The Housechick Blog

Having trouble selling your house?  You’re in good company.  Today’s Tucson Real Estate snapshot: there are 8081 active residential listings, and there were 767 homes sold in October of this year.  Seasonally, we’re about to have our winter slow-down as well - it is a determined Buyer that wants to move over the holidays.

More and more, I hear Sellers considering renting the house for a year, and then trying their luck in next year’s market.  Is that a good decision?

Let’s discuss the possibilities, and you can make the best decision for yourself.

First - the market next year is unknown.  Worse, better, the same - it all depends on who you talk to and who you care to believe.  Let’s look at worst and best, and hope for the middle or better.  We’ll use this later in some scenarios.

Are you ready to become a landlord?  Go download the Arizona Landlord Tenant act and read through it carefully.  Do you feel confident that you can screen potential tenants carefully?  Are you prepared to handle calls regarding stopped-up plumbing or broken cabinet doors?  If you’re going to use a property management company, they’ll take at least 10%, if not 15%, of your monthly rent, plus an annual fee - usually a couple hundred bucks. 

Okay, so let’s say you successfully rented your house for a year.  Now that your tenant is out, you’ll need a fresh coat of paint, and a carpet cleaning, if not an outright replacement.  Let’s say you spend $3000 in repairs and cleaning. 

So was the year’s rent worth it?

Let’s look at an optimistic scenario:  Say you have a 3 bedroom house on the Northwest side of Tucson.  You bought it 3 years ago for $175,000, and took out $20,000 in an equity line to landscape the backyard and make some other interior improvements.  Your monthly mortgage costs are $1380, including the first and second mortgage and your $30/month HOA fee.  You have your house listed at $275,000 for it.  It would probably sell more easily for $250,000, but you don’t want to take that hit.  You decide to withdraw your listing and lease the property for a year.  Since you have a nice house, you get $1200/month for it.  In a year, your house is worth $260,000.

Scenario One: Sell today for $250,000

Sales Price: $250,000

- $21,000 closing costs

- $135,820 first mortgage remainder

-$19,571 second mortgage remainder

= $73,609 at close

Scenario Two: Rent for 1 year, then Sell for $260,000

Sales Price: $260,000

- $22,000 closing costs

- $134,204 first mortgage remainder

-$19,400 second mortgage remainder

= $84,396 at closing - but we need to figure costs for the year, plus rent.

- $16,560 in mortgage payments (includes HOA, taxes, insurance)

+14,400 in rental income

- $3000 in cleaning, paint, and repairs

= $79,236 after costs.

So you gained an additional $5600 by renting for a year instead of lowering your price now.  Assuming you were able to rent it right away, sell it right away, and prices went up $10k over the year.  Possible?  Maybe.  Let’s look at a more realistic scenario.

You have the same 3 bedroom Northwest side house, same costs.  You decide to rent for a year, and it takes 4 months to find a tenant because of the sheer number of available rentals in the area.  You only get $1000 per month for the house, and sign a year’s lease.  After the tenant moves out, it takes you 4 months to sell the place, at $260,000, and after $3000 in paint, cleaning, and repairs.

Scenario Three: Tougher Rental Market, sell after a year’s lease

Sales Price $260,000

- $22,000 closing costs

- $134,204 first mortgage remainder

- $19,400 second mortgage remainder

= $84,396 at closing

- $27,600 in mortgages (12 mo. lease, + 4 mo. before lease, 4 mo. to sell)

+12,000 in rental income

- $3000 in cleaning, paint, repairs

= $65,796 after costs.

So in this more realistic version, you make $7,813 LESS than you would had you just sold at a reduced price now.  You had to deal with a tenant, who hopefully was on time with their rent, didn’t destroy everything, or call frequently with problems.  We haven’t factored in marketing costs, or tax benefits, OR your living costs while your current house is being rented, so your mileage may vary.

What’s your scenario?