# Sell house? Or pay it off and rent it out?



## Txrider (Jun 25, 2010)

I have a decision coming up it appears.. and I can't make up my mind.

I own a house in DFW metro, old 70's ranch style 3bd 1500sq ft. Good old neighborhood in a good bedroom community.. Owe about 100k on a 170k value.

I also own a small acreage 250 miles away. Owe about 56k on it with $500 payments.

So the deal is I may be leaving my job soon and joining the unemployed. I will be wanting to immediately move to the small acreage.

Question is this, would it be best to just try to keep the payments going on the house at 1.5k per month and move and try to sell it, or would it be better to cash out an annuity, pay off the house and sell it maybe even owner finance it and sell the mortgage, or pay it off and rent it out for some income.. 

Rent seems to be running $1000-1300 for a house of the type. How do rental agencies work for renting out a place you'll be living 250 miles away from?

I'm thinking I really don't like the idea of paying $1500 a month mortgage payments while the house site on the market for possibly 4-6 months, and then sell for likely 160k or so minus agents commission.. 

Paying it off I would have no pressure and could let it stay on the market longer or sell for less and owner finance it, and if document it well and use a servicing company I could likely sell the mortgage and more money overall. 

Or hire a rental agency and rent it for income, rent to own, or some such and then sell it later if/when the housing market gets better, as it really isn't all that bad here right now.

Thoughts?


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## willow_girl (Dec 7, 2002)

pay off the house and sell it maybe even owner finance it

^^^ This^^^

... if you can't find a cash or conventional buyer outright. I wouldn't attempt to rent it. It's going to be difficult to be a property manager from 250 miles away. You're going to end up paying somebody to do it, and paying to have every leaky faucet, etc., repaired. Then when the renters move out and leave the place trashed ,,,,,, well you get the picture!

Owner financing doesn't eliminate the possibility you'll get the place back in bad condition, but people who are buying tend to take better care of things in my experience. (Heck, the person buying my house back in MI put a new roof on it, then built a $15,000 pole barn -- guess he's planning on staying!) 

Since you have two properties already, you don't need to cash this one out right away in order to buy another. You will make MUCH more money (almost twice as much) doing owner financing if you have the luxury of being patient and waiting for your money. The house I sold for $115,000 will bring something like $240,000 stretched out over 30 years. 

Be careful about cash flow, though. I wouldn't pay it off until/unless you have a land contract buyer lined up.


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## Steve in PA (Nov 25, 2011)

If I understand correctly, you are soon to be unemployed but have a large enough nest egg or severence coming to be able to pay off the house. One of your questions is if you should use that money as a lump to payoff the mortgage on your home.

This is a common thought for those who are about to be unemployed. I faced the same thing myself shortly after buying my home. Don't do it, you may need that $$ for other expenses. That nest egg will be the only thing that keeps you afloat until the next door in your life opens.

Better to use your nestegg to keep making mortgage payments and stay in your home until you find your next income stream. Using the numbers you posted above, you should have between 90 and 100 months of savings that can carry you. Even if you are still there 3 more years, that's only 1/3 of your nest egg and hopefully your situation will be clearer and the Real Estate market in your area will rebound.

But, in case I didn't understand your original question...Don't blow your nest egg until you have to.


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## Txrider (Jun 25, 2010)

Steve in PA said:


> If I understand correctly, you are soon to be unemployed but have a large enough nest egg or severence coming to be able to pay off the house. One of your questions is if you should use that money as a lump to payoff the mortgage on your home.
> 
> This is a common thought for those who are about to be unemployed. I faced the same thing myself shortly after buying my home. Don't do it, you may need that $$ for other expenses. That nest egg will be the only thing that keeps you afloat until the next door in your life opens.
> 
> ...


The deal for me is that the minute I am unemployed I'll be packing up to move to my acreage 250 miles away. I have a lot of support in that area, family etc. and will be wanting to get down there and start establishing some income there.

I have enough savings to cash in that annuity, pay off the house, and enough to either pay off the acreage as well, or live there a year or two on that cash and make the $500 payments and establish a new income coming in. I would still have a 401k with a decent amount of cash left in reserve.

My reasoning is that I have seen houses selling in my neighborhood, but several have taken 6 months to sell or more. Each month is about $500 in interest I have to pay to the bank. I could also drop insurance down to structure only, no contents, as I would have moved everything out, reducing the insurance payments.

Willow, can you point to any good information about owner financing? My biggest hesitation is not being experienced in selling that way and getting burned. I have been looking at companies like this for servicing... http://texasnoteco.com/loan-servicing/

I don't know if I would feel comfortable doing all the servicing and whatnot myself.

I also get the impression that if you document the loan properly you can sell the note into the mortgage market, meaning say if the purchaser financed 140,000 and the note was worth say $280,000 I could sell the note for say 200k-220k into the mortgage market and make out better in the end, or just take the payments for the full term as an income stream. Seems I could put the house up at a lower price that would move quickly, and still profit selling the note that way.

Whereas if I just move and sell through conventional means I'll be giving up a commission, likely paying about 10 grand in mortgage payments while it's on the market, and be under mounting pressure each month to lower my price more and sell for less.

The things I am not sure of are properly documenting the loan, servicing it and the forms and laws in that regard and my ability to keep up with it, whether the note can be easily sold and what discount to expect to sell it for. I can't seem to find a whole lot of info in that regard and I'll likely have to be pulling the trigger on whatever plan I decide on in the next 60 days.

The loan servicing companies like the one I linked to or this one http://sellerloans.com/ paint a pretty picture, but is it reality?


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## ChristieAcres (Apr 11, 2009)

In this bad economy, if in your situation? I'd sell the house, pay off your acreage, and put your money into developing it as fast as you can. Build only as much house as you need. Plant fruit/nut trees, the largest oldest ones you can buy, grapevines, blackberries, blueberries, any vining fruit that grow there, and put in a garden. The sharpest folks I know here, have some $ in Credit Unions, and the rest in precious metals. Others are prepped to the max and have all the aforementioned. I happen to be an optimist, also a RE Managing Broker, but I wouldn't rent out a property for anything right now. In addition, I wouldn't sell on a Seller Contract in this economy, either.


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## Billie in MO (Jun 9, 2002)

We did owner financing in 2009 when we sold our house in CO. We went to a lawyer and had him draw up the papers, contacted the title company and they handled all the paperwork. It was a very simple process for us. We constantly get letters in the mail from people wanting to buy the loan from us. I just throw them in the trash.

That was our situation, good wishes to you on what you decide.


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## kranac (Sep 8, 2010)

Here's what you do while you still have a job. Since you would not qualify once you are unemployed.

Refinance the house. a $100,000 balanace at %4.23 APR or 4.00 APY even with closing costs leaves you a $477 payment. With Taxes and Insurance assumption would be around $600-$700 a month payment. 

I have a townhouse I own that is 3000 miles away and leave it in the hands of a property management company. They sign 1 year leases and take 7%. its more common to see 10%. Don't try manage it on your own. It's very easy. Get a property managment company that is big enough to take electronic payments and disburse them that way. You can even give them your mortgage booklet and they will pay that too and send you the remainder. 

If rent comes in at $1100 they take 10% thats $990 left - $650 payment = $340 a month cash flow. This leaves you in a situation where its like another annuity paying monthly automatically deposited in your account. 

The downside is a brand new 30 year fixed but if you have the savings to pay it off in one fell stroke take the monthly check now. Also you would be on the hook for any major repairs. You would need to log on monthly to ensure the mortgage was paid. (I'd have a hard time entrusting another)

In my opinion there is nothing better for a homesteader on acreage than a monthly check(s) with a savings account. 

If you get more a month and they take less it seems $500 a month could be attainable. Rents for the most part only go up and DFW seems to be one of the best locations in the nation. 



The question is do you want money now or later....?

I feel this is money now and later. If you lived in the place 2 of the last 5 years you could sell it outright and get the money tax free. An auction is another way to try sell (with a well placed reserve). 

Once you begin renting there will always be the taxman waiting for the sale of the property.


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## Txrider (Jun 25, 2010)

Billie in MO said:


> We did owner financing in 2009 when we sold our house in CO. We went to a lawyer and had him draw up the papers, contacted the title company and they handled all the paperwork. It was a very simple process for us. We constantly get letters in the mail from people wanting to buy the loan from us. I just throw them in the trash.
> 
> That was our situation, good wishes to you on what you decide.


How did/do you handle the payments, taxes, insurance statements and and all that stuff?


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## Txrider (Jun 25, 2010)

kranac said:


> Here's what you do while you still have a job. Since you would not qualify once you are unemployed.
> 
> Refinance the house. a $100,000 balanace at %4.23 APR or 4.00 APY even with closing costs leaves you a $477 payment. With Taxes and Insurance assumption would be around $600-$700 a month payment.
> 
> ...


I bought in '06 for 165k and have been living there since then. The taxman assesses current value at 172k. I started with a 20% down 30 year, refinanced a couple years back to a 15 year fixed. Payments went from $1100 a month to $1398 a month including tax and insurance.

I have a very small cabin on my 11 acres, I can live in it but it would be primitive. My idea is to get a cheap used mobile home pulled out there, I already have well and septic and hookup for one as the previous owner had one hooked up. 

Right next to the mobile home hookup spot is a 3 bedroom house slab, framed, with rafters etc. he started to build but gave up on. I'll be finishing that house up over time myself. No hurry though I could do the mobile home living for a few years.

I guess I'm just looking at how best to maximize what I do with the DFW house, and how best to get the most cash from it when I move out either with a sale or as monthly income. Having the cash to pay it off and not be under pressure should leave me with a lot of options open, I'm not sure what all of them are or how to exercise them.

I hadn't considered tax implications.

I think I would prefer to just sell, be rid of it and have the money now but it's a tough market. I still have a house to build and improvements I'd like to make on my acreage. A decent lump sum from selling would really help. But I could afford to owner finance and then sell the loan in a year or two if it could net me an extra 40-50k over just selling it through an agent/traditional bank loan type of affair. So if I sold using owner financing, and then resold the loan, what would the IRS think of that? Complicated stuff this...


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## Billie in MO (Jun 9, 2002)

Txrider said:


> How did/do you handle the payments, taxes, insurance statements and and all that stuff?


Payments are direct deposited to our checking account. We have a late payment date, with penalties, if they are past due. We set aside a certain amount from each deposit for the taxes, which we take care of ourselves. The taxes are due in Feb (can pay 1/2 then) and then the other 1/2 in June or the entire amount by April. Ours can be paid online. One year I happened to be there at the time they were due so I paid in person. Their insurance company provides us with a yearly statement with the coverage amount and that they are current/up to date on payments.

We have never seemed to have a problem with companies providing us with a second copy. Charming sweet talk, maybe??!! We even did that when we had it rented out. Water company would let us know if the account was past due even tho it was in the renter's name.


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