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Archive for October, 2011

Real Estate! To Sell or Rent? WWYD?

October 31st, 2011 at 04:37 am

I am back from another long hiatus and I'd like some perspective from the seasoned savers.

A fun fact to keep in mind: I live in Georgia.

In 2007 I inherited a $1300 sq ft condo in Foster City, California. It was my parents place when they first got married and the mortgage was paid off long ago. (I found paperwork showing they bought it for $40k!)

Since the early 1980's, the place has been rented out. I inherited the place and left it alone because the tenant had occupied it for almost 10 yrs and had no plans to leave.

She was paying $1750 a month, and I pay almost $500 month in HOA fees. The taxes are $1000 per year.

Last year the tenant was laid off and the rent was reduced to $1250 month for 6 months while a job was found.

The 6 months turned into 8 months, and now it will be 12 months and we have agreed that the tenant needs to find somewhere else to live in January because they are still unemployed and cannot afford the actual rental charge of $1750.

So in January I have a big decision. Sell or Rent?

During the day I am inclined to rent out the property and tell myself that "real estate is at the bottom and this is the time to stay in the game if I want to get the full value of the property someday."

To rent it out, I figure I'll need some renovations, a trustworthy property manager, and some luck.

My currently unemployed husband (another blog for that story) and his contractor friend are planning to fly out to CA in January, and complete the renovations. They would put in builder grade materials and update the kitchen cabinets, countertops, bathroom tiles, vanity, maybe shower, and carpeting. And paint. We are hoping this can be done for $10,000. in 2 weeks. (Sounds like an HGTV show...)

Then we would use a property manager to rent it out for...$1900 a month? maybe $2000? But I'm sure 10% would go to the property manager, and then $500 in HOA fees, so I would clear about $1300 a month.

My fear with this scenario is that the property manager would be useless or unreliable and essentially steal our money. (I have heard scary stories!)I dont have any contacts out there so I would be hiring based on websites, phone conversations and gut.

And I fear that the place would be a merry go round of tenants who only stay a year and move, stay a year and move. So the $1300 a month would be spotty.

The pro of the idea is that I get to keep a completely paid for asset in one of the highest real estate areas in the country. (Though I'm also afraid an earthquake will take it down. It's insured...but you know how insurance companies are.)

Or I can sell it. This is the plan I formulate late at night (like tonight) when I am unable to sleep because of pending bills.

I am guessing I could net $420,000 for it as it is now. I could pay off some debts I have accrued and still have $366,000 to bank.

But where to bank it? In a bank for 1% interest? I have less faith in the stock market than the real estate market so it's not going there.

If I bank it for 1% interest I am getting about $3,600 a year vs the $15,600 a year that the rent would potentialy bring in.

I could pay off my primary house mortgage with $150,000 of the $366,00 and that would eliminate $1380 a month bill from my life.

Then I would have $216,000 to bank at 1% interest but the only debt I would have is a rental property that pays double its mortgage every month.

So it seems like $150,000 of the $420,000 would eliminate a $1380 bill that I was planned to have for 28 years. So that will actually put $463,680 in my pocket. Plus I would have $216,000 left over from the sale of the property.
...right? Am I thinking this out correctly?

So does it seem like the right choice is to sell it while it is at the bottom of the market and use the money to pay off (affordable) debts? Or to rent it for a nice monthly cash profit and wait for the real estate market to come back?

(I said "affordable debts" because we can make our monthly payments on our current debts.)

I want to do the right thing for long term sucess. Not short term gains. It's just hard for me to see the forest from the trees right now. I need perspective.