Pros and Cons - renting out current (owned) condo and renting bigger place?

[Anonymous]

We currently own a small 1BR plus den condo and we have two children. As you can imagine, space is tight! But I love my neighborhood and my older child's in-boundary school, so am thinking of renting a bigger space in the same neighborhood. I'm hesitant to buy a new place for several reasons: (1) local public elementary is good but middle and high school are not; (2) am not fully committed to the area and keep hoping we're going to move back "home" at some point; and (3) all of my friends live in the city and I'm afraid to commit to a house in the burbs for schools.

Monthly cost of condo is about $2200 including everything (condo fees, etc.). Condo would rent for approximately $2500/month. To rent anything markedly bigger, we'd probably need to spend $3500 a month. Thus, we'd spend about $1000 more a month to rent and lose the mortgage interest deduction on our current place because it would no longer be our primary residence. Anyone ever done this? Thoughts yay or nay? We can "afford" $3500 per month, I just wonder if it's throwing money away on rent. I figure we'd rent for at least another two years or so, which would buy us time to make some bigger decisions about where to buy.

[Anonymous]

You can throw money away on mortgage interest if it makes you fell better

You can also depreciate your condo as a rental property to help reduce current taxes. You also need to be able to "afford" to carry both places inbetween tenants or if you get a deadbeat.

[Anonymous]

1. Don't be so sure you can get $2500 for it. Lots of properties for rent in my area are constantly dropping their listed price because they've been sitting on the market for so long. What you need to do is figure out the lowest amount you can rent the condo for and still afford the $3500 in rent. If you can only get the condo rented for $2000, can you still afford the $3500? That brings me to point #2:

2. Can you afford the mortgage on your condo AND the rent? Because there will definitely be times when the condo is not rented, and you will have to cover both. This could be if a renter's lease is up and it takes you awhile to find a new renter. Or it could be if, like my husband and me, you are extremely unlucky with tenants and get the kind who trash your house and then leave in the middle of the night owing you back rent. If you can't afford the mortgage and the rent, you don't need to rent.

3. If a renter moves out and leaves the place destroyed, do you have a cushion of funds you can use to get the place back in order? This can range from cleaning the carpets to repainting to patching holes punched in the walls (seriously), reattaching doors to their frames (also seriously)... anything. Unfortunately, a lot of renters just don't seem to care about keeping the place they're renting in good, livable shape. So you need to be able to fork over some cash in the event a tenant leaves the place trashed.

My advice as someone who owns a home in another state and has been at the mercy of renters: don't rent your home unless you absolutely have to. It shouldn't be, but it's rare that you will get someone in there who will pay the rent on time, as agreed, in full, and also your treat your home with a modicum of respect. It's enormously stressful to carry a mortgage and rent when the house isn't rented and to worry about how they're treating your property.

[Anonymous]

We had this identical problem (plus a dog) and decided to sell the condo at a loss. We didn't want to have stress of a rental and knew that we would never live in the condo again due to our growing family. We then rented a house in the same area as the desired school and started looking for a house to buy in the kids' last year of elementary. Being renters made it very easy to move into the new house since we didn't have to worry about selling our home.

[Anonymous]

Thanks, PPs. I know there is a risk to renting the condo and we would have enough cushion to deal with potentially crappy renters or a gap in tenancy. To the PP who suggested selling the condo now...there are two reasons I hesitate to do that. First, I feel like the DC market is only going up, up, up. Somehow, I feel comforted knowing that I am "in" the market through the condo, so that I get in any appreciation in the market between now and when we buy again. If I sell the condo, I feel like I may miss out on whatever gain there is between now and a few years from now on the condo. Second, there is a chance that we could save up enough down payment to buy a new house but still hold onto the rental. Rents in the neighborhood have only gone up and I can't see any way they would go down (desirable and urban). I like the idea of being able to hold onto the condo as an investment if we could swing it. I appreciate all of these responses - giving me things to think about!

[Anonymous]

I can't talk to the finances, but I think you can find a good renter, particularly if you're willing to do due diligence on the front end. We just left a rental after 4+ years, and definitely took good care of the place. Not as good as if we owned it, but we certainly immediately notified owners of anything that would cause issues if ignored, and actually put in some improvements. And our rent was always paid in full and on time (actually early.) So good renters are out there.

[Anonymous]

Anonymous wrote:1. Don't be so sure you can get $2500 for it. Lots of properties for rent in my area are constantly dropping their listed price because they've been sitting on the market for so long. What you need to do is figure out the lowest amount you can rent the condo for and still afford the $3500 in rent. If you can only get the condo rented for $2000, can you still afford the $3500? That brings me to point #2:

2. Can you afford the mortgage on your condo AND the rent? Because there will definitely be times when the condo is not rented, and you will have to cover both. This could be if a renter's lease is up and it takes you awhile to find a new renter. Or it could be if, like my husband and me, you are extremely unlucky with tenants and get the kind who trash your house and then leave in the middle of the night owing you back rent. If you can't afford the mortgage and the rent, you don't need to rent.

3. If a renter moves out and leaves the place destroyed, do you have a cushion of funds you can use to get the place back in order? This can range from cleaning the carpets to repainting to patching holes punched in the walls (seriously), reattaching doors to their frames (also seriously)... anything. Unfortunately, a lot of renters just don't seem to care about keeping the place they're renting in good, livable shape. So you need to be able to fork over some cash in the event a tenant leaves the place trashed.

My advice as someone who owns a home in another state and has been at the mercy of renters: don't rent your home unless you absolutely have to. It shouldn't be, but it's rare that you will get someone in there who will pay the rent on time, as agreed, in full, and also your treat your home with a modicum of respect. It's enormously stressful to carry a mortgage and rent when the house isn't rented and to worry about how they're treating your property.

This is all very good advice.

We had a brand new condo that we rented out. We are on our 4th set of tenants in 7 years. We've had to replace (not just clean) the carpets after two of those tenants. The 4th set are still living there.

They call with every little thing, and unless you want to go over there and fix their clogged toilet yourself, then you have to call a repair person. Each time that will be at least $100 + the cost of repairs. I will never rent a place again unless I was very cash flow positive, and a few hundred a month isn't enough. There will be at least 2 weeks, but probably more like a month between tenants, and that loss of rent will take away any "profit" you had.

[Anonymous]

Anonymous wrote:I can't talk to the finances, but I think you can find a good renter, particularly if you're willing to do due diligence on the front end. We just left a rental after 4+ years, and definitely took good care of the place. Not as good as if we owned it, but we certainly immediately notified owners of anything that would cause issues if ignored, and actually put in some improvements. And our rent was always paid in full and on time (actually early.) So good renters are out there.

12:21 here. I'm an owner, but also currently a renter, and I agree, there are good ones! (I'm one myself.) My best advice for getting in a good renter, if you go down that path:

MOST DEFINITELY check their rental references. Call whatever apartment complex or landlord you need to for the past 3 years. Ask how often or if they ever paid rent late, ask what repairs or cleaning needed to be done when they moved out.

Also, be up front with them what the utilities will cost. So many people don't seem to factor in utilities when they look for a place to rent. They just think, "Oh, this place is nice and it's $2500 which is what I can afford!" Sure they might can afford $2500 total- can they afford $2500 plus utilities? We once had people trying to rent our house and asking us down to the dollar what the utilities were every month and what the average cost of gas was monthly going back and forth between the house and the nearest large city (where they wanted to work). It was actually a big eye opener for us in that situation because it helped us realize they could NOT afford to live in the house. It was already above their budget, but they loved it and wanted to make it work. But as badly as we wanted a renter in there to take the load off ourselves, we realized putting someone in who couldn't afford the place would be even worse, so we did not rent to them.

And, some of it is just luck. There's people who, on the surface, look like they should be good renters, and just aren't. One set that we had that left us with back rent and a trashed house when they pulled out of town in the middle of the night (literally, just like in movies, the middle of the night!) had been sent our way because they were the sister and brother in law of members of my sister in law's church. Church references! And still they bailed on rent.

For our current situation, we actually compromised a bit. The house needed some work from the previous tenants. We were 10 hours away and trying to figure out how to get it done. A family member's stepson had just graduated college and needed a place to live because he'd just gotten his first job in the same town. He could only afford about 4/5 of the rent, but he was a construction management major and a handy guy. So we told him we'd accept 4/5 of the rent, and cover the rest, if the agreement was that he'd do any repairs and fixing-up the house needed when he moved in. He agreed. He's been in there 2 years now and has always paid rent on time and never asked us to fix anything (he IS getting a great deal on rent). We're hopeful that in about a year he'll have saved up enough to be able to buy it, but in the meantime, it's been a good arrangement for all of us. I'm very thankful for him!

[Anonymous]

Anonymous wrote:

Anonymous wrote:1. Don't be so sure you can get $2500 for it. Lots of properties for rent in my area are constantly dropping their listed price because they've been sitting on the market for so long. What you need to do is figure out the lowest amount you can rent the condo for and still afford the $3500 in rent. If you can only get the condo rented for $2000, can you still afford the $3500? That brings me to point #2:

2. Can you afford the mortgage on your condo AND the rent? Because there will definitely be times when the condo is not rented, and you will have to cover both. This could be if a renter's lease is up and it takes you awhile to find a new renter. Or it could be if, like my husband and me, you are extremely unlucky with tenants and get the kind who trash your house and then leave in the middle of the night owing you back rent. If you can't afford the mortgage and the rent, you don't need to rent.

3. If a renter moves out and leaves the place destroyed, do you have a cushion of funds you can use to get the place back in order? This can range from cleaning the carpets to repainting to patching holes punched in the walls (seriously), reattaching doors to their frames (also seriously)... anything. Unfortunately, a lot of renters just don't seem to care about keeping the place they're renting in good, livable shape. So you need to be able to fork over some cash in the event a tenant leaves the place trashed.

My advice as someone who owns a home in another state and has been at the mercy of renters: don't rent your home unless you absolutely have to. It shouldn't be, but it's rare that you will get someone in there who will pay the rent on time, as agreed, in full, and also your treat your home with a modicum of respect. It's enormously stressful to carry a mortgage and rent when the house isn't rented and to worry about how they're treating your property.

This is all very good advice.

We had a brand new condo that we rented out. We are on our 4th set of tenants in 7 years. We've had to replace (not just clean) the carpets after two of those tenants. The 4th set are still living there.

They call with every little thing, and unless you want to go over there and fix their clogged toilet yourself, then you have to call a repair person. Each time that will be at least $100 + the cost of repairs. I will never rent a place again unless I was very cash flow positive, and a few hundred a month isn't enough. There will be at least 2 weeks, but probably more like a month between tenants, and that loss of rent will take away any "profit" you had.

being a landlord in virginia is better because you can evict and stipulate what maintenance tenants must do.

[Anonymous]

OP,

Have you researched the rental market? No sure what neighborhood but you might be able to find a two bedroom for $3,000. Again it depends on the neighborhood.

I'd use a realtor to find a good tenant. I'd look for someone in their 30s. A couple. A single woman. (Sorry guys.)

[Anonymous]

Anonymous wrote:OP,

Have you researched the rental market? No sure what neighborhood but you might be able to find a two bedroom for $3,000. Again it depends on the neighborhood.

I'd use a realtor to find a good tenant. I'd look for someone in their 30s. A couple. A single woman. (Sorry guys.)

A single, older woman did the most damage to my rental. She totally trashed it just by being a filthy mess. Definitely check references and do not allow any animals.

[Anonymous]

Anonymous wrote:

Anonymous wrote:OP,

Have you researched the rental market? No sure what neighborhood but you might be able to find a two bedroom for $3,000. Again it depends on the neighborhood.

I'd use a realtor to find a good tenant. I'd look for someone in their 30s. A couple. A single woman. (Sorry guys.)

A single, older woman did the most damage to my rental. She totally trashed it just by being a filthy mess. Definitely check references and do not allow any animals.

Two doctors trashed my MIL's Savannah riverfront home. She's still pissed about that. "Food on the ceilings! They put potted plants directly on the floor and watered them and ruined my carpets! AND THEY WERE DOCTORS!"

[Anonymous]

I'd use a realtor to find a good tenant. I'd look for someone in their 30s. A couple. A single woman. (Sorry guys.)

That realtor will tell you that it's illegal for him or her to discriminate based on age, marital status or sex.

[Anonymous]

We did this with our condo in another state when we were unable to sell. We've actually had great luck with our renters, and it's still miserable to be a landlord.

[Anonymous]

Anonymous wrote:I can't talk to the finances, but I think you can find a good renter, particularly if you're willing to do due diligence on the front end. We just left a rental after 4+ years, and definitely took good care of the place. Not as good as if we owned it, but we certainly immediately notified owners of anything that would cause issues if ignored, and actually put in some improvements. And our rent was always paid in full and on time (actually early.) So good renters are out there.

I agree - browse the Landlord Protection Agency forums (yes it sounds cheesy - a PP on here recommended it to me and its been worthwhile).

The general message I take from it is be extremely picky on a tenant and credit score, etc. Then, no problems. Don't be picky, LOTS of problems.

Caveat being if you are in a market that might not command as many strong tenants, you might not be able to get a 700 credit score (I require this on our rental).