downsizing would have been impossible to do and keep our sanity. You might want to consider upgrading the grandparents house to maximize your rental income. Less disruption for the kids.
     
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  13. bushpilot

    bushpilot

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    Sell, be debt free.
     
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  14. Easy Livin' 3000

    Easy Livin' 3000

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    Ever heard of the "rule of 72?"

    In a nutshell, if you divide the interest rate you are assuming, how many years to double your money.

    Based on this, with your 12 year payback, you are essentially earning 6%.

    Can you can do better putting it in mutual funds and avoid the hassle of being a landlord?

    I personally want at least 10% to deal with real estate I'm not living in.

    Other considerations certainly apply, but I like to start with the numbers and possible alternatives. Good luck!
     
  15. LodgedTree

    LodgedTree

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    No...High Interest.
     
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  16. TurboDiesel

    TurboDiesel

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    Yikes!
     
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  17. JWinIndiana

    JWinIndiana

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    50,000 for 160 acres even without utilities and buildings, even just wooded would be a steal here in Indiana. If you have paid on time for this loan for a couple of years, can't see why a bank wouldn't write a lower interest loan on it now. I realize at the rush of a sale, worrying about losing the property you take what you can get, but it has been a borrower's market for a few years. I realize the debt free mentality. Have used it for years myself. BUT, this home you love and live in, what if it becomes the next meth house? If you sell it, they will be your next door neighbors for who knows how long. What will it do to you mentality to see it daily many times not being cared for at all or like you would if it were yours. Once you sell it, it isn't yours. I don't know if I personally could handle that regardless the money in the bank or no payment for how long.

    Ever think of a bed and breakfast for the other little house? Then it could help make some money, if and when the kids grow up if one of them wants your current house, do a deal and you and the Mrs. move to the little house. My parents built their retirement home on our farm and we will inherit it when they pass on. Won't sell my old house to anyone as I have already thought of the negative situations that could arise. Tidy up that little house, designed like yours, sheep out back, picturesque landscape that people want to wake up to. (without the word and drudgery of lambing, haying, feeding and watering and care of sick and newborns, etc, etc.....................)
     
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  18. fuelrod

    fuelrod

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    I'd rent it.
    1. If you need to you could get a small mortgage on the (paid off) rental house to help fund some of the renovations on your grandma's place. All those expenses are now part of your rental business and that income is not subject to FICA taxes. That means a lot.
    2. I'd hate to have a non family member on the farm (if your sold), and you retain complete control.
    3. keep in mind that if you decide to sell later, do it within 3 years of moving out. You'll loose your tax benefit if your have not lived in the property 3 out of 5 years.
     
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  19. Canadian border VT

    Canadian border VT

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  20. Jack Straw

    Jack Straw

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    Ask this question, Would you borrow money to keep that house to rent it out? That’s basically what you are doing with the land loan, but at a higher rate. I would sell the house, pay off the debt, fix up your new house and invest the rest in the market. It doesn’t hurt to also have a big savings account either. It’s nice to be able to buy bargains that arise.
     
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