All right, I've got one for ya...
My current house was my starter house. I've been here for almost 6 years now, and I have seen tremendous appreciation - I bought just before the run-up here in south FL. I have about 2x equity vs mortgage, a vary favorable rate, and relatively low tax, as the house value was calculated before the mad appreciation. I pay quite a bit more into the P than I do into the I on my monthly statements these days...things are great as far as that all goes.
My wife and I are now thinking about moving somewhere - Colorado, maybe, time line is 2007. Because I feel that I have such a good thing going with this house, I am thinking about renting it. What are the pitfalls here? a couple of specific questions:
1. how do you find out what the market value is to rent a place?
2. what are the consequences of living 2000 miles from your rental property?
3. how to pay for new house - better to have low down payment, sell this house & forget arbor renting, or perhaps home equity loan to finance larger down payment?
any other tips/tricks related?
Thanks, it's been very interesting reading all of this. It's nice to get opinions from industry insiders who are not trying to sell me anything immediately; much appreciated.
But if you act right now......
FIRST, you need to interview and hire a good PM (Property Manager) if you are even going to consider it. You CANNOT manage a property yourself from 2,000 miles away. PERIOD
You can't be at eviction court on Friday, you can't dive over and grab the rent if needed, you can't watch your property, you can't do anything from 2K miles away.
As with anything else, there are GREAT PMs that care for their clients homes, and there are worthless piles of.... Get recommendations, interview, the works.
That said, no renter is going to treat your home as you would. It will be in worse condition. Does this house have any sentimental value at all. I can tell you that if this was the first house with your wife, or where you conceived junior, or.... You know your wife. Will she be completely crushed to see it's state 5 years from now when you are in FL to check on things?
NEVER rent out a home you care about. It will be heartbreaking.
I Don't know the South FL market, and you are in front of the curve. However, generally in hot markets like FL and CA the Rents have not kept pace with the costs. Do some research and figure out what rents are.
You can do that by talking with a good PM but I just grab the Sunday paper, look for things that seem about like what I have, call them, ask questions, confirm you have similar features. If it's the same in features and location, it's a good starting point. Basically act like an appraiser and do the research. Then watch the paper, and see how fast the Add disappears. If the Add is gone next week, it's rented, and was either priced at or below market. If the add lingers for months, it's too high.
If rents can't keep up with expenses, combined with the wear and tear on the place, it could likely be the best to cash out your equity, and buy a duplex for the sole purpose of renting out at your new home town.
Do take into account that with turnover you should plan on 11 months of rents at best. The PM you hire could have countless other clients, and you are at the bottom of the priority list with your one rental and end up with multiple months of Vacancy on a yearly basis. Can you go 5 months without income? Only you can answer that.
Only real advantage I see to using it as a rental is that all your future "Vacations" err, checking on your house in South FL will be Tax deductible.
Way too many disadvantages for my taste being that far away.
On this board, Bass is DEFINITELY the one you want to consult with on this subject. He is absolutely the expert in this matter.
Mike is spot on with his advice.I'll add to this regarding the financing, because I'm a real good numbers guy (kinda leads into the FF thing
).
Since I don't know the value of your house, I'm going to guess a number. Miami, say $500K?
Let's say you owe $200K (you said about 2x) at about 6% and you can rent the place out for $3600 a month.
All guesses, but I'll explain as I go. Pay close attention, they'll be a quiz
.
Step 1. Do as Mike said and check the paper and with PMs as to what the place will rent for. That should reaffirm my guess at $3600.
Step 2. Get a calculator and take 75% of the monthly rent. Now let's call this number your "effective rent". In my example, this is $2700.
Step 3. Subtract your current mortgage payment from the effective rent. Your payment, if it includes taxes and insurance, is about $1500 I'd guess. Maybe a little less, but let's go with it. In the continuing example, that's $1200 ($2700 - $1500).
Step 4. You took the $3600 rent x 75% to get $2700 effective rent, and now you subtracted off the $1500 mortgage payment. What's the $1200? That is the amount you can afford in a new second mortgage.
Why do I care about this number? Well, if you want to rent the property out AND have $$ to go buy a new place, here is your source of funds. The $1200 at 7.5% for 30 years will be about $170K. So you can get a second mortgage for $170K, the property will rent out and be covered enough to pay for itself, and you have $170K at a good rate that is secured by real estate, so it is tax deductible.
Yes, you'll have to deal with the property being owned / rented by someone else. But you have big time tax advantages (income, depreciation of the house, equity growth, appreciation of the asset, and leverage). That is
I.D.E.A.L. - so you can remember it by that acronym.
You can also retire back to Florida to the house (just have someone go and clean it up for you before you go back). Yes you may have to repair it later on, but the $$ you made along the way would likely offset any potential issues.
One last thought - can it be a seasonal rental? Renting it out furnished or by month-to-month or even timeshare style (weekly) may yield more $$. Talk to the PM. You may even be able to take a week or two yourself (I believe the limit is 14 days for a rental property that you can use it yourself).
Hope that all helps.