How to earn from a vacant house.
Our house in Michigan sits empty (aside from a bed and TV I left there for my visits for work.) It is on the market and priced competitively with other properties in the area but the housing market in and around Detroit is very slow at the moment.
Between the Big-3 laying off workers and salaries stagnating or falling there just isn’t a lot of demand for housing. Many people are leaving the area as well (as we have) which has had the effect of increasing the supply of real-estate on the market. To top it off, foreclosures are at double the rate of the nation as a whole so banks are dumping these homes on the market as well, at much lower than previous market value.
We’ve had several people interested, but nobody with enough money to buy the place, or even justify a showing. It’s a great property and I know it is just a matter of time before it sells, but uncertainty is something I’ve never liked. I’d also like to have the cash to put into stocks as I think we’re on the verge of a very good market for the next year or two.
I’m pretty much assuming that the property will be on the market for a while, several months at least. While we can afford the dual mortgage payments, taxes and insurance it is putting a strain on our cash flow.
There is also the issue of maintaining the property. Work that I would normally have done, mowing the lawn, clearing snow etc. will now cost money as we will need to hire someone to do it. The amount is not trivial either since we mow about 2 acres of grass and our driveway is around 200 feet long…
I spoke with our insurance agent last week and was informed that because the house is vacant our premiums will be increasing dramatically, from around $1,200 a year to nearly $2,400!?! I can see why there would be some increased risk for vandalism etc, but sincerely doubt it’s double what it was if we were still living there… I turn the water off whenever I’m not there and have left the heat on (set @ 50 degrees).
The furnace is only a year old so I see very little risk of it failing with the exception of a power outage. To reduce the risk of damage to the place if the power does go out for an extended time, I will be draining the plumbing and filling the traps with antifreeze the next time I am out. This will at least confine any damage to the lower levels of the home should the worst happen.
All of this has gotten me to thinking about either renting the place out, or having a caretaker live there. Both options have advantages and disadvantages but may be better than the alternative of letting the place sit, especially in a market where property is no longer appreciating. While my wife and I haven’t discussed this yet, I thought I’d write down some pros and cons of both.
- Possibly generate enough income to cover the hard costs of owning the property. (Mortgage interest, taxes etc.)
- Tenant will pay utilities.
- Possible to have lawn care/snow removal done by tenant.
- Difficulty of finding trustworthy tenants.
- Potential damage to property, making it more difficult to sell.
- Having to subject tenants to moving out if the property does sell. May be a time lag between offer and closing because of this.
- Even with rental income, the house will still very likely be running a negative cash flow.
- Difficulty of evicting a non-paying tenant. (Takes around 4 months from what I hear.)
- House will be ‘lived in’, there will be furniture there to give the rooms scale for prospective buyers.
- Property will be maintained (lawn care/snow removal) at caretaker’s expense.
- Caretaker may make some small rent payments.
- Insurance rates may be cheaper.
- Professional caretakers typically maintain their own insurance or bond, this protects us against property damage.
- There is an understanding up front that the house is for sale and that the caretaker may have to vacate the property within 30 days notice.
- Difficulty in locating a suitable caretaker.
- Income (if any) will not be enough to break even on hard ownership costs.
- I’m sure I’ve left somethings out. I’ve only just begun thinking this through…
I know without even talking to my wife that neither of us are crazy about the idea of strangers living in our house. Nearly everyone we know who has been a landlord has some horror stories to share. Because of this, I have strong reservations about doing this. However, with my somewhat uncertain employment status I would feel better knowing that at least a portion of the sunk costs are being covered. I also strongly believe that a house that is lived-in will generate a better selling price, when the market improves.
We do have one ray of hope. Some friends of ours, who sold their house and moved to North Carolina a year and a half ago are considering moving back. Apparently he can get his job back at one of the auto makers and she is a teacher and is very capable of finding a job.
We’d feel very comfortable renting the place to them and know that they would take very good care of it. Depending on the jobs they get, they may even consider buying the place. 😉
Have any of you considered renting out a former residence while waiting for it to sell? If so, what are your thoughts or experiences? I’d appreciate any and all input.