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I am asking for feedback on a problem that I’m facing.

 

I have lived in Costa Rica for 7 months and plan to stay.

I have a home that is paid for in the states. I am planning to sell it but with the market down, it is not selling. The real estate agent wants me to lower my asking price $60,000 below what I have actually put into the house. I have the invoices showing my investment into a new bath, kitchen, windows, heating...and the list goes on.

Now, I don’t want to lose this money...but I realize that no one is looking at it at the price that I want.

I have not wanted to rent the house, but if I’m going to lose money, it seems that I may loose less by renting. I don’t want the headache of renting but this could be turned over to a property management company.

What are your thoughts?

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We did this for a year. With a highly recommended property manager. We wanted to put the house back on the market & they didn't want to stay while it was for sale, so they left after their year. Unfortunately, it took 2 months & about half of what we made in rent to repair the place when they moved out. So, the house is on the market, empty, where it will remain until it sells for whatever price someone is willing to pay.

 

Jessica

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We are doing this right now - first year has just completed. Used a good rental agent, got a good tenant. Of course, who knows what the effect will be when they move on :unsure:

But, we figured it will be perhaps 2 or 3 more years before we can sell. Checking each year, but that is our feeling.

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The average house in the US is back to where it was in 2003 !!

 

Yours might be better than that or it might be worse, but to assume that you will have a quick turnaround is unlikely unless you are in a particularly good market that didn't see much of a drop. Also, if it is priced so that it requires a jumbo mortgage, there just aren't any available at reasonable rates, so that lowers the value even more. Unfortunately, the market doesn't know and doesn't care what you paid for it--only what the current value is. Use an independent appraiser to set the value, not your real estate agent.

 

The very long term price appreciation for housing in the US is about 3% per year, but of course we all got used to much higher growth rates during the bubble until it all came apart. Ask a really good broker or the appraiser what the average was in your area BEFORE the housing bubble got underway (make sure they give you the data for at least ten years pre-bubble, year by year or it is worthless), and then apply it to the current value of your house--not to what you have in it--and only then you can start to make an informed decision about whether it is better to just take your lumps and sell it, or rent it. The idea of selling it of course is that the money can be used for something else that hopefully grows faster than the normal appreciation of real estate in your area pre-bubble or to pay down debt that you may be carrying at higher interest rates.

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This is the type of data you want to get from your real estate agent or appraiser so you can see just how crazy (or not) your area was during the bubble versus its long term trend line. What is a certainty is that just like everything else in economics, we get blips up and down that can last several years, but at the end of the day, everything gets back on trend.

 

http://mysite.verizon.net/vzeqrguz/housingbubble/

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Another way to see if your home market is stable rather than have a second dip down ahead as some markets may see, is to look at the affordability index.

 

This index measures how home prices compare to salaries in a market area. The theory being to support a certain price level depends upon the ability of typical buyers to afford a home. An experienced realtor might know where to find this. Check the so called affordability index for your market now versus what it was before the big price bubble many markets saw.

 

Another way to come at it is look at rental rates relative to market price. If one can get a fair return on investment at the rental rate, then the market price is probably stable. I believe a reasonable ratio of annual net rental to market price is 5%.

 

Probably more than you wanted but it costs a good bit to hold a home if it goes unrented, so if the market price doesnt rise to make up for some of that cost, holding might not be a positive outcome.

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I once was a long distance landlord when I didn't like the thought of taking less than I put into a house. I only moved from Wisconsin to California. My Realtor became my property manager. It was a nightmare. Three years and three tenants later, I gratefully accepted an offer below the one I had turned down the first time.

 

You may hear success stories from some people, but beware. I don't know how critical that $60K is to you, but if you are are able to close without putting in any more money, think hard about it.

 

If it is a paper loss, you know exactly where you stand. You may need a while to feel okay about it, but it will be over. As time passes you will think about it less and less. If you roll the dice and keep the property, you hope to recover some of the money, but you now risk losing even more. You could get lucky, or someone could trash your place. The market may go up or it may not.

 

I am selling my house in southern California. We are getting about $200,000 less than it would have sold for 3 years ago. However, I have owned it long enough that I will walk away with a good gain. When people recommend that I keep the house as rental, I think back to my move here and it makes me content with what I am getting.

 

You won't be a few states away from your house, you will be in a foreign country. Just try to weigh your options unemotionally, that's not always easy.

 

Good luck.

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We also decided to rent rather than sell at the present time.

Of utmost importance is getting a GREAT property manager. You should interview several, and check ALL the references.

A great property manager makes all the difference, they will make sure that you have good tenants. Put it in the contract that they pay a penalty for bad ones, otherwise, why will they care? WE also found that a property management company that has a lot of properties or manages only large complexes may not be the best. They may not be able to devote the attention to your small property.

 

So, don't let the sell now comments scare you, but take your time, and if you still feel uncomfortable renting, then by all means, sell for what you can get.

DanaJ

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We rented out our home when we moved, years ago. The management company/agent got tenants, pretty quickly, even though it was 'in the countryside'.

Rent was on time and in cash, and they expressed that they had intentions to possibly purchase the property at the end of 6 months.

Well, a sale never went though, and when they left the house, it was immaculate, with only a few 'signs' in the large garage that they had been manufacturing drugs on the premises....

They had added some shelving & additional 'task lightening' in the garage, some good 'tools' and a satellite dish... :unsure:

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Whilst it does happen, your mindset should be that renters are unlikely to treat your house with a great deal of respect. Factor in to the earnings that you will need to redecorate and replace items at the end of the rental period. Remove everything that has any personal value.

 

We did this but after two years still returned to find water damaged ceilings (now too late to claim on the insurance), burnt out electricals and a completely dead garden!

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Of utmost importance is getting a GREAT property manager.

 

Don't try this at home kids, but I have actually rented my house in the US for three years without a property manager and by asking the tenants to deposit their rent in my bank account. People say I'm crazy, but it mostly works. I haven't even met my current tenants, only deal with them via email, and in fact have found tenants by asking the exiting tenant to look (and cutting their final month's rent for the service). Granted, I have called a friend there and asked her to handle a transition. She even has the tenants sign leases, which I never did. I pay the plumber by credit card via Skype, and handyman via Paypal. It is not perfect, and if I had it to do over again I might have sold. The problem is that tenants move out or whatever at inconvenient times, and you have to act then. Another problem, at least in my town, is that the rental market was hit almost as much as the sales market. There have been trying moments. However, I have advertised on Craiglist from CR and generally managed to work things out. A couple months ago my tenant mentioned some small repairs. I asked her if she could ask around and find a guy to do them, capped my commitment at $200, and lo and behold she found a guy who charged exactly $200. Had I been there I might have saved $50, but from what I hear a property manager would have cost me more. Oh, as for the lawn, I left a mower on the porch and said whoever wants to use it can.

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This forum has been very helpful in giving suggestions and options. So, here's the outcome of my dilemma regarding the rental/selling of my home in the states. I found a property manager and now I've entered into a lease/purchase agreement. I'm getting my desired rental fee and when the house is actually purchased(12months) I'll have the $amount that I originally wanted. Hoping it all goes as planned, but if not, there's a plan B :)

Edited by sunnysadie

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Good going SunnySadie!

 

Ken, glad to hear that this is working out in your case. We have the tenants send the rent to our accountant, who then deposits it into a separate business checking account just for that purpose. We keep just enough in the account to cover any expenses, the rest is transferred to our regular checking account, which they do not have access to.

Our property manager cautioned against the tenants having access to the checking account or even having the account #, as with such info they could defraud you. And it has happened, so beware.

 

Danaj

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