Sell or lease, pt. 2

[woolie]

Hey again, everyone. My wife and I are considering moving to San Francisco.

 

We're undecided on selling or renting our house out. It's a standard 3 story townhouse in midtown, 2 bed, 2 bath. One shared wall, with a nice little front yard on a pretty, low traffic street. We've put in some upgrades -- new A/C (2012), all new stainless appliances, nice new bathroom fixtures everywhere, new tile downstairs, new deck in the front yard, new landscaping, nice paint in all the rooms, etc.

 

The area has limited inventory lately so hard to get an exact comp. New construction (dozens of houses this year) is 330k+; existing houses 240k-300k, generally selling in less than a month. In the five years I've lived here, I have never seen so much new construction, so few active listings, or these kinds of prices. So, I think 250k-260k would be realistic.

 

For renting, 2100-2300 seems reasonable. Comparable rental houses have all been in that range, and only stay on the market a few days.

 

Selling would help us build our down payment towards a new place. I wouldn't have the risk of paying a mortgage here if a tenant moves out or skips town.

 

Leasing out has different benefits and risks. The market could continue to appreciate (or could just as easily crash). If our new life in SF doesn't work out that great, it'd be an escape hatch back to Houston. Now, the scary parts. We could lose a tenant and go for months without a rent check. The tenants could trash the place, or there might be an accident and major repairs needed. Additionally, I'd be a first time landlord, although my family has rented out houses before. They will still be here, my sister could help manage the property, be local phone contact for tenants, meet with contractors, etc.

 

I could probably be persuaded either way. Looking for feedback from the community.

[Specwriter]

Your townhouse sounds like a nice place that should fetch a good rent. I was a long-distance landlord once. I can't tell you whether or not you should lease or sell right now but when I moved from San Antonio to Houston the real estate market in SA sucked. There wasn't much point in trying to sell anything. Everyone it seemed was upside down on any property owned less than ten years. The thing that worked best for me was to have a responsible leasing agent. Sure, he took his "finder's fee" and percentage of the monthly rent but it was worth it.

Here's what he was able to do for me:

1) Find qualified, responsible renters. I only had two in the 11 years I leased the property but both paid on time and treated my property as I would want them to.

2) Help me treat my good tenants right. If something went wrong (AC compressor, water heater, etc.) this agent got it fixed right away. He knew which service people would do it right and at a reasonable cost. Since he gave them business for many properties around the city they were willing to do good by him and his clients. Best of all, I didn't have to take time away from my job and travel 200 miles to see that the work was done right.

3) Finally, when I was ready to sell, he put me in touch with a great real estate agent who found a buyer quickly.

How do you find a great leasing agent? As with anything I recommend asking around to individuals. In this case friends or business associates (of course), real estate agents, and perhaps bank loan officers could give good advice. Good luck. I know you have a difficult decision to make.

[OkieEric]

I went through the same dilemma recently and decided to sell

 

There are so many variables on this I don't think anyone here can answer for you.  Look at your income, then look at your "likely" cashflow from leasing.  First question, is it worth the hassle?

 

Keep in mind you will be taxed at your ordinary income tax rate, more specifically your marginal (highest) tax rate.  You can certainly take certain steps to help reduce your reported income, but in my own case I didn't want to deal with it, especially if you are dealing with effectively a single rental unit.  Being long distance I'd assume you'd also have to go through a property management company that will take a cut

 

What kind of rate of return on your equity are you going to get?

 

In our case (sound similar to yours) our townhome was all newly renovated, all new appliances, etc.  Now imagine what condition everything will be in after renting it out for a few years

 

For us it was an easy decision, especially given how quickly things are selling...but of course I'm just rationalizing my own decision.  I'd just say make some conservative assumptions and crunch the numbers for an unbiased decision

[KinkaidAlum]

I rented out my townhouse in Boston for 2 years when I first moved back here but that was because there was a legal issue with the building and I would have taken a hit to sell it. Lucked out because I sorta knew the tenant. 

 

However, my main concern is... have you seen the prices in San Fran? My ex moved there and he pays $2,300 a month in rent, has a roommate, and the place is a DUMP, especially compared to what your townhouse (location, space, and amenities) must be like. Be prepared to take a huge step back in your standard of living. The city is pretty awesome, but it wasn't awesome enough in my book. I'd rather visit it from time-to-time.

[barracuda]

Considering all the new features you just added, the current seller's market, and the fact that you would not be local, I would lean towards selling. Once the house is rented, it's very likely the landscaping and painting will need to be redone, and all the new features that will help sell the house now will lose much of their luster over that time. 

 

If you do decide to rent the unit, make sure you take into account all the costs involved in maintaining the townhouse - mortgage, tax+insurance, HOA fees, and ongoing maintenance costs. Plus, add any costs if you hire a realtor to find a tenant - usually a full month's rent. 

[woolie]

Well, as I was sitting on my patio this evening, I noticed a certain realtor taking pictures of my neighbor across the street (he's a specialist in this area, was the listing agent when I bought this house). Turns out he's about to list that house, nearly identical to my own, for 270k. He was emphatic about the local market conditions, and is trying to establish a new high water mark with this listing. Said houses are getting multiple offers, over asking.

 

So, if he reaches his goal and establishes a 1:1 comparable house at that price... It'll be an easy decision to sell. Now, to get the jobs I have my first interviews in SF next week.

 

Kinkaid: Yeah, it is painfully expensive. However, my salary there will be 3x my current salary here if I leave research and go into an industry position. My wife is also an experienced CPA, so we'll be rowing hard in a DINK boat. It should be manageable.