I am 73 years old and I am on social security. I make about $1,000 a month renting out my second home in Florida. But the costs are rising. Should I sell my rental?
By Aarthi Swaminathan
“What’s holding me back is the interest rate is only 2.75% and the tens of thousands of dollars spent to complete the lease.”
I’m 73 and have two homes in Tampa, Florida. I live in one and rent the other.
I paid $245,000 at 2.75% interest for the one I’m renting. It has four bedrooms and two bathrooms and faces wetlands, so it’s super quiet. I also spent over $50,000 on upgrades – from landscaping to changing water filters to furnishing individual rooms – to get it ready for long-term rental. I make about $1,000 a month in profit.
Rentals are super easy to fill out, but I’m 73. Public services are growing rapidly. I had so many additional rental costs, from replacing the front yard grass for $1600 to replacing the air conditioning for $650. I also had to spend $5,100 in legal fees to evict a tenant. I’m also worried about hurricane damage, and property insurance is out of whack in Tampa. Home insurance for rentals increased from $700 to $1,000 per year.
And on a deeper level, I’m also concerned that the world is sliding into a depression. I fear that if I wait too long, my house will lose value by 20% and I will lose money. And with inflation, it’s going to be tough.
I still owe money for my main house, which I bought new in January 2020. I still have $110,000 to pay for a house worth $460,000. This is the house of my dreams. I rent three bedrooms, which covers my mortgage payment and my utilities.
So my question is: Should I sell my rental and pay for the first house?
My Social Security is only $2,890 a month. If I sold my rental, I could pay off the payments for my dream house, but I would only have $80,000 left.
What holds me back is that the interest rate is only 2.75% and the tens of thousands of dollars spent to complete the lease.
When times are good, I clear $1,000 a month from the rental. I like the people who are renting to me right now, but I can’t find a property management team that will take over a non-traditional co-housing home with four different rental agreements. But I feel like I need to act fast before property values drop further.
What should I do?
Troubled in Tampa
“The Big Move” is a MarketWatch column examining the ins and outs of real estate, from navigating the hunt for a new home to applying for a mortgage.
Do you have a question about buying or selling a home? Do you want to know where your next move should be? Email Aarthi Swaminathan at [email protected]
You have stumbled upon one of the biggest realizations landlords face when entering the long-term or even short-term rental market: the endless barrage of issues that arise with tenants on a daily basis.
With rents only going up, but not as fast as they used to, it sounds like a brilliant idea in theory to rent out a property. Clearing $1,000 in profit gives you a big boost to your monthly income. It certainly sounds like a great business decision.
But this comes at a growing personal and financial cost.
You mentioned a number of costs that weigh on you, from increased utilities to insurance premiums, risk of storms, wear and tear on the house, as well as the possibility of bad tenants.
I know you feel like you got a good deal buying a house at 2.75% interest. This low pandemic rate will help you in the long run because your home goes up in value while you’re not paying higher interest.
But you said you were worried the world was going into a depression and your property values could plummet. At this point everyone is wondering where the economy is going and housing seems to be in a recession. It looks like mortgage rates will only go up.
So here’s a thought: Why not wait?
We don’t know if the economy is going to collapse, if house prices are going to crash, if mass layoffs are about to happen. So why give up on something that earns you $1,000 a month?
Here’s the deal, though. You need to see if leasing will still make financial sense in a year or two.
First, list all your expenses and see if you are still going to make a profit. Take the time to do this; take into account legal and insurance costs with future tenants, insurance increases, etc. If you’re still going to make a profit a year from now, then great, stay put.
If maintenance is a tedious task, here’s a suggestion: try to hire a part-time employee or a younger relative you can completely trust to help you manage the property as a rental. Maybe stepping away from the everyday can help you decide if the hassle is worth it.
But if not, and if renting isn’t making you money, then maybe it’s time to give up renting.
As soon as you see your profits drastically decreasing or approaching break-even, it’s time to sell. Yes, you give up the second house which increases in value. Yes, you could sell in a few years. Yes, you can wait and see how the market moves.
But consider the alternative: if you don’t free up the cash, just sell the rental, let go of your frustrations and agreements with your tenants, pay off the remaining debt on your dream home, and keep that $80,000 as a buffer for everything. what is it you wish to do.
As you get older, the money you owe on houses is only going to bother you, and dealing with tenants, and everything you mentioned, is just going to get more boring. And you will also have less energy to deal with potential fraudsters or problematic individuals.
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