by Aarthi Swaminathan
“What puts me off is that the interest rate is only 2.75 per cent and that’s tens of thousands of dollars to complete the rent.”
Dear Market Watch,
I am 73 years old and own two houses in Tampa, Florida. I live in one of them and rent the other.
I paid the $245,000 leased one at 2.75%. It has four bedrooms and two bathrooms and faces the wetlands so it is very quiet. I also spent over $50,000 on improvements—from landscaping to replacing the water filter to setting up a separate room—to prepare it for a long-term rental. I make about $1,000 a month in profit.
The rent is very easy to fill, but I’m 73 years old. Utilities are rising fast. I had a lot of extras in dealing with the rent, from $1,600 to replace the grass in the front yard to $650 to replace the air conditioner. I also had to spend $5,100 in legal fees to evict the tenant. I’m also concerned about possible damage from a hurricane, and Tampa’s property insurance is out of control. Rent insurance for homeowners increased from $700 per year to $1,000 per year.
On a deeper level, I also worry that the world will go into a depression. I worry that if I wait too long, my house will lose 20% of its value and I will lose money. With inflation, this will be difficult.
I also owe money on my main house, which I bought brand new in January 2020. I still have $110,000 to pay for a $460,000 house. This is my dream home. I rented three bedrooms so I could pay my mortgage and utilities.
So my question is: should I sell my rent and pay off my first home?
My Social Security payment is only $2,890 a month. If I sell my rent, I can pay off the cost of my dream house, but I only have $80,000 left.
What puts me off is that the interest rate is only 2.75%, and it costs tens of thousands of dollars to complete the rent.
When the time comes, I deduct $1,000 a month from the rent. I like people who are currently renting from me, but can’t find a property management team that can take on non-traditional co-living houses with four different rental agreements. But I feel I need to act fast before property values fall further.
what should I do?
Getting stuck in Tampa
‘The Big Move’ is a MarketWatch column that looks at the ins and outs of real estate, from finding a new home to applying for a mortgage.
Do you have questions about buying or selling a home? Are you wondering where your next move should be? Email Aarthi Swaminathan at [email protected]
You’ve stumbled upon one of the biggest realizations homeowners face when entering the long- and even short-term rental market: Renters face endless problems every day.
With rents only going up, albeit not as fast as before, renting out the property sounds like a brilliant idea in theory. Liquidating a $1,000 profit can significantly boost your monthly income. This does feel like a great business decision.
But this comes with personal and increasing financial costs.
You mentioned a number of costs that are stressing you out, from rising utility bills to insurance premiums, storm risk, wear and tear on your home, and the possibility of bad renters.
I know you feel like you’re getting a lot, buying a home at 2.75%. This popular low interest rate will help you in the long run because your home appreciates without you paying higher interest.
But you say you’re worried the world will go into a depression and your property value might drop. At this point, everyone is wondering where the economy is headed, and housing appears to be in recession. It looks like mortgage rates are only going to rise.
So here’s an idea: why not wait?
We don’t know if the economy will collapse, if house prices will collapse, if mass layoffs are imminent. So why give up something that gives you a steady $1,000 a month?
Still, this is the deal. You have to see if it still makes financial sense to rent a year or two from now.
First, list all your expenses and see if you can still make a profit. Take your time to do this; consider legal and insurance costs for future tenants, rising insurance premiums, etc. If you’re still going to be profitable after a year, that’s great, stick with it.
If maintenance is a tiresome task, here’s a suggestion: try hiring a part-timer, or find a young relative you can fully trust to help you run the property as a rental. Maybe stepping away from your day job a little can help you decide if the trouble is worth it.
But if that’s not the case, and if the rent isn’t making money for you, then maybe it’s time to give up the rent.
It’s time to sell when you see your profits shrink significantly or get close to breakeven. Yes, you are giving up the appreciation of your second home. Yes, you can sell within a few years. Yes, you can wait and see how the market develops.
But consider another option: If you haven’t settled any funds, just sell the rent, put aside your frustrations and agreements with tenants, pay off the remaining debt on your dream home, and keep that $80,000 as a buffer It’s you want to do.
The money you owe on the house only bothers you as you get older, and dealing with renters, and all the other things you mentioned, only gets more annoying. And you also won’t have the energy to deal with potential fraudsters or anyone in question.
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