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WWYD? We own a home and are in the red and need a bigger one
So DH and I bought our 3 bdrm 1 1/2 bath home in 2005 (no basement or garage) for 300,000 It is small. We planned to be here 5 years. We 3 kids, a dog, 2 fish, and 7 years later we are still here. It is getting to the point it is unlivable. The bathroom is so small between the potty training and baby tub, we stub our toes daily. We owe 240,000 on the home. It's worth 210,000. And we'd have to bring closing costs and money to the table, plus fix anything needed, realtor fees, etc - So probably 40,000-50,000. Then we'd need a down payment on the new home - we could get a perfect sized home for 300,000 - 400,000 (4 bdrm, 2 bath, basement, garage).
We have 60,000 saved. Which isn't enough for a new home and to sell this home. So we could rent this home out. We'd get about 1800 per month which would cover 1600 (mortgage, tax, insurance) and we'd have about 200 left over per month to put towards repairs, times the property isn't vacated etc.
Then we can use the other $$ for a down payment and closing on a new home.
So our options are 1) Stay here longer, pay down principal and save more to get out of this place 2) Rent out this place and get a new place 3) Stay here and add on (though all the homes are the same in this neighborhood and we cannot add on a basement or garage).
I'd like to rent this place out, keep paying down principal on the mortgage and if we like being landlords we can keep it as an investment. Also we make enough we could cover this mortgage and the new one if we needed to.
DH wants to sell the house spring of 2013, but it makes me sick to "lose" so much money including paying the realtor and other fees. We'd be losing 100,000 from what we paid. I know we are buying into the market we are losing, but it's just depressing to me.
What are your opinions?
Re: WWYD? We own a home and are in the red and need a bigger one
I am a landlord. I wouldn't do it again if I could do it all over. We haven't had any major issues, but it's still a liability I really wish we didn't have.
Becoming a landlord is not something to take lightly. It can be great if you get good renters who always pay rent on time and don't trash the place. But you'd be surprised how often this doesn't happen. It can be a total disaster and very, very expensive.
Read this for more details on all the things you should consider.
Are you willing to rent your current house out, and then rent a bigger house for your family to live in instead of buying a new house? Renting is less risky than buying a 2nd home since you wouldn't be responsible for repairs/maintenance on the new, bigger home you rent for yourselves.Mr. Sammy Dog
I'm not a landlord, but to ditto the PP I have heard nothing but bad news from the many people I know who have rented their homes. One of the biggest problems is that the stream of revenue is often not constant. You might have a renter for a year but then not be able to find someone for another six months, you know? Similarly, be prepared to hire a lawyer because every single person I've known to rent has gone through legal troubles. It's never as simple as it seems.
Before you settle on buying a new home, I would personally do some reading and research on making your small space work. Even then I would wonder how far 60k could go towards an addition or a new bathroom.
Only rent out your house if you are sure you could cover your mortgage and maintenance on your first house. And if you are SURE that you can cover the payments for both houses when a renter falls through.
We rented out our house when we moved here. We even used a property manager. The renters bailed after 6 months, trashed our house, and we spent months wrapped in legal drama trying to offically get them out. Now we are trying to sell but it's dragging on this terrible market. We have blown through our savings trying to unload this nightmare. We are renting at our new house and we won't be able to buy again for a long time.
It sounds like you are in a little better situation than we were but I still think you should be REALLY cautious!
I'm the author of the really long post in the above link. Let me know if you have specific questions.
I agree with PP on renting a bigger house. I can't tell you how fabulous it is to call someone when there's a repair instead of having to shell it out yourself. All you do is pick up the phone and the headache is someone else's. Heaven.
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Thinking of doing cosmetic updates to a dated home? These were our costs.
We're in a similar situation. Since you can no longer count rental income for the first year it made our debt-to-income ration way too high to even consider renting out our current place. Look at it this way, the new house you'll be buying will probably have lost a similar amount in value and loan rates are great right now.
We decided to put our place on the market last Friday.
We did have major issues, but absolutely perfect tenants, and I still wouldn't do it again. It was awful.
I agree with pps that i would sell your current house and then rent while you continue to save money to get into something you really want. Yes, it stinks to have to bring money to closing but in the long run this would be your best option.
We did have major issues, but absolutely perfect tenants, and I still wouldn't do it again. It was awful.
I agree with pps that i would sell your current house and then rent while you continue to save money to get into something you really want. Yes, it stinks to have to bring money to closing but in the long run this would be your best option.