Sunday, February 20, 2005

Leasing Decision

I've decided not to lease the house, for a variety of reasons.

  • I'm lazy and have a low risk tolerance. Being a landlord means dealing with finding tenants, taking security deposits, and handling the business side of things.

  • Since I would live across the country (I'd have to live in Miami to be any farther away!), I would hire a property management company to handle the business side. They would charge a fee (10% - 15% of the monthly rent is typical) and add on any maintenance charges (e.g. cost of repairs, yardwork, etc.) as renters wouldn't be expected to do any of that.

  • I would have to make up whatever deficit the rent doesn't cover, that would reduce whatever mortgage I could get in Florida. Also, by not selling the house, I'd have to come up with another down payment for property I buy down there.

  • My house will need some roof work in the future. When I bought it, the home inspector said the roof would likely need to be repaired in 3 to 6 years. That was 2 years ago, so now it is 1 to 4 years. If I intended on keeping the property, I'd probably replace the roof, which would cost $10,000 to $15,000. Not exactly an expense I'd look forward to handling in that timeframe - because I would be living elsewhere and have that home to maintain.

The math I've been turning over in my head is:

rental income = rent - property management fee - monthly upkeep
WA deficit = WA mortgage - rental income

FL mortgage = WA mortgage - WA deficit

I focused in on the last line, the Florida mortgage. With a gross estimation that I would optimistically only have a "WA deficit" of $500 per month, it works out that I would have to find a property selling for $90K to $100K less, in order to keep my total housing expenditure the same. In other words, have my Florida mortgage (and taxes, insurance, etc.) work out to $500 a month less than my current mortgage, so I could make up the difference.

Now real estate is cheaper in the Orlando area, but it is also more rural. I decided that should I relocate, I'd like to live closer to the city - not to be new in the area, but living cheap out in the boondocks. So while real estate is cheaper, looking in my target area for property $100K cheaper, will limit my options.

To that end, I contacted a real estate friend and I'll talk to her Monday about listing my home.

Ultimately, if having rental property as an investment interests me, my best strategy is to buy some property in Orlando, and rent that out when I move (i.e. I meet the woman of my dreams and we need a bigger place!), assuming of course that I move locally. There is a certain proximity radius I need to be under in order to be a landlord.

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