Keep It, Sell It, Or Rent It?
Steve and his wife are having a difference of opinion about using their condo as a rental property. Who will Dave side with?
QUESTION: Steve lives in a condo and wants to move to a house in the suburbs. He wants to keep the condo and rent it out even though the income from the rental property wouldn’t cover the mortgage and condo fees. His wife thinks it makes more sense to sell it and take the equity. Dave warns him of the dangers of renting the house out when you have debt.
ANSWER: You’re not taking into account that all this debt adds risk. If you guys have an income problem or life doesn’t work out perfectly, then you can stop a 401k. You can’t stop making a mortgage payment. If a renter doesn’t pay, you have the whole puppy to eat.
I don’t do rental properties with debt on it. If you told me that you lived in the suburbs and wanted to buy a condo with negative cash flow, that wouldn’t make sense. You’re becoming a landlord here by default rather than proactivity. I’ll probably side with your wife in this case.
One thing you could think about doing if you have a great income is, on a temporary basis, if you think the market is going to recover about this time next year to the tune of tens of thousands of dollars, I might feed it for a year. But I wouldn’t keep it as a long term game plan.