Renting vs Selling, and possibly taking a loss?

Question

We are almost finished with our first flip house, yea! I know it was a dumb to try and do this with the way the real estate market is right now, but it was my Grandfather's house. He passed away and my Mom gave me an excellent deal on it, that I just couldn't pass up. It is in a desirable neighborhood and the houses don't sit for long, so we were hoping to sell it fairly quick. Before we put it on the market, we are curious about renting it out until the market recovers in the hopes we can make a profit, if not at least get out of it what we put into it. I know renting can be a nightmare, but it might be worth it in this case. Any thoughts on renting vs selling and possibly taking a loss? Also, if we decide to rent instead, how do you calculate what the rent should be each month? Is it a percentage above the note, or is it based solely on what similar homes in the area rent for? Thanks!

Answer 1

you need to get comps for your neighborhood, look in paper or other for lease signs in area and ask what rent is. you need to put it at the lowest rent you can for the area in order to get it rent faster. the sales market is down as well as the rental market in most areas because there are so may rentals on market. people like you can sell so they are putting houses on market for lease.also when you do get an applicant check them out good there are alot of bad credit applicants out there, get a full months deposit and check credit , employment rental etc...don't just settle and don't take someone that gives you the poor me I'm the best tenant for you but I have bad credit dogs and don't have enough money for the deposit up front. ad only accept certified funds for 1st mths and deposits.
good luck

Answer 2

Too bad about getting caught in the market crunch. Are you willing to accept the hassle of being a landlord? The tenant will call at the most inopportune time with a real or perceived emergency; and oh by the way the rent is going to be a week or so late. Even if you get a property manager you will want to at least drive by the place every month to make sure the house is still standing and the exterior maintenance is getting done. The tenants will not care what your costs are. The rent would be what you could get, probably close to what similar homes in the area rent for. That being said, I sold a rental about 6 years ago and would have made $100000 more if I'd held it until this May, even if it had been vacant the whole time. But it was the late 70's last time we had the recent amount of housing inflation so I doubt there will be the same out of control profits to be made for a while.

Answer 3

You did not tell us which state your house is located. Therefore, I can only give you some general suggestions:
If your house is in a city where you see a lot of new constructions, condos, business, manufactures moving out,
or, close down business and massive lay offs, then, you may not have a choice, but to hold on to the house. You are not going to sell it easily any way. The rent should be determined by the market value. Buy local news - check the rental section, select the the same # of rooms, bath, kitchens,etc., in the same location. Take an average, and lower your
rent by $50. In doing so, it will attract the tenant. You must do
credit check before you let any one moves in. A credit check will cost you about $35-$40, but it may save thousands. Also, you will know who is coming. Go by Credit score, not go by your good heart. Business is business. Credit score below C
just reject them. Try run adv on internet again. There are couples of good site to list renting adv. free. Do a query on the Search, you will find it.
You need to get the approval from the possible tenant to conduct the credit check. Make up an agreement have them sign it, otherwise, the credit check company will not run the credit check for you. You have to be the owner.
Try to sign a month-to-month lease. If the tenant did not work out, you can tell them 30 days in advance, ask them to find another place to move. If you sign a one year lease, you may
run in problem.The large city always protect the tenant.The tenant can pay you $50/month, and drags on for 7, 8 months, and not paying you any more money. You will be in deep trouble. Even you grand mother gave you a great deal, I think you still paid out money. You may have mortgage. If the tenant refuses to pay rent, you need to sue them at housing court. You need a lawyer, take time off... So, be careful.
Once garbage get in, it will be difficult to get them out!
As far as selling it - If the market is strong, going up, you may
get a better price (cost + profit). If the market is lousy, try either stay put, renting it (struggle through), or, take loss ( try to minimize your loss. To fixed up only cosmetics, not capital improvement (big $), paint it brighter to give a brighter and warm feeling before put the house on the market. Location, location, and location! You heard that, right?
The price depends on the location, quality of structure, nearby neighbors, environment, accessibility to public transportation, hospital, school, etc. You can not pull a $ from the sky, and say " I am going to sell this house at that $ price! Not possible! Good luck!

Answer 4

Selling at a loss is NEVER good. You could try a lease option. People interested in those usually can't qualify for loans and need time to repair their credit. You can ask any amount for the house you want, they really don't have the option of negotiating on price because there isn't much selection in homes where the sell will allow them to lease it for a year before purchasing. The monthly payment is always negotiable, what most people seem to do is calculate what the payment would be at the selling price - so you think the house will sell for 200k next year, that's your asking price. You go to bankrate.com and look at payments in a slightly higer than average interest rate, say 7.5% or so - people with bad credit now are still going to have less than perfect credit in a year & will have sub prime rates. You base your rent amount on that number there. You also ask for roughly 3 months worth of deposit up front. This protects you in case they damage the place or decide not to buy it. You get to keep it either way.
I'd suggest this route unless that monthly payment would price you out of the market - usually it won't though, because that's what they'd be paying on the mortgage if they chose to buy the house anyway.

Answer 5

A Realtor who is familiar with the neighborhood is your best resource. Interview three agents, if possible, and select the one who seems the most knowledgable. Ask the agent about a realistic listing price, what rentals are going for and what the advantages of a lease-option might be. Any rent should cover expenses, with a little left over for repairs and replacements at the end of the lease, ususally 10%.
If you do decide to rent the property, be sure to screen the tenant very well. The agent can help you with this, too. You don't want a like-new house wrecked by a bad tenant!

Answer 6

A realtor in your area could probably advise you on your specific market, and I would certainly suggest having a conversation with one before you decide.

Renting can be a very good way to build income, establish some good tax benefits and to keep your house off the market until the time is right, but you might want to talk to a property manager.

A lot depends on who you rent to. A good renter can be a blessing for a landlord. A bad one can be, as you noted, a nightmare.

Answer 7

Sounds like you need some professional assistance in deciding what to do. There are many variables that come into play here with your situation. It was not necessarily a 'dumb idea' to buy this in the current market. In my professional opinion, NOW is the very best time to be a real estate investor, depending on your individual goals.
I suggest you contact Real Estate Funding Network in Raleigh, N.C. at 1-919-802-3119 and discuss your best options with a real estate consultant. There is a free consultation, and these guys know the real estate business nationwide and will give you good advise. What is a phone call worth to you for good information??? Nothing to lose, and everything to gain I'd say!!!!!

Answer 8

Many of the quick turn around places do this type of thing. it protects them in that your credit is what is tied to the property. if they don't pay you, you are in default. Sure you can go after them, but then you will have to pay to sue them. this will be after they mortgage company forecloses on your home. also, they will find the tenants for the property. If the place gets trashed too bad, they can walk away and leave you holding the bag. i would never sell a place this way. let them know if they are truly interested in your place then they should make you an offer. many of the Real Estate get rich quick schemes you see on TV and the internet sell this type of practice as a win-win situation for everyone. it can be, but you have to look at where the risk is. What risk is this investor putting up in the deal? Is the risk you are dealing with worth the payout you are getting now (not in the future)? I considered this type of investment back when I started my real estate dealings but decided to go the tried and true route of purchasing my own properties and renting them out. Good deals are out there and can easily be bought. No need to have your credit tied to this deal. Cash is King.

Answer 9

Consider a lease option over rental. You'll get more up front money then if the buyer does not take the option you keep the house and the cash. As far as choosing the rent payment it should be no less than 1.25% of your PITI payment for the purposes of having no liability should you need to qualify for another mortgage. Be sure the rent is reasonable and that you yourself would pay the price.

Answer 10

My boyfriend and I are going throught this right now! You should definitely rent the house out, if you do, you could make more of a profit in the future!!! Good luck to you!!