So, speaking of our rental mortgage debt. (We were talking about that, weren’t we?) Here’s the dilly: It’s costing us a lot of money.
In case you need a reminder: We owe $109,150.33 (as of today) on a house we own in Las Vegas. We’re going on four months of vacancy. (In other words: No Rent Check).
We lost our tenants (again) right before the holidays last year — yes, right into the tail-end of our initial debt snowball. Thing is, we still met our goal of getting rid of our $19,375.72 of (non-mortgage) debt within a year. And that’s despite losing our tenants (and their rent check) and cash-flowing a few thousand dollars in car repair during that same time period.
(Factors that I think contributed to making that possible is a future post.)
So back to our rental debt. It’s a house in Las Vegas, and it didn’t start out as rental debt: It was originally our primary residence. As in, we used to live there. But nooo, we couldn’t have been smart and sold it when the market was hot and taken the money and run. Oh, no.
Why, then I wouldn’t have anything to blog about!
So the house is still vacant, and the few inquiries we’ve had on it have been from people with large dogs. (The house is small and the yard is smaller.) And the last couple of days I’ve been thinking, “How much is this wonderful vacation home empty house costing us exactly, anyway?”
And here’s where I make a confession: I have never actually added all the numbers up before.
(That seems a little funny coming from someone who’s blogging about her finances for all the blogosphere to see, doesn’t it?)
Rental Expenses
- $758.00 = Mortgage / Monthly
- $ 40.00 = Association Fee / Monthly
- $ 66.00 = (another) Association Fee / Quarterly
- $ 160.65 = Assessment / Bi-annually (I’ve never really understood what this was for.)
- $ 59.00 = Sewer / Quarterly
- $ 39.33 = Trash / Quarterly
- $ 21-$39 = Power Bill / Monthly
We Pay Whether Rented Or Vacant ~ We Only Pay When Vacant
Lots of Nickels and Dimes there!
Now, obviously I was familiar with the figures above. What I had never done before was calculate how those numbers all played out as a monthly total.
Monthly Cost of an Empty Rental House: $871.58 + Power Bill (Let’s call it $900, shall we?)
Oh, and in case you’re interested. The last rent we collected was $894.00 a month.
When the tenants moved out I immediately picked up the phone and started inquiring with realtors about selling the place. Our house size is smaller than typical for the neighborhood/part of town, and at the time I called, only two houses similar to ours were listed for sale: One for $65,000; the other for $80,000. Both Short Sales.
Just a reminder: We still owe $109,150.83 (as of today).
I just took a quick look on Zillow: Another house similar to ours sold on 12/31/09 for $97,000; another on 1/11/10 for $76,000. (Were those the short sales the realtors mentioned in my phone calls with them? If so, they sold for more than the listed short sale price. Hmmm…)
So now I’m left to quander (and yes, quander is a word, you pin-headed spell checker)…
Should we look into selling the place again? Even listing it for a loss? 
We are, after all, throwing copious amounts of money at it as it is, with no guarantee of when some of that money might come back our way.
Some more numbers, in case these affect your opinion sage advice (which you will offer up, yes?):
Breakdown of $758 Mortgage Payment at 3.25% RE 3-1 ARM
(Go ahead, this is where you *GASP* an ARM?! Oh, the horror!)
- $249.74 = Principle
- $296.29 = Interest
- $211.97 = Escrow (property taxes are cheap in Vegas)(brought to you by Gamblers’ Anonymous)
Other Points to Consider
- We don’t have the cash to pay the difference; we’d have to come up with some creative financing to make up the difference between the sale and the amount owed the bank.
- Spring/Summer is coming up: typically a better time to find renters.
- Spring/Summer is coming up: typically a better time to find buyers.
- I don’t believe a short sale is warranted here. We are able to cash flow the expense of an empty rental. We just don’t like it.
Either way, it feels like money is just flying away. The question remains: Do we stick it out for the long-haul and hope that some of it flies back?
Opine in the comments, if you please.
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{ 12 comments… read them below or add one }
I agree with Nicole. The bank isn’t likely to agree to a short sale since you are not behind on your payments. Also, why damage your credit for no reason. Lower your rent a little (or offer one month free as you mentioned) as an incentive to get someone in the door and then plan to put it on the market next spring.
Can you shift your snowballing to tackle this debt first so that you will be in line (as far as value goes) next spring?
Remember, we didn’t get into debt overnight and we won’t get out of debt overnight. (((HUGS)))
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I would not sell or rent for a lower price. if anything, I would rent for at least $1,000 month(if not more). You must cover the cost of the mortgage. You must also put together a savings to cover the times when the house is not rented.
The additional or savings on the rental is not to be included in your debt reduction. The rental should have its own bank account.
Also, if you are willing to have short term renters, you may be able to charge more….I am thinking of the snowbirds and winter visitors who like the desert climates. You could charge $1500 or more to these winter guests.
Just my thought on the number game. I hope to have rental properties one day. The rental must be thought of as a business and not an emotional debt. Currently, your business is losing money. But, the possibility is there for something more to happen.
Have you tried listing as a vacation rental? Could you have a furniture rental place furnish it? Vegas is a vacation destination.
Thanks!!
Karen
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I’d rent it. Lower your rent to $800 – a $100 a month loss is way better than a $900 a month loss. Get a 12 month lease, so you won’t get stranded. Plan to put it on the market in Spring of 2011, unless a renter resigns a year lease.
Forget being picky about dogs. Just get someone in there, and have them put down a good chunk for a pet deposit.
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jolyn Reply:
March 4th, 2010 at 1:16 pm
Yea, if we don’t start getting bites come Spring when the market picks up I’ll probably talk to our property manager again about the rent amount. We’re also looking at one-month free rent, which we did the last time around as well.
We actually do consider pets on a case-by-case basis, but the association has rules about the size and number of dogs/pets. All the inquiries have been about multiple, large dogs!
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Umm… I don’t really have anything to contribute to this conversation. But if we were getting out of the Navy after this enlistment is up, I would buy your house. I miss Vegas. We lived up in Centennial Hills.
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jolyn Reply:
March 4th, 2010 at 1:15 pm
We’d cut you a good deal!
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Can you work on getting the house in shape and put it on the market in May/June…and look for a renter at the same time? Maybe a month to month deal, or college students? Not sure how that would work, but thought I would throw it out there.
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jolyn Reply:
March 4th, 2010 at 1:14 pm
We’ve actually done the, “Rent or Sell” option before, and it just seems to scare off renters.
I know. Bummer.
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If you can swing it, I would hold on to the house at least unitl summer, when renters and buyers might be more plentiful.
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This is a toughie Jolyn, but I’ll try to crunch some numbers. Currently you are paying out about 900/mth which can total about $10,800 per year that you would have to pay out of the home is left unrented for that time frame. Your balance is $109,150 and the highest sale price was about $97,000. That’s only a $10,000 difference. You are also looking at an adjustable rate that will start adjusting in the near future and refinance rates on “investment” properties are higher than rates for primary residences.
I would do my best to get the house in “tip-top” shape to be able to get the maximum amount and put it up for sale. You will probably be able to get a loan to cover the difference. I know you guys are trying to work your way out of debt, but a small loan to help stop the wound from bleeding is better than keeping yourself open for further trouble later. Remember this too, everything drops faster than it rises. Home prices will go up, but how long will it take? I hope I haven’t rambled too much for you. Good luck to you guys and follow your own heart
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jolyn Reply:
March 4th, 2010 at 1:13 pm
You are right about refinancing not being an option. The rate is actually scheduled to go a little LOWER starting in May, and even if the prime rate increases dramatically in the next couple of years, our rate can only be raised so much year-by-year, so we are looking at a very, very low rate for at least the next two years.
That being said, I hope by that time we no longer have this house! I don’t think I can stomach selling it for a loss right now. The thought occurred to me, after reading all the comments, that once we are ready to attack this mortgage in our snowball, we can probably lower the amount we owe enough to not have to sell it for less than we owe, if that makes sense.
No guarantees in real estate! But I think that’s pretty realistic. That means we’re looking at holding onto it another two years or so, renters or no. Obviously, we’re able to cash-flow the expense: We just don’t like to. And odds are it WILL rent out again in that time frame.
Thanks for your thoughtful input!
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Patrenia Reply:
March 4th, 2010 at 9:35 pm
Sounds like a great plan. Yes, you must do what is comfortable for you and your husband and I do understand that taking a loss is not an easy pill to swallow. The way the real estate market is today, you just don’t know what the right decision is because of the uncertainty. Draw some positive energy your way and I’m sure it’ll be rented out in no time freeing your funds for paying off debt.
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Are you sure that you have to come up with the difference in sale price vs loan amount on a short sale? I thought that I had read somewhere that the bank writes it off, but that you have to declare it as income? Maybe I’m confused…
If you can find renters – at least for the majority of the year(s) – would you feel okay about ‘subsidizing’ during the vacant times until you are able to sell it for what you owe? Or would you rather take a loss and be done with it? What you end up doing will largely, IMO, depend on how you answer that question.
P.S. I am DEFINITELY not a number cruncher or a personal finance guru, so take that into account when reading my response…
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I would sell it. It isn’t just about the money. It seems to take a lot of energy. Good luck!
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jolyn Reply:
March 4th, 2010 at 1:06 pm
That is does!
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I agree with Nicole. I know it must suck to pay for a house you aren’t even living in, but chances are in the next 3 years the market will change enough for you to at least pay off the mortgage, if not make a profit. The only reason I would sell at a loss is if I couldn’t make the payments every month, or if say a few months before you move you decide there is no way you can handle it. Hang in there!
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jolyn Reply:
March 4th, 2010 at 1:06 pm
Yea, we can certainly make the payments okay, so there’s no reason we HAVE to get rid of it. I’m really loving what you all have to say; I must say it would be very.hard. to sell at a loss, right now at least. Thanks for your input!
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I think it’s worth holding out past the summer, looking for a renter…. Maybe the big dog thing isn’t so bad. Some big dogs are lethargic and actually do well in small locations! It’s just what they might do to your house in the meantime I guess!!
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jolyn Reply:
March 4th, 2010 at 1:05 pm
Actually, the key word is dogS – as in plural! We’ve had small pets in there before, but our association has rules about the size of and number of pets allowed.
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Forest Reply:
March 4th, 2010 at 4:01 pm
Oh! I see…
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Looks like about 12 – 33 thousand difference in what you could sell for and what you owe. At $900 a month that is definatly more than a year, and up to three years of you paying the mortgage with no tenant. If you believe that the market will pick up (by about 12 thousand a year) and you can afford the payment now, why sell for such a big loss? Personally, I would try to rent when I could for at least the next year, and re-evaluate the market and personal finances then. BUT, I live in Canada – and don’t own a 2nd property.
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jolyn Reply:
March 4th, 2010 at 1:04 pm
I’m thinking along those same lines, I must say. It’s awfully hard to think about selling it for a loss, no matter how much $$ it’s draining right now.
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