If You Can't Sell Your House, You Could Lose More Money by Renting Your House

Reblogger
Real Estate Broker/Owner with Eastern NC Homes

This is something more and more homeowners in Eastern NC will be forced to consider.  Rental property does sit empty, I know because we have one.

We spent most of our free time last Summer re-modeling and cleaning up after the last tenant, including removing and replacing dog soiled/soaked carpet.

My favorite quote is 'Take a good look at it the day you start renting, because it will never look that good again."

Great information..Thanks Judy

Original content by Judy Chapman

(c) Judy Chapman ALL RIGHTS RESERVEDThese days, when it’s tougher than ever to sell a house, homeowners are turning to renting as a way out.

Renting may be a good option when you can’t sell, but not everybody is cut out to be a landlord or landlady. And while renting may seem like an easy short-term fix, it may not be a long-term solution.

Make sure you consider all the factors before deciding whether renting will solve your problems … or create more.

2 reasons homeowners rent instead of sell

Urgency is the #1 reason homeowners rent instead of sell. They have to sell, and they have to sell quickly.

Price is the #2 reason homeowners rent instead of sell. Bottom line, they’re not prepared to ‘give away their house’ at today’s depressed prices.

So they turn to a stopgap solution. In a year or two, their thinking goes, the market will recover. At that point, they further reason, they’ll be able to sell their house for more than they can today.

But will renting solve their problems? Maybe yes. And maybe no.

11 problems with renting your house

While you may have excellent reasons for renting your house, consider the following before giving up on selling your house.

Buying again – Leaving equity behind in your house may prevent you from purchasing a new house.

Property management – Managing receipts, maintenance, repairs, emergencies, and other requirements associated with renting requires time, money, and effort. You can choose to do it yourself or you can choose a property manager to do it for you.

Market recovery or market bust – It may take longer than you think for real estate prices to recover. Right now, the economy remains weak. Downward pressure on home values will continue for the foreseeable future. Who can say how much longer … or steeper … prices will sink before an eventual upswing. Once the market is on an upward trajectory, it will take years for prices to return to previous highs.

Depreciation – While the IRS allows you to take deprecation as an expense against rental income, don’t think of ‘depreciation’ as only a tax deduction good for improving cash flow. Since tenants are unlikely to treat your home as well as you would, physical depreciation is a very real aspect of turning your home over to tenants.

Capital gains tax – If you rent your house for only two years, you can still sell your house and be exempt from paying IRS taxes on up to $250,000 of capital gain (when single) or $500,000 (when married). However, the depreciation you took against rental income may have to be recaptured. Be sure to consult your tax accountant.

Re-lease or try to sell again – In this climate, you’ll find tenants quickly. Once the first year’s lease is over, you’ll have to decide whether to continue renting your house or try selling. Either way, you’ll have to invest in cleaning, painting, landscaping, replacing carpet, upgrading appliances, and making repairs before the next tenants or buyers move in.

Damaged goods – When you’re ready to sell, your house may be considered ‘damaged goods’. Homebuyers can immediately tell if a house has been lovingly cared for or simply lived in. And they will take this into consideration when making offers.

Selling with tenants in place – Let’s face it, tenants don’t care if you sell your house or not. They don’t have a stake in the outcome. They only know it disrupts their schedule. They won’t keep the house as neat and clean as you would. They won’t be as flexible to accommodate showing appointments as you would. And they may hang around the house during showings, making homebuyers uncomfortable and eager to leave. Once their lease is up, you’ll find yourself in a negative cash-flow position and may very well be forced to rent once more.

Rental merry-go-round – After renting your house for what was supposed to be no more than a year or two ... just until the market turned around ... could turn into a long-term commitment. You may get stuck on the rental merry-go-round, unable to jump off. The window between leases will leave you with only a short time to list and sell your house. Before you know it, you’ll be back on the rental merry-go-round, still waiting for the opportunity to unload a monumental burden.

Rental prices may go down – Right now rental prices are what they are, and they may be just fine for your needs. But renting your house as a short-term solution may not be a long-term solution. With so many homeowners turning to renting as an expedient to selling, tenants will have more homes to pick from. In time, instead of facing a ‘Buyer’s Market’ on the selling end, you may very well face a ‘Renter’s Market’ on the rental end. Such a circumstance would drive rents down year to year. After factoring in rising insurance rates and property taxes, you may eventually find yourself in a negative cash-flow position.

Mortgage rates – Mortgage rates are the lowest they’ve been in recent history. But they can’t stay low forever. When the economy recovers, the Federal Reserve will start raising key interest rates. Mortgage rates will climb in lockstep, making homeownership more expensive. To make up for higher monthly costs, buyers will bargain that much harder, forcing prices down once again.

Moving out and moving on

If you have a pressing need to move out and move on, and don't want to be weighed down with renting your house, there is a way to sell quickly and still get full market value for your house.

By applying methodical price cuts, you seek out the optimal ‘sweet spot’ where buyers will be forced to make an offer. By finding the correct price, you cannot undercut the market value of your house. Best of all, you can accomplish your goal in 2 months or less.

******

JUDY CHAPMAN |What can I do for you?

Residential Sales ∙ Short Sales ∙ Residential Rentals

Evanston | Wilmette | Kenilworth | Winnetka | Glencoe | Highland Park | Lake Forest
Glenview | Golf | Northbrook | Northfield | Deerfield | Skokie | Morton Grove
Also Arlington Heights | Prospect Heights | Wheeling | Mt Prospect

Koenig & Strey | 1925 Cherry Lane | Northbrook, IL 60062

Judy@JudyChapman.net | Office: 847.749.3811

(c) Judy Chapman ALL RIGHTS RESERVED  (c) Judy Chapman ALL RIGHTS RESERVED 

© 2007-2011 www.activerain.com/blogs/NorthShoreChicago by Judy Chapman. ALL RIGHTS RESERVED. Portions of this content may be used with attribution. The information contained in this blog is the authors own opinion and does not reflect the opinions of Koenig & Strey Real Living.

 

Comments (6)

Shannon Jones
The Shannon Jones Team - Long Beach, CA
Long Beach CA Real Estate

Those are some great points. In our current marketplace, I've spoken with a number of homeowners who've decided to rent their home out rather than selling for precisesly the reasons you state. But I'm sure they didn't think of all the points you outlined.

Jul 28, 2011 01:25 PM
Bruce Parker
RE/MAX Best - Highland Park, NJ

good points. a downward market makes renting painful. Loosing your capital gains exclusion really hurts. By the way Obama is looking to remove that exception. I remember the good old days when it was once in a lifetime buy equal or higher.

Jul 28, 2011 01:48 PM
Judy Chapman
Referral Network of Illinois LLC - Chicago, IL

Homer - Thanks for reblogging! In my own experience, I decided to become a landlady when I couldn't sell. One year later ... hole in wall from angry kick, destroyed carpet from banks of file cabinets, broken ceiling light, disgusting bathroom, and well ... everything else. I was very lucky to sell it as is and walk away. Good riddance!

Jul 28, 2011 01:51 PM
Virginia Gingras
West USA Revelation - Gilbert, AZ

You are so right about renting.  I rented my home for only one year I had to put in $30,000 PLUS cut the price $80,000 and the home after rental still hasn't sold.  Ugg!

Jul 28, 2011 03:35 PM
Judy Chapman
Referral Network of Illinois LLC - Chicago, IL

Virginia - I feel for you and can't imagine what you're going through. This market is tough in too many ways to count.

Jul 29, 2011 02:30 AM
Wallace S. Gibson, CPM
Gibson Management Group, Ltd. - Charlottesville, VA
LandlordWhisperer

 

I agree that renting is not ALWAYS the answer; however, talking to a professional property manager about the current rental market is a GREAT option that MORE listing agents need to explore. 

 

Professional property managers make RENTING FUN!

Jul 29, 2011 01:12 PM