Profile picture for A Perdue

Upside down, Rent or Sell?

I have an offer for $11,000 less than I need to break even at $109,000.  I paid $133,000 @ 6%.  Monthly payments are $1180.  Am I better off paying $300 a month out of pocket and collect $900 a month in rent or sell it.  Taxes are $2400 a year, and sure to go up to possible $3000 when rented. 

Not sure what to do.  Please help!
  • April 23 2012 - Corunna
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Answers (8)

This depends on what you are moving for.  If you are attempting to sell the house it is most likely because you cannot afford the payments?  If this is the case, renting can cause you some issues.  You will still need to make the payments, and any type of repairs that need done.

It can be rather difficult meeting your new bills, and attempt to handle the rest.  It comes down to where you standy monetarily.  If you can easily afford it, renting has benefits as well.  It will help pay off the house, even though you cannot do anything with it because it is rented.

Have you contacted the potential buyer?  If you can come in with a counter offer, it may be to your advantage.  You may be able to close the gap a bit.  Either way, there will be no breaking even at this point.  You still owe way too much on the house for that. 

The best thing to do is minimize your losses, with the least risk possible.

Danny Masters
http://www.movingestimates.com

  • April 24 2012
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Adding to my previous post, I would say make sure you have complete information on all options.  Selling your house, in addition to the mortgage loss, will involve title/closing expense; refinance (HARP) is subject to requirements such as when you originated your current loan and how it is held, additionally you would want to see if you can transfer mi, if you have mi; rental requires you to take on additional responsibilities offset by the ability to write off your loss and gain a depreciation deduction.  I would also check the trends for sales in your area, both rental and sales, are they going up or down. Is this the best offer you are likely to get?  And if you don't sell or decide not to in the short term, do you want a long term rental or a month to month rental to offset your cost or can you stay in the property yourself.
  • April 24 2012
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Profile picture for sunnyview
If you can take the 11,000 loss out of pocket then I might try to sell without a short sale. It is painful, but it would mean that you could move forward without any credit impact and you could pay yourself back that money in about 3 years or faster if you had any unexpected repairs had you kept the house.

The other option is to try to close the gap by lowering your payment. Look into HARP to see if you can drop your interest rate. HARP2 allows you to refinance at a lower interest rate often with no loan costs/escrow even if you are underwater. 

If you could refi your current mortgage balance with HARP at 4% your PITI might pencil out better if you kept the property. You have to make sure that what ever you decide it is something that makes sense for you moving forward. 
  • April 24 2012
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Profile picture for the_country_hick
$300 a month comes up to $3,600 in 1 year.If you have a month or more with no rental income or have some expensive repairs arrive it could cost you even more.

It would not be a long time for you to break even in both scenarios by selling at a loss now and having no future expenses.

The other way to look at it is you would be building equity with a renter paying most of that for you. If you want to rent it might make sense. If you do not want those rental hassles and potential expenses selling at a small loss now might be a better decision.
  • April 24 2012
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If you sell you will be out the debt and the obligation but need to come in with cash unless you negotiate a short sale which will effect your credit negatively.  Your rate is much higher than market so potentially you could look at the option of refinancing, especially if it is a primary, and lowering your payment, which will give you a less out of pocket loss and a tax deduction.  If the taxes are sure to increase, that would suggest the assessment will to, which would allow you to sell higher at a future date.  Doing this will give you a "free" month as well helping to offset your costs, but as noted in other posts, it requires you to accept being a landlord and is dependent on your overall financial and credit profile.
  • April 24 2012
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Wait...are you living there?  Do you want to or can you still just live there?  I guess I'm confused as to why you would sell at all.
  • April 24 2012
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I'll preface this with saying it depends on what is happening in your market.  If you have some cash to bring to the table right now, I'd sell.  If you rent, don't count on the market correcting itself overnight.  I'd plan on renting it as a rental of a minimum of 3-5 years.  
  • April 24 2012
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It depends widely on what your goal is and what you can afford. There are too many other factors involved to give you any advice here. But, besides the dollar figures you mentioned on renting you also have to decide if you want to be a landlord which involves a whole other set of issues like maintenence, accounting, tenant screening, evictions, damages, tax consequences, etc.
  • April 23 2012
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