When I relocated to another city I thought it would be a good opportunity for me to dabble in real estate by keeping and renting my home instead of selling it. So I found a renter and kept the home and moved into another house. I had a very low monthly payment on the rental, the renter was paying on time and I had some equity in the home so I refied, pulled ALL the money out (and then some) thanks to a generous appraisal. No sooner did I do that when my renter decided to leave. I had to carry the house for almost 6 months no matter what I tried I couldn’t sell or rent it. Now I have a renter who is basically covering the payment but I am still eating the taxes, insurance and pain in the butt. If there is anyone here would be willinging to hear some of the details I could sure use some ideas on how to turn this situtation around.
Thanks
Dan
Just a couple questions:
Did you research what the market rent for the area was? If it’s low and not enough to cover your mortgage, insurance, and taxes, then it could be a bad buy for a rental. You have to post some numbers.
What did you do to advertise? Local paper, word of mouth, tenant placement service, yard signs? 6 months is a long time. What was your screening procedure? Maybe it was too restrictive for the class of tenant interested in your place.
Definitely post more info.
All real estate is local so this is just a general rule of thumb but in general the house that you are living in is usually not going to make a profitable rental. For example in my city houses rent in the $850 to $1100/month range. In that range houses stay on the market on average 2 weeks. Houses in my neighborhood would rent for closer to $2000. Anybody that wants to rent a $2000/month house could buy their own or there is something going on. At any rate it will take a month or two for me to rent a house at that rental rate. The factors you consider when you buy a place in which to live are not the same factors you consider when you are buying a rental.
You almost have to imagine that you are going to buy the house from yourself. That means you list the expenses and the projected revenue. That would be the make ready and carrying costs, against the prevailing rents in the area.
The money you took out during the refi, you can use it to help carry the house in the mean time. As far as selling it, you probably want to sell it to a natural buyer (not and investor) so that you can get top dollar. It is hard to sell to a natural buyer when it is occupied by a tenant. It would be best to wait for the tenant to leave and do a make ready and put it on the market.
The real question is what did you do with the money? Did you invest it in something else that would give you a higher return or did you just spend it?
The mistake is probably doing the refi when the rent can’t support the mortgage. And of course the banks will always let you borrow more than the house is worth which is probably why you couldn’t sell it for what it was appraised at. Drop the price more and it’d sell. Basically you got caught with your hand in the cookie jar.