Howdy y'all. Cross posting this in B&I too for the most traction. A little back story here, I bought my first home in March 2024 for $300k with $15k down (5% down). At the time, it appraised for $315k. I was house hacking it and renting out the other 2 rooms to buddies. Planned to be there for a while, but life happened and recently got married and moved 3 hours away. My monthly payment is currently $2,588 (PITI, PMI). I am now renting all 3 rooms bringing in $2,600 a month, so barely cash flow positive. The leases all end at the end of July 2026. I will owe $278k on the house by then. Zillow currently shows a zestimate of $296k. Additionally, if I rented the entire house, not by the room, rental comps would have it right around $2,000 a month.

I am beginning to contemplate what to do with the house come July/August. Do we list it on the market and sell it? Given the current real estate market, I'm afraid it would sit for a while and/or sell for less than I bought it for, and after closing costs, I would be in the red or at best walk away with no money. I don't feel like I could rent the entire house for anywhere close to the monthly payment. Do I keep trying to rent by the room and up the rent for each room to build in some more cash flow? The downside to this is navigating the dynamics of 2-3 random people living together. Do I try to furnish it more and turn it into a mid term rental? I don't think it's in an ideal location for this.

All in all, just wanted to paint the picture of the situation and get some older Ags' advice on options or what they would do. Appreciate any thoughts and help, and happy to answer other questions if I'm forgetting any info. Thanks!

Are they not renewing?

How is the condition of the home if it were to be shown for lease or for sale right now?

2 of the 3 are for sure not renewing. Haven't talked to the 3rd guy yet, trying to figure out what we're going to do with the house first before having the conversation with him.

House is in pretty good condition. Exterior is in good shape, only thing potentially needed would be flower bed work for curb appeal. Interior probably needs a good cleaning. If listing, I imagine it would maybe need to be staged with decor better than 'single guy decor'. Kitchen could use some updating. The fridge and dish washer are new, stove and microwave are old. Countertops are pretty ugly and dated. Interior could use some paint.

SteveBott said:

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First of all you are not breaking even. You have not factored in maintenance and repairs(guaranteed to go higher with a rando renter). So you are cash flow negative, at least on paper.

Second do not use Zillow for market value. They are dead last in my research for data points.

Third being remote and a first time landlord you need onsight management. That costs anywhere 5-10% of gross rent. Again negative cash flow. If you stayed in town you could manage yourself but that is not the case.

So find a Realtor who knows your market. If that was the one you used to buy fine. Have them do a market analysis to get a real time value with recent comps. Should be at no cost.

Estimate around 6-8% closing costs and net that out for what you can take from the closing table. See if you can walk away even. If you can, sell. If you can't get close to even, or worse take a bath, then consider renting to get back to break even.

Good luck.

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OP... negotiate that 6%-8% commission. Those numbers are for the ignorant. Just hire an attorney and save THOUSANDS. The days of 6% commissions are over. That's old news. Matter of facct... read the news. You'll see what's happened in that world, lol.

6%. There's your bath, lol.

If I were you I would sell it. Losing $10-20k on this is not the end of the world and will be Pennie's on the dollar compared to your emotional well being. Renting per room sounds like a nightmare. Take it from someone who did just that with our house in college and a current landlord.

Good luck and I promise you this is not a bad loss.

You need to nail down what it will actually sell for.

You can always list it for sale and rent at the same time at prices that test the market and go with whichever happens first.

This reporter for the WSJ bought a house right before the GFC. It took him 10 years to sell it after renting and getting out from the "underwater" mortgage.

Lots of life lessons someone can learn from his story. I'd just say to OP that you don't want this to be you…

https://www.cbc.ca/radio/thecurrent/the-current-for-september-14-2018-1.4823500/the-financial-crisis-happened-10-years-ago-that-s-how-long-it-took-this-man-to-sell-his-house-1.4823546

Appreciate that info. May reach out to you in the next month or so as we make a decision

I currently have some clients that bought a new construction house from me back in late 2023. They were living in Austin, but then decided to move back home to the Pacific Northwest. They have been renting the rooms on their own using Zillow and were doing just enough to break even. Their problem right now is that they are dealing with a tenant who won't move out and are now going through the eviction process from over 2100 miles away. They called me up telling me that they are planning to sell the property but are now having to wait for the eviction process to go through. I would never wish that on anyone.

SteveBott said:

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I didn't realize lawyers now offer marketing and presentation of real estate. Yes that would save a bunch of my 6-8% transaction costs. How are they finding buyers?

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be nice...the resume polishing industry hasn't fared too well with the AI boom

Ask renter #3, if they want to buy.

Offer renter #3 discounted rent, if he'll find other "by the room tenants" on your behalf.

Mention in this thread where the house is located and you could strike gold with someone who's looking to buy nearby!

Sounds like a sell situation.

But man… for next time, at least 20% down on houses. 5% down and paying PMI to protect the lender is a super silly proposition. I don't care what people say about throwing money away on rent or whatever or how much the house initially appraised for. You paid $300k for it so that's the most relevant point of data for for what home is worth.

Leverage on a home is a useful tool when you are young and cash strapped.., but it's still leverage. Leverage amplifies risk… so be cautious with it and consider multiple scenarios before jumping in on any loan.

The OP capped their initial exposure, but the price dropping 25% in your scenario isn't a good spot for them.

Now they either have to hold the property in perpetuity (making payments on the inflated value) or bring a bunch of money to the closing table.

As it stands, OP will likely have to bring some cash to closing.

Diggity said:

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The OP capped their initial exposure, but the price dropping 25% in your scenario isn't a good spot for them.

Now they either have to hold the property in perpetuity (making payments on the inflated value) or bring a bunch of money to the closing table.

As it stands, OP will likely have to bring some cash to closing.

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Exactly. Owning a home creates a liquidity hole whether you put 5% down or 20% down… because a home is inherently illiquid in that it's costly to move on from.

If OP had 20% down, he'd avoid PMI and his mortgage significantly lower… I'd guess $500 lower if you stack those 2 on a March 2024 mortgage rate. That probably widens the interesting options a fair amount.

you put 5% down knowing closing costs in and out… you are probably just setting yourself up to write a check to sell the home if you've got to move out within a few years for whatever reason.

In a financial transaction like a mortgage, risk (and hopefully capital) is transferred from one party to another. The bank requires PMI below 20% because it's more more risky for them, not for you, and vice versa. Does that make sense?

cords12 said:

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Zillow values are garbage! To make an informed decision, you need some reliable comparable sales information. How many DOM are current comparables and what are they selling for? Look at recent sales in your subdivision with similar beds/baths and square footage and similar upgrades. A realtor is the best way to get accurate information. Most realtors should at least be able to provide you with what they have to offer as far as marketing and information about selling your house for the right listing price before you make a commitment. Shop around. I don't know anything about Red Pear Realty, but looks like it may be worth checking out. Best of luck!

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Agreed on all counts! Hit us up!

Red Pear Realty said:

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In a financial transaction like a mortgage, risk (and hopefully capital) is transferred from one party to another. The bank requires PMI below 20% because it's more more risky for them, not for you, and vice versa. Does that make sense?

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I get it -and who it is actually for. The mortgage holder still holds tha bag though. And it's usually a bigger cost than people think when they decide building equity when owning such a small slice of the home is so necessary.