Profile picture for irotem

With today's market - Rent out or sell without equity?

I currently own a home that I purchased 3+ years ago.  My loan balance is $374K and my house's value is maybe $270K - $280K...

I recently made a decision to move my family to a bigger home, and so my dilemma is whether to rent out my existing home, which will leave me with a monthly payment I will owe the bank of approx. $1,200 (after deducting the rent), or sell it and pay the bank the difference to avoid credit issues (approx. $100K, which I can probably work with the bank to break into small payments).

Emotionally, of course, after investing a lot in this home both financially and time-wise, I am leaning towards the former, but I cannot help thinking that I may be doing a financial mistake.  Can anybody comment on the better decision?
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
February 23 2011 - Boynton Beach
We think we've answered this question for you!
  • Be a Good Neighbor. Be respectful and on-topic. No spam or self-promotion! See our Good Neighbor Policy.
 
 

Answers (8)

If you sell it you're done!

If you keep it, what are you gaining?
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
March 01 2011

If you rent your home you will be paying $14,400 a year out of pocket to keep the house.  There are some tax advantages, but please ask your CPA for those answers.
If you sell and need to pay the bank $100k (maybe less if you prepare, price and market properly) and you make the same $1200 payment to the bank it will take almost 7 years to pay it off.  Again I do not know about the tax advanages.
The question then becomes Will the house be worth $100,000 more in seven years?
Good luck

  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
February 28 2011
Frankly, this is not really a real estate or finance question.  It is, rather, a question that should be answered by your accountant, financial planner and/or real estate attorney.

As a mortgage professional, I can provide you a myriad of options for today's currrent market.  I cannot, however, (legally or with any expertise) counsel you as to the best short and long term financial implications of your situation (current and future tax benefit and consequence, your over financial portfolio, etc).

I strongly encourage you to contact professionals in the financial services (not mortgage specifc) arena and consider their counsel.  Your situation is far too complex to rely on a "sell vs. rent" comparison by the monthly numbers.
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
February 24 2011
Profile picture for geo99
I am "irotem"s (the person who asked the original question) next door neighbor and I am in the exact situation.  I have the same house and I also want to move to a bigger house.
Lyn Miller, you mentioned one option called "owner financing".  I don't have much experience in this field, can you please explain what this is?
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
February 24 2011
irotem,

It's a difficult decision because no one can predict where home prices are going.  With that said, let's look at the numbers.

$1,200/month x 12 = $14,400/year.  I assume the monthly figure includes tax & insurance.  So you add maintenance and maintenance reserves to that figure.  Let's assume that's $1,200/year.  So that brings you to $15,600/year.  If you pay water & sewer, add that annual cost too.

If you sell today, you are $100,000 in the hole.  You have about 6.5 years of running at a loss to arrive at the $100,000.  That assumes:
- that you have tenants that pay rent.
- rents remain stable.
- you have a fixed rate loan.
- we don't take into account the opportunity costs of money.
- housing values remain the same.

However, maybe the market will be better in 6.5 years.  And we didn't take into consideration that you would have payed down part of the principal over the 6.5 years.

Your Real Estate Geek,

 Rich
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
February 24 2011
possibly give some thought to offer owner financing. It can be good for both the buyer and the seller.
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
February 24 2011
We would advise against renting it. The hassle of dealing with tenants, wear-n-tear on the property, plus putting money out of your pocket every month, etc. doesn't sound like the best choice.

One reason to consider selling it sooner rather than later is that there's a substantial risk of home prices falling another 15% to 20% (or more in some cases) as housing values continue to drift and weaken due to the slow growth in the economy. Of course nobody knows for certain what will happen in the future but what we do know is that oil prices are going up, costing us more to fuel our cars, food prices are up, unemployment is still hovering around the 10% and I can go on and on but you get my point. This is not "gloom and doom", it's reality, facts. So we advise based on facts.

Given your situation and desire to relocate your family, I suggest you try to work something out with your bank if you really don't want to be there anymore. The alternative (even before renting) is to stay put.

Best wishes to you,
Jeantets
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
February 24 2011
Profile picture for the_country_hick
It is not that simple. Along with the banks payments will come higher costs like taxes, insurance, and definitely repairs. There could come a time where you had to spend $5,000 or more on the house all at once.

With renters come hassles. Midnight calls saying something is broken. Empty months with no renters, and damage done to the house. You might even have to pay to evict a non-paying tenant.

You would probably be around 8 years to break even taking the loss instead of renting it out at your monthly loss shown.

I guess the biggest issue is you. If you do not mind being a landlord losing money for awhile rent it out. If the thought of being a landlord having that kind of problem go he other way. No one can tell you what to do. The choice is yours. I only hope some ideas will be presented to help you make a better informed choice.

p.s. do not be surprised if the value drops even more for the next several years.
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
February 23 2011
 
Related Questions
With today's market - Rent out or sell without equity?
Profile picture for Sergio Hernandez
Latest answer by Sergio Hernandez
March 01 2011 | 8 answers
Be A Good Neighbor

Zillow Advice depends on each member to keep it a safe, fun, and positive place. If you see abuse, flag it. More on our Good Neighbor Policy.

Homes for Sale
  1. 722 Ridge Rd APT 16, Lantana, FL Home For Sale
    722 Ridge Rd APT 16, Lantana, FL 33462

     For Sale: $104,900

    • Beds: 2
    • Sqft: 872
    • Baths: 1.0
    • Lot: --
  2. 8875 Briarwood Meadow Ln, Boynton Beach, FL Home For Sale
    8875 Briarwood Meadow Ln, Boynton Beach, FL 33473

     For Sale: $313,700

    • Beds: 4
    • Sqft: 3555
    • Baths: 3.0
    • Lot: 7370
  3. 7273 Burgess Dr, Lake Worth, FL Home For Sale
    7273 Burgess Dr, Lake Worth, FL 33467

     For Sale: $195,000

    • Beds: 3
    • Sqft: 1685
    • Baths: 2.0
    • Lot: 4765