We need to move from Seattle for a variety of reasons – work, hating our area, wanting better weather, needing better schools – and we will be moving 2,000 miles away.
We currently have a new four-bedroom home for 2021 that is 2,700 square feet. Our mortgage payment is about $3,800 and our interest rate is 1.9% APR. The house was purchased for $750,000 and is now probably worth about $950,000 (developers sell new homes to us at that price).
We're thinking about trying to rent our house, renting in our moved city/state for a year to a) get a sense of where we want to buy and b) save money for a solid down payment. Our household income is $400,000 a year, so I think we could probably buy a second home for about $1 million fairly easily, assuming the house in Seattle was rented.
A deficit of $9,000 per year
I'm skeptical that our house would rent for more than $4,000 but I was wondering – given our high income – if he rented for more than $3,500 and made up the difference ($3,800 mortgage, plus $65 homeowners association fee and $400 rental management fee) — spending $9,000 a year to maintain a mortgage rate this low doesn't seem like a crazy idea.
I would be comfortable renting in the new state while paying the mortgage for 3-6 months to find a tenant, of course. If we can't find a tenant, we can just sell.
Rented a house on our block for $3,500, and our house has about 400 square feet of usable space (studio office, gym room, etc.), a huge yard and major upgrades to the house. what do you think?
Tom
'Big move” is a MarketWatch column examining the ins and outs of real estate, from searching 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 step should be? Email Aarthi Swaminathan at TheBigMove@marketwatch.com.
Dear torn,
What is your ultimate goal?
Do you need to save money for emergencies, your family, retirement, etc.? Do you plan on returning to Seattle anytime? If so, you may (or may not) find yourself out of the market, if you sell now.
Do you want to become a real estate investor and deal with being a landlord, or do you want the freedom of just owning the home you live in? If your goal is to keep the property as a real estate investment, you need to either find a tenant willing to pay a higher monthly rent, so you can at least break even on the house, or lower your income costs.
Consider switching companies and lowering fees, if possible. An appreciation in value and increased equity in your property can offset this additional monthly rent. You're also stuck with your low rate. So paying $9,000 a year, especially when you make more than $400,000 a year, may not be a big expense.
But you have to weigh that against the expected increase in the value of the home. If you spend $9,000 a year over a long period, calculate how much it will cost you — taking into account stock appreciation and capital appreciation — five, 10, or 15 years from now. You can, after all, put that money to work elsewhere.
Lifestyle vs investment
Your dilemma is not uncommon, Ken Graff, a Seattle native and real estate agent based with Coldwell Banker Bain, told MarketWatch.
“What is the bigger picture? What are they hoping to achieve? This is not commercial real estate, price per square foot, this is lifestyle, this is family, and there are many factors when evaluating a residential deal,” he explained.
Being an out-of-state landlord is also painful, since some tenants can be difficult to deal with. Additionally, your home will not be treated the same way if you still live there. Consider the cost of repairs if you have bad tenants who cause damage to the house.
If you are able to break even, it will greatly help your cause of saving to buy a new home in the new city. If you're still losing money on your Seattle home, that's lost income you can invest or save to increase your down payment.
“We have a lot of people who bought at the price [low rates] “They are reluctant to sell and buy back,” Graf said, adding: “People are going to have to, at some point, get off the sidelines and get into the game.”
Take a trial period
It may be heartbreaking to split your 1.9% down, but you'll still make $200,000 from the sale of the house to move on to a new home. You can also ask to see if your mortgage is a government-backed “assumed” loan, meaning it can be transferred to another individual, in which case you could give that valuable rate to someone else.
You scored an incredible deal and it certainly seems impossible to give it up. Keeping the price low may come at a high price, if you end up being an out-of-state owner.
You may want to hire a real estate agent to take the pressure off your shoulders and handle all the minor inconveniences that come with being a landlord, but that will come with a fee.
One caveat: Once it's sold, it may be difficult to buy a similar home in Seattle if you choose to rent it.
You said you're willing to try renting your property in Seattle for half a year to see if you can find a tenant. This is a good plan. Give yourself a specific period of time, after which you can make a final decision.
By submitting your questions via email, you agree to have them published anonymously on MarketWatch. By submitting your story to Dow Jones & Company, publisher of MarketWatch, you understand and agree that we may use your story, or versions of it, in all media and platforms, including via third parties.
