Reply to Heading back to school. What would you do?

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[quote=Anonymous]I echo others that if you're not planning to return to DC, you should sell your DC property. Now is a decent seller's market.

You claim you're going to make $100-200 a month and that you won't have vacancies because it is a desirable neighborhood. But how much are you hoping to make in rent? Let's say you plan to rent this place for $2400 and think you will net $100 a month. If you have [i]a single month[/i] of vacancy, it will wipe out your net for [i]two years.[/i]

You should also factor in that renting out property remotely is difficult. Sometimes you have a wonderful tenant and nothing breaks and everything is great. Other times you have a crappy tenant or a lot breaks and you end up either spending a ton of time and money arranging to fix it yourself or you hire a management company, which cuts your profit substantially.

All that being said, sometimes its nice to own rental property even if all you're doing is breaking even. Basically, someone else is paying down your mortgage for you. BUT unless you have a very high net worth, it is easy to have way too high a percentage of your investments in real estate. Real estate investments are good for diversifying but don't historically have as good returns as the market. Given your current salaries and the fact that you're interested in purchasing in your new city, I am highly skeptical that its appropriate for you to have so much of your money tied up in real estate.

Regarding your question on renting: Do you intend to stay in the city where you are going to school? If not, you should probably rent. The break even point on home ownership being better than renting turns on a huge number of factors (there is a great calculator at the New York Times' site you should check out), but generally you want to own the house for at least five years to break even. If you're enrolling in a phd program that is sure to take at least that long, fine. But otherwise, I'd be wary.

And even if you plan to be there for 6-8 years, you mentioned putting additional money into renovations, which never pay themselves off fully, so you need to calculate the portion of the renovation cost you will not recover into your rent/buy analysis.[/quote]

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