So I know many people say your home is NOT an investment. That being said, here’s my situation. I bought my house in 2004 for $220,000 (with 20% down). Over the past 4 years I’ve probably sunk another 20K into it (i.e. Central Air, Paved Driveway, Renovated Bathroom, etc.). So my “investment” in the property comes to roughly $64K. Last spring I had a CMA done and was told my house should be listed at $320K, but I wasn’t ready to make the move. Yesterday I had another CMA done and was told to list it no more than $259K. WHAT!!!
So here’s the thing, lets say I can get 250,000 for my house now, minus 12,500 (5% commission), it looks like I’ll walk away with $237,500. So easy math says acquisition cost(including renovations) - net sale price = $-2500
So now I’m wondering if I should even sell??? The fact is, I do not HAVE to move, I want to. My other option that I’m seriously considering is renting out my house and move to where I want to be and rent an apartment for a while… It looks like I can get about $1500-1800 per month rent for my place. I’m just completely stuck on analyzing the numbers here and can’t seem to come to a sound conclusion. Can anyone out there plese shed some light on what factors I should focus on in determining the best course of action?
One thing that I have seen in a couple of markets is, that when you “cash in your chips”, it is nearly impossible to buy back into the market with your current income level. We saw this when we decided to leave the DC area. Once we sold, we really would have a tough time buying back into the market. My brother- and siste-in-law are in San Diego and they can’t afford to sell their house and then buy back into the San Diego market (that is changing now!)…
Your house is shelter. It’s also worth whatever someone is willing to buy or rent it for. What is your motgage pmt. right now? Will you be able to rent it out for over $3000/mo.(using the 50/50 rule)? I think your expenses as a landlord will go up on that house if you have a tenant in there. That’s because the tenants aren’t responsible for maint. & repairs. They won’t care for it as a homeowner with 64k invested would. Also, if you have a vacancy or can’t rent it quickly, you’ll have the mortgage and your rent to pay. If you can sell your home right now and make all your money back that you invested and a profit, that would be a good investment because it provided shelter and a profit. Unless you can rent it out for a price that will cover all your expenses and your mortgage AND provide a few hundred in cashflow/mo., or sell it, I’d stay put… A home can be either a good or bad investment dependng how you buy,repair,maintain and sell it. If you’re looking to become a RE investor, buy an investment property. Good luck.
Sorry, I thought your mortgage was closer to $1500. But if you can get $1800/mo. for rent, that’s right in the 50/50 rule. In that case, you may benefit from renting it out. But how much rent will you be paying. Why not buy a duplex or 4 plex to live in and rent out the other units. You could make money on your house and basically live rent free ( or at least cheaper). As far as selling your home, you didn’t live for free. I would wantto at least get a profit from the sale. I think if you can rent it while your market favors the buyer, then you can sell it when the market turns. But as long as it’s making you money, why sell if you don’t have to? You can make money on it in good times and bad. As long as there’s a renter out there that’s willing to pay $1500-$1800/mo., you have options. Good luck.
Your total “investment” in your home - should you choose to look at it as an investment property rather than just a shelter - is much more than you originally posted. The $64K is only the amount of cash in to aquire and improvements. You have not calculated the interest payments you’ve made over the 4 years of ownership. Add that up and you will get your “Gross Cash In.”
Next you calculate the amount of tax advantage you have had by owning the property over 4 years. Assuming you deducted the mortgage interest, you can determine the dollar value of that deduction to the reduction of your AGI and hence your total tax bill. Add that tax “savings” and you will have your “Net Cash In.”
Now use that Net Cash In as your basis for analyzing whether to sell or rent the property. If you sell, you deduct your Net Cash Out from the sale from Net Cash In to get your Net Return. If you rent the property, you will need to find a new place to live. You should consder the cost of renting (no tax deduction) or buying a smaller place against the income you can make from renting your original home. Decide how long you would want to do the rent/live somewhere else thing (say 5 years) and calculate your Net Cash Flow each year. Add up your Net Cash Flow and subtract from your Net Cash In and you will get your Net Return from renting the property for 5 years.
So, I can already tell you that you will find that you are in for A LOT more than $64K and if you sell now, you will be down A LOT more than - $2500. You probably won’t ever hear anyone tell you this, but given your numbers and your situation, I think you should DOUBLE your payments to your mortgage and accelerate PAYING OFF your HOME. It may take you 10-12 years, but by that time you will have no mortgage and the value of your home will have likely recovered wonderfully. However that is if you DO NOT think of this property as an investment and make it truly your HOME.
You really should consider Lease Optioning the Home. The rental equation may be borderline for what you are describing.
Negotiate an Option fee of about 3% to 5% for the new buyer to take control of the property for a two year period. Charge them FMR plus about 10%. Pay attention to the insurance and loss payee clauses as well as big and small repairs responsibilities, and make sure you do a good background check on the potential tenant. Assume something like 3-5% appreciation and set the deal up for a price about 95% of the buyout. You are in good shape in that you own the property now and do not have to deal with sandwich or purchase issues.
I’ll let the others throw all the numbers at you. They’re doing a good job of it. If you view this strictly as an investment, then the numbers are what you need to be looking at anyway.
However, it’s not strictly an investment. It’s YOUR home. Moreover, since it’s not a have to move, it’s completely YOUR decision whether or not to do so. These are things that can’t be made into a figure and must be decided upon anyway.
If you decide to move and rent/lease out the place, can you handle that? I’m not talking about landlording, that’s a whole other issue. What I mean is can you handle a renter living in YOUR HOME? Maybe you’ve not developed a personal “home” feeling of the property yet, but if you have, that is an important question. Many can’t deal with someone living in their home, especially when they don’t take care of it. I know from personal experience. It’s much harder than you think.
Knowing what you expect to get if you sale and knowing what you expect to get when you buy IS important too. However, more important is which will you regret at a later date? If you decide to sell and move on, and the market makes a major comeback, will you still be okay with your decision. Likewise, if you decide to stay, will you be satisfied?
The L/O strategy is flawed at best, in the current economy. Depending on your current housing market’s situation, it could be a total dream theory. Alot more info needs to be provided before I’d make ANY blanket suggestions on how you need to handle your sale, if that’s what you decide.
It’s Your Home until you move. The minute you move, the house is now your investment. You have to decide what it will be. If the emotions are in it, then it is warping things.
Conceptually it is no different than those that buy a duplex, live in half and move out. It’s an investment… but these folks know they are investing and moving out when they move in!
If you move out of “Your House” and have no other property at this time, you will become a bonafide investor with real tangible investment property… Your new home and your investment property. BUT ONLY IF YOU RENT IT or Lease Option it. Otherwise you are just a wealthy person with two properties to live in.