Sell it or Lease it

[JeffLynn]

FROG friends a dilemma I need feed back.

DW and I are heading out next April for a year of traveling and will be leasing out our Florida home. We have a friend in real estate that also does leasing (10%) so we are taking that route for the 1st year to see if this is our future. After our year on the road what advice can you all give on selling or to keep leasing our home. I currently work from home and will continue while on the road so the income is not a factor. We stand to make about 50K +/- depending on the market at that time by selling or can make $400 or better a month leasing. Please we need experienced advice from both sides of the picture.

Thank You All in advance

Happy Cinco de Mayo!

[Flybob]

Does your friend manage the property or just lease it. You don't want to be chasing repair people for the house while on the road. Also speak to your tax advisor as there can be tax implications based on when you sell.

[JeffLynn]

Thanks flybob,

His agency leases and manages and said we would never hear from him just see a check in our bank account each month.

His agency will:
- do background checks
- bring us the top 4 to choose
- provide the contract
- do all repairs for management fee

only time he will call is if the roof leaks or the AC goes out and both are only 2 years old and under warranty.

My tax person said to see her before we lease or sell, she was a full timer at one time. :-)

[dblr]

Hopefully Epeyndad will see this and chime in, I believe that is what he did first then ended up selling

[ependydad]

Yep, dblr is right. We launched fulltime with the expectation that we were going on a 14-month trip. We kept the house as a safety net and, more so, my wife wasn’t ready to let it go. By month 5, we knew we wanted to stay on the road longer than the original term.

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The super short version: if you think you may return to that house or it’ll be a long-term rental, consider renting it. If you plan on selling any way, sell it now.

—-

We got a property manager and they took care of everything your friend says they will do. The coordinating of repairs wasn’t fantastic and the company I dealt with sold their business to Long & Foster in the DC region. I loved the first folks but the second, they had their heads up their bums.

Fortunately, we picked good tenants. They kept decent care of the house. And paid timely every month. We had NO repairs at all while the tenants were in the house.

All told, prepping it for rental costed me about $3-4k from minor updating to fixing some long standing niggly issues. As well as county application fees and lease commissions.

When it came time to prep the house for sale, the property management company wanted nothing to do with helping me. In fact, they threatened to drop me as soon as I wanted to bring a real estate agent in for the sale (literally wanted me to be responsible for 2 months of rent collection and close out of the rental after managing it for 22 months).

Prepping the house for sale, I spent another $5-10k. New floor in the kitchen, new carpet on the steps, paint, deep cleaning, some minor repairs, lawn maintenance & mulching, etc. I was lucky that the agent was a friend (more on that below), she coordinated with service contractors and I wrote checks. It was definitely way more expensive than if I had been living there.

When I went to sell, I picked a friend who was very green to being a real estate agent. I honestly think I was one of her first listings though she had quite a few sales as a buyer’s agent.

Due to that and some quirks of the house, we mispriced it and had ZERO traffic from early May until mid-July. It also didn’t help that the staging pictures were crap. The tenants had a mish-mash of furniture, were only mostly tidy, and just didn’t care if it sold or not. Heck, they wanted to renew the lease for another year.

So I got beat up on price.

And then the home inspection hit and they had a freaking laundry list of crap. But, I was in Oregon and the house was in Maryland. I didn’t have it in me to coordinate a bunch of contractors (even if it was through my friend/agent). The easiest way out was to give the buyer a handful more money back and just pay them off. I mentally calculated what I thought all of their repairs would cost and came up with a number that was about 75% of that and negotiated to it.

So I got beat up more on price.

Looking back, I personally knew I was never moving back into that house. I should never have rented it out and should have just sold it outright.

If you think this might be a home you return to, consider renting it. If you plan on turning it into a long-term rental and making money each month, consider renting it. Otherwise, sell it now.

One last note about taxes. Absolutely talk to a tax professional first. I didn’t. I used H&R Block’s online site and an agent review. He made depreciation decisions that he didn’t explain and I didn’t know to ask (and “he was the expert”). It impacted the next year’s taxes for how I had to file them. And then this year, I had to pay the piper. Make sure you understand the implications of what choices are being made.

Sorry for the novel. Hope that helps.

[JeffLynn]

Epeyndad,

Thank you for the novel... that very much helps. It is to bad there is not a guide book out there on this situation to help us all avoid what you had to go through.

Happy Trails, may we meet on the road some day and the beers are on me.

[JeffLynn]

One more thing... what did you do with all you stuff in the house? DW has " antiques" also ��

[ependydad]

Originally Posted by JeffLynn

One more thing... what did you do with all you stuff in the house? DW has " antiques" also ��

I can tell you, thinking we were only going for a 14-month trip, we didn't downsize a whole lot. We gave away a bunch of furniture that was near the end of its life to a young military couple and sold others. But the vast majority of our house went into storage.

Being more smarter, we decided to have a moving company come and take everything away in their truck to storage containers. Included in the cost was free local delivery when we decided where we were going once we got off of the road.

The downside to being more smarter, storage cost was $325/month. As for now, I'm targeting being in $11,700 for storage costs in 3 years. And now have to have it all delivered somewhere to be able to go through it and purge it.

There are a few things we'll keep from the upcoming purge and I'm hoping that my storage cost end up being less than $100/month but that's still $1,000/year.

What is the value of the stuff compared to the cost of storage? One friend who fulltimes and did the math- they've paid $20-40,000 over 20-years of fulltiming for things they couldn't give away and are now too overwhelmed to deal with.

On the flipside, I was talking to another family last night and they said through 3 rounds of purges, they're down to 8 large bins of possessions in a friend's basement.

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So again, you have to look at what's right for you. Do you think you'll want these things when you get off of the road? Are you storing them so the next generation can inherit them? (Will that next generation even want them?)

There's no right answer. But definitely do the math.

[gectisme]

We are/were in a similar dielema. If you have lived in the house the past 2 years, there would be no taxes on the $50k profit. On the other hand, that $50k profit will all be taxed if you lease out the house and then sell. So figure out the lease income plus the $50k minus the taxes to look at it financially. A large portion of that $50k profit can be eaten up by taxes real quick.

After 20 months on the road, what we decided to do is to move into our house that we had renters living in. We will live there 2 years and then during that time we will renovate / fix it and plan on seeing where the market is at. If the market is still good in 2 years, we will sell and not have to worry about taxes. If the market drops then we we will just rent it out again.

X2 on what Ependydad suggested about seeing a tax person to forecast, (unless you are up on the tax laws yourself).

[Ready2camp]

Property management companies charge a lot when it comes to having repairs done on your home. Yes, it's nice not having to worry about it but for us having one was not good. Our tenant lost the garage door opener and the property management charged us $400 for a replacement "clicker". Another time; a smoke detector had to be replaced, $650, parts and labor. And these companies are all the same. I have 3 rentals and each one had a different company. No more PM company for me and I do just fine without them.

[mdstudey]

When we moved we could not sell our house because of the market tanked. We had to rent it out. We did that for a couple of years then we sold it. We had to pay capital gains because it was no longer our primary residence. Just renting/leasing it out did that. So be sure to talk to a tax consultant. I also own investment property and a good property manager is key. As to tenants it is hard because you may know their credit history, but you don't know how your property will be abused. I have some real nightmare stories.

[lbrjet]

You just have to have lived in your home 2 of the last 5 years to be allowed the capital gains tax exclusion of no taxes on the first 250K gain for singles or the first 500K gain for marrieds. So it can be done. It doesn't have to be your primary residence when it is sold.

[jeepin1]

this post is interesting I will be keeping an eye on it.

I also have the same concerns.

[ependydad]

Originally Posted by lbrjet

You just have to have lived in your home 2 of the last 5 years to be allowed the capital gains tax exclusion of no taxes on the first 250K gain for singles or the first 500K gain for marrieds. So it can be done. It doesn't have to be your primary residence when it is sold.

This was my experience.

My hassles came specifically because we itemized the depreciation; not because it had been rented. And not because it wasn’t my primary residence.

[gectisme]

Originally Posted by lbrjet

You just have to have lived in your home 2 of the last 5 years to be allowed the capital gains tax exclusion of no taxes on the first 250K gain for singles or the first 500K gain for marrieds. So it can be done. It doesn't have to be your primary residence when it is sold.

Good point, I forgot about the total of 2 years out of the last 5 years. The house we moved back into was rented for the last 10 years so that doesn't affect us. I still recommend seeing a good tax person.

[CY_Asets]

If I were you, I would sell the house and get rid of all the stuff you can't take with you or store at family/friends. Talk to financial advisor about putting the proceeds into a REIT IRA so if you do decide to leave the road, you can use the tax free funds to purchase a house or it will just enhance your retirement. Life is too short to be bothered with things you don't enjoy (renting).

[bobandbrenda]

Having been a real estate broker for more than 30 years and now full timing my suggestion is sell the house. Being hundreds of miles from your home at times, you do not want the worry of repairs or finding new tenants or just worrying about the condition of your home when you are not there. When selling your home ALWAYS go with an experienced, high producing agent. The cost is the same and you usually get a high caliber agent. I have never seen a management company take care of your home like you would. Good luck.

[JeffLynn]

Thank you all for the great advice. We have meet with our financial person (former full timer) and she said to sell. So that is what we will be doing and at the same time looking to purchase a condo with the proceeds. The reason for the condo is not only our "exit plan" but a place to save DW heirlooms. Again thank you all I would be lost with out this FROG form. HAPPY CAMPING