Would you go from homeowner to renter?


#1

Okay…for the last year I have been wanting to get out of our current house. We hate the HOA, we could use another bedroom, and I have come to realize that the style of the house is not one I am really comfortable with. It looks nice, but it’s not really right for how we live. I would like something more like what I grew up in. To explain, we have a house that has an “open” floorplan. The cieling in the living room goes all the way up to the second floor (a nightmare to paint!) and it has all kinds of architecturally interesting niches and shelves. We also have a lot of tile. This house echoes like the dickens, and the bedrooms are not separated from the noise of downstairs at all. This house feels very un-private. I grew up in your standard 50s ranch tracked house and have come to realize that I am more comfortable with the less open, more separated style of houses like that. Add in the fact that the HOA sucks and that I have been emotionally divested of this house for over a year, and I am eager to move.

Well, because the housing market has TANKED here in Phoenix, selling our house is nearly impossible. It does need some cosmetic work. Paint and carpet mostly, landscaping, some new doorknobs, and the overhang over the back patio needs some work. With five children, DH working full time and me working part time, church and extra curriculars (not excessive, either - one sport per child) we just don’t have time to do that work. We don’t have the money, either. We have a fair amount of credit card debt (stupid, I know, but some of it was medical) and honestly, I think we made ourselves a little house-poor when we bought this. We should have looked for something less expensive.

So, because the housing market is so bad, rents are plummeting. We could rent a house with more bedrooms than what we have, only a few miles away and in a nice neighborhood, for $400 less than our house payment! :eek: So we are seriously considering getting out from under our current house and doing that. I have even found another, bigger house (like 1000 sq. ft. bigger!), in a neighboring city, for that same rent.

The idea is that we would call one of those quick home buyers (the “we buy ugly houses” types), get as much as we can for the house, as long as we can pay it off and have a little left over (we owe much less than it is worth), and then rent this other house. Reducing our housing cost by so much would give us a chance to sort of start over financially, pay off our debt, save up, and be ready to buy again in a couple of years. I asked about a 2 year lease, and the agent said it would be no problem and in fact sounded eager.

I know that going back to renting would be seen as a step backward by many… but it seems like the right thing to do for our family right now.

Would you do this if you were in a similar situation?


#2

I tried calling one of those “we buy houses” places. What they told me was:
“we don’t buy your house. We rent it out to other people. The deed is still in your name. IF the people decide to buy, then that’s fine. If not, it’s still your home. Which works out, in case you want to come back”… :confused:

So I was like…hmmm… They they wanted me to refinance, so the people renting could afford it. UM… if I COULD refinance for a more affordable rate, would I be calling?

Silly guy.

We are currently on the fence of also going from owner to renter. We stayed in the house, but now with me not working it’s more difficult to pay for. sigh


#3

Er, how can you sell a house and make your money back when a similar house is renting for $400 less?

Seems to me you are stuck in a bad place until the market improves. Whatever you do, don’t make any stupid decisions like selling it for a loss and spreading out the difference over the next 50 years on a new loan.


#4

There are “we buys houses” people, and there are “we buy houses” people. Check them out with your local and state agencies first.

But what might work better, if it’s worth more than you’re paying and you really hate it, is to price it to sell on today’s market. Have a bunch of real estate agents truck on through (I believe in real estate agents, but maybe you don’t and want to FSBO). DISCLAIMER: I am not a real estate agent, nor do I play one on TV.

If you hate the house, and can get out of it WITHOUT CAUSING YOUR FINANCES MORE HARM, and can rent something that much cheaper, go for it. It sounds as if you’ll be happier. I take it you mean you would move to a rental AFTER you unload your present house, righr?


#5

How much can you rent your own home for (without doing much in the way of improvements)? Is it more or less than the price of the house you’d like to rent?

We live in a house that’s probably similar to what you have now. (Our biggest complaint is that it’s impossible to heat the downstairs but it’s fairly easy to make the upstairs miserably warm.)

We rely on large rugs in our living room portion of our “great room” and another in our dining room portion to cut down on the noise and echo.


#6

We are stuck as well - the market in the Detroit area is beyond horrible. We would love to move, even though I absolutely love our little (focus on little) home, I feel quite cramped and we are totally unable to entertain more than two people at a time due to the small room sizes.

We are planning to refinance, and hope to lower our payment by about $97/month. Which will be nice, but it doesn’t get us into a different house with closets and rooms that are more usable for our life style.

Oh well - :shrug:

I totally feel your pain.

Oh - I lived in one of those sprawling open floor plan contemporary jobs before, and I HATED it!!!

~Liza


#7

Honestly, in today’s housing market… as long as you’re able to make your mortgage payments I’d stay where you are.
If you have an adjustable rate mortgage where your payments could balloon soon, then I’d look at selling… and possibly renting.

But you have to be careful with renting too… the home owners could be subject to an adjustable rate mortgage, in which case your rental payments could balloon as soon as your first year’s contract is up… :shrug: … then you’d have to move again!

I think a lot of families are “uncomfortable” right now… but if they aren’t looking at foreclosure, then the best option, in my opinion, is to suffer through this market for the time being…


#8

Just to allay some fears:

I have checked out all the home buyers I submitted info to, and they are all accredited by the BBB and have satisfactory records.

We would never sell the house for less than we owe on it. I hate the house, but not enough to do something that stupid!

Even if we get an offer, we know we do not HAVE to sell.

But I know how money is emotional, and so is real estate, so I know why the warnings were given. Thanks. :slight_smile:


#9

The only other advice I would give is to find out if it is necessary to do something to avoid paying taxes on any capital gain on the house you sell. You say you owe much less than it will sell for, and I’m pretty sure that if you immediately roll that money into a new house, there aren’t tax implications, but I don’t know about pocketing it, even for a relatively short period of time.


#10

Sounds like a good move IF…

You can walk away with a decent chunk of money that you can use for a future down payment. The market is going to get worse before it gets better. You might be able to buy a house in the Phoenix area in 2 or 3 years for less than you can today.

Also, check with a tax advisor. You need to have lived in this house for the last 2 1/2 yrs (I think) in order to not get nailed with capital gains tax if your house sells for more than you paid for it. If you’re selling for the same or less, don’t worry about it.

Calculate the tax savings from owning a house. You won’t have mortgage interest or property tax deduction anymore. Say your mortgage interest was around $15,000 per year and your real estate taxes were $4,000 per year…getting rid of those deductions would cause you to owe $4,750 more in federal taxes (assuming a 25% tax bracket). That means your rent payment might be $400 lower, but your taxes will be higher by $395 per month.

All in all, it’s a touch call. Just make sure you check all the angles.


#11

Try sending a PM to montanaman. He is one of those “we buy houses” guys.


#12

LOL. I’m one of “those guys,” huh?

Well, that’s sort of true. I TRIED to be one of those guys, and in a few more months I’m going to try again, but right now I’m not in a position to be buying much more than cat food. So, the only thing I can advise in that regard is to try to find one of the better-established guys in your area. There are a lot of them in Phoenix, I believe. There are all kinds of creative options you might be able to do to get rid of your house.

For example, you can try a lease option. We’re in the same boat, and we’re definitely going to rent if possible. We have a baby on the way (just a few more weeks now), and our mortgage is so big and cumbersome I won’t even write the number down here. It would take up too much space. So, we’re trying to basically rent our place (lease it) to someone who can afford a mortgage, but just can’t qualify for one. The idea is to give them a lease with an option to buy. There are a number of ways to do it, and if the home ownership carrot is dangled in front of them, sometimes people are okay with paying more than they would by renting.

One way to do it is to apply $500 (or whatever) of the monthly rent toward the purchase of the house every month. You agree to sell them the house for, (let’s say) $100,000 in one year. At the end of 12 months, they pay $94,000. That could be a really good deal if the market has improved and the value of your home increases.

Another way is to have them pay $5,000 up front and then lower the monthly payments to something competitive with the market. If the rent/lease is $1500, and they pay $5,000 up front, then their monthly rent could be lowered to $1,000.

Or so the theory goes. We’re having a hard time doing that in Arlington because this is an affluent area and rents are cheap. In fact, our situation is getting desperate. We’re considering initiating a short sale just to get rid of this albatross. I’ve been chronicling the whole fiasco here: flippinginsanity.blogspot.com. I even had to start up a second business just to get by. (Anyone need a small-time mover in the Northern Virginia area? Go here: www.MyTruckBud.com)).

Anyway, there are ways out, and even if worse comes to worst, they don’t take away your birthday for doing a short sale.


#13

The capital gains rules changed a while back; as this is a primary residence, I believe that up to $250,000 in capital gains can be excluded, and does not have to be invested in a new house. Here is a good link:

www.bankrate.com/brm/news/real-estate/20041018a1.asp


#14

But you have to have occupied the house for at least 2 and 1/2 years for this exemption to apply. That’s why I brought it up.


#15

Sounds like you have a firm grasp on the various issues surrounding selling your home, and know what you are willing to sell it for to get out.

So, I will focus on the question of whether or not I’d become a renter again or view it as a “step backwards.”

Yes, I would rent given the proper circumstances and no I wouldn’t view it as a “step” in any particular direction.

A home is a lifestyle choice-- whether you rent or own, and whether you are in a house, condo, apartment, etc.

It seems you are overly worried about what kind of social move this is. Focus more on what’s right for your lifestyle right now. If getting out of the house and into a rental would enable you to achieve your goals, enjoy your home, and make you happy-- what more do you need? Certainly not anyone’s permission or approval!

Do what makes sense for YOU, not for others.


#16

Renting can be a lot cheaper and less of a headache in many ways. That is what we did for the first 23 years of our marriage. It is great for learning detachment, because you do sometimes have to move and also you can be oblivious to imperfections and problems, since after all you don’t have to pay for it!

We always were good stewards, but apparently most renters aren’t. So every time we moved in new rental, I had to clean it from top to bottom (especially the kitchen) and my husband made small repairs, just so we could feel comfortable.

We were forced to buy because the rents were so high here in Michigan and that was before the bad market! It has been such a financial drain on us. Plus when everything breaks, we have to come up with the money for it. Also, the house is by no means roomy. I trip over furniture, toys and snake around obstacles in these tiny rooms. The cheaper houses were so far away from work (and not that much cheaper) or they were literally uninhabitable The other alternative would be to live in the ghetto, but that I never really considered because of the danger…

I’d recommend renting, if you can get a stable owner. We were debt-free until we had to buy this house. I always figured there must be some gold buried somewhere on the property to justify the high price. Now we are in debt big-time. I never understood why going into debt like that, even to buy a house is a good idea. The taxes go up every year or so, so the mortgage keeps going up. We probably won’t get it paid off before retirement. We have not savings because we used it to refinance and to install new windows. (It’s cold here. all of 7 ). But I’m not thinking about it. Day to day survival is all we can do.


#17

From the original post, I gathered that they’d been in the house a while, as the OP mentioned having been pretty much “over” the house for more than a year…

The rule is this can be done every 2 years, according to IRS rules, and it has to have been your primary residence. At any rate, it sounds as if the OP is fine in this regard.


#18

My only advice is don’t be so quick to dump the house that you end up getting far less then you could get if you were patient and held onto it for a few months. I know how emotions can be, and many of the worst financial decisions I have made have been when I get emotional about them (hmm…guys and cars:) ).

Have a realtor or three go through the house and at least give you a ballpark analysis. Then do a little research on the comparables yourself. Then call one of the “quick home buyers” and see what they offer. Only then decide if the spread and potential risk of having to sit on the house for a while is worth it to you. Perhaps by waiting just a few months you could get 10K (just throwing out the number as an example) more? Isn’t it worth waiting then? Take the time to have a cool, level head and get professional advice.

And yes, I would go from homeowner to renter myself if the situation was right. Actually, if we didn’t have kids, me and my wife would likely be in a condo for many good reasons (not having to shovel snow or mow the lawn). Renting is not as bad as has been made out to be by some.

And lastly, I agree with you about HOA. I hate them myself, and that’s why me and my family live in a house where there is no HOA. Part of buying your own house is freedom… Not having nitpicky neighbors (and there’s always one somewhere) having a legal basis for forcing you to do something you don’t want to do.

Andy


#19

Oh - what a blow. :frowning:

I heard from the mortgage broker today - our house is appraising for just about what I bought it for seven years ago. And I would be lucky to even get that right now. And the house for sale RIGHT NEXT DOOR to me, a bank owned “as-is” foreclosure, is only listed for $42,900 :eek: - I know the family that owned that house, and they put well over $125,000 of improvements into it. They ripped out every single wall, floor, and ceiling and completely rebuilt the inside, and totally refinished the basement. And built a brand new 2 1/2 car garage that is nearly bigger than the house.

This is just so horribly sad - I hope this economy turns around soon.

~Liza


#20

You might want to look into buying your neighbor’s old house and renting it out. If it’s truly that cheap, you could probably rent it out for more than the mortgage payment and taxes. What are rents for homes in your area? And just think, when the real estate market bounces back - and it will - you will only have $42,000 into your investment property. Your mortgage broker can tell you about no down payment options to make it easy for you.


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