I’m Moving Out Of State: Should I Rent Or Leave Empty?
Rental Income
I Moved across the country: I’d rather leave my house empty than rent it out for $2,600/Month! I must be Crazy Right? Well… maybe not.
Before we deep dive this topic lets set the stage for discussion.
I’m 35, retired, and own a home worth roughly $500K in Arizona. Recently I moved across the country, my timeline is a bit uncertain for this trip but I think I’ll be gone somewhere between 9-12 months. While I am away I have the option to rent my home for around $2,600/ month or leave it empty.
While renting my place out for some sweet income is the common resort, I’ve decided to the shock of many people in leaving it empty rather than renting it out! Let’s look into why.
Table of Contents (Jump Links…)
The Facts
So before we get into my decision to leave my home Arizona sit empty lets explore what renting it out would actually look like.
Lets first look at the house as an investment property, assuming I’d move out and never live here again. The monthly cashflow if everything went well would look something like the below.
Rental Cashflow
Monthly Rent $2,600
Mortgage $1,206
Taxes $233
HOA $113
Insurance $125 (Estimate)
Landscaping $50
Vacancy Allowance $260
Monthly Bug Spray $40
Maintenance $260
Property Management $260
Monthly Net (Cash) $53
(this doesn’t include any moving costs or storage costs to relocate my furniture and other personal belongings that I didn’t take with me into storage. $200-300/ month?)
As you can see this home isn’t an ideal rental, while it probably won’t lose money, especially if I was able to get a good tenant placed there. Also I’m in a area that is in short supply of rentals near a military base with a large supply of employed individuals in need of short term housing, so I’d probably have a relatively low vacancy rate. Hopefully things would work out better than this if I were to turn it into a full time rental.
Now you might say “But Adam, you aren’t trying to buy this house as an investment property! You’re already own it! If you’re going to just let it sit EMPTY you’re going to incur many of these costs anyway!! Why not make some money back while you’re not using it? Something is better than nothing.”
And you’d be right, lets take a closer look at my “carrying cost” on this home is while it’s not being used.
Carrying Costs
Mortgage $1,206
Taxes $233
HOA $113
Insurance $100
Landscaping $50
Vacancy Allowance $0
Monthly Bug Spray $40
Maintenance $130
Utilities (Water, Sewer, Electric, Gas etc) $200
Property Management $0
Monthly Net (Cash) $-2,072
So my options are to lose $2,072/ month or break even/ earn $53/ month. In theory the decision to leave my home empty costs about $2,125/month (Note this is less than the $2,600 mentioned earlier, but still not an insignificant amount)
A Property manager Isn't the Same as Waving a Magic Wand
A frequent comment I received when I brought this topic up was “have you considered a property manager” & “A PM would take care of everything”
My first thought was “Gee Golly! I’d never thought of a property manager… NO SHIT DipShit”. I’m not an idiot. I’m fully aware that there are services that you can pay money to that claim to take care of everything for you while you sit on a beach somewhere collecting a rent check on time every month.
This is a sales pitch as someone who used to manage over 600 vendors/ services for a living I know this is far from the truth. Just because you leave someone in charge does not mean all problems will be solved, and that I won’t have a worry in the world.
The possibilities are endless.
You may still have a tenant that doesn’t pay rent.
That refrigerator might stop working (of course an urgent emergency if someone is living there)
Stuff will get damaged as people move furniture in and out of the house
The legendary 2am flooded toilet.
At the end of the day the PM is just someone who helps you manage a property, they will help find tenants, assist in collecting rent, and arrange for repairs and service to be provided when necessary. Then there are situations… that you just can’t plan for, like an angry tenant who is angry about being evicted and leaves your place looking like this…. would you be able to un-see this as you try to move back in and live your life here?
But guess who doesn’t get paid, or has to shell out $1K for a new refrigerator to be expedited to the home to upset tenants? Or repaint the hallways because of dinged walls or water stain from a minor flooded bathroom. That’s right- YOU DO! 😊
While a good PM can certainly make your life easier (lets not talk about the bad ones) the buck still stops with you. You are ultimately responsible.
Now if this were a long term situation, I’d be willing to put up with a level of work / inconvenience for another source of cashflow (Note I didn’t say passive) but that’s not the situation here, I’m only going to be gone for 9-12 months.
It’s Not a Life Changing Amount of Money
Golly Adam! What do you mean by this? $2,125 per month is $25,500 per year! If that’s not a life changing amount of money then clearly your filthy stinking rich and don’t understand the plight of us common peasants.
Instead of looking at the potential cash coming in (ignoring all the costs and risks associated with it), you need to ask yourself what is this decision truly costing me?
It’s easy to look at the $2,125 monthly cashflow difference between renting the place out vs leave the home empty.
However consider that I’ve owned this home for 3 years and have been able to successfully invest $22K in the past year clearly this home isn’t putting a financial burden on me.
The true cost of this decision is what the new place I’m moving to costs to rent because this is the new budget line item (Which ironically nobody has asked me to date). In this case, I’m splitting rent and my share is $900/ month. The utilities will be covered in this monthly payment. Additionally, since I’ll be in a Low Cost Of Living Area (LCOL), my day to day expenses could actually go down making the move even more cost effective.
I bring this point up because it’s easy to become fixated on the top line revenue increase as “missed opportunity” without considering what the impact to the bottom line actually is (in this case about $900/month which doesn’t sound nearly as bad as the $2,600 “missed rent” people will naturally fixate on.
What’s Actually Most Optimal?
Another interesting piece of this debate is most people who have encouraged me to rent my home were offering advice they thought was “most optimal”
I use the term “most optimal” because, lets be honest, by leaving the house empty I am still gaining equity with every mortgage payment. I reduce the risk of tenant’s damage, I save on moving costs by leaving my stuff behind, and gaining the flexibility to come back on a moments notice as my situation changes. It’s not like by making a “less optimal” decision I’m really hurting myself. I’m still able to save money every month (maybe a little more slowly) at the end of the day I’m still retired and I’ll be just fine.
The irony is as I pointed out above the projected monthly cashflow for this property is $53 per month ($636 per year) which on my home worth around $500K is a yearly return of 0.127% - hardly a rate of return worth bragging about. If you include the risks of non paying tenants, cooling housing market, possible damage, etc, you can see this is not a very good risk adjusted return. Not to mention any stress it may cause me in the process.
The smart thing to do would be to sell the house for $500K pay the bank off ($300K) and 6% realtor fees of ($30K) for a tax free walk away profit of $170K. which is a 566% return on my initial cash investment of roughly $30K over 3 years ago.
This removes the risks mentioned above, I could then go invest this cash elsewhere. Even a modest 4% return (Safe Withdraw Rate), I could safely expect to generate $566.66/ month or $6,800/ year in return while simultaneously reducing my monthly costs by around $2,125 for a net impact on cashflow $2,686.66 compared to my current situation. Which is pretty darn good! When compared to the rental option, this is still 10X improvement to profits when comparing positive net cashflows compared with the returns of keeping the home as a rental ($566 vs $53/month) with none of the risks and the opportunity to sit on $170K in cash vs having the $$ tied up in a home in a possible recessionary housing market.
You don’t need to make money the same way that you spend it
“You don’t need to make money the same way you spend it” is a quote I like from the book The 4 Hour Work Week. It encourages you to focus on what you already do well to make money and not fall into the trap of trying to make money by doing something you have no experience/ skill of doing just because that’s how the money went out the door.
Basically in this situation I’m accepting that I’m spending an additional $900 per month on housing that wasn’t there before. Instead of fixating on the housing cost I’m choosing to treat it like the number that it is and plan to find ways thru my side hustle I already do well to try and generate an additional $900/ per month to cover this short term (but fun) change in my living situation.
Want a side hustle that pays well too? Check out the Top 10 Side Hustles article where we show you what to look for in a scalable side hustle that can change your life!
It doesn’t make sense for me to get into the business of being a landlord, moving all of my stuff into storage, hiring a property manager, and hoping everything goes perfectly (Which it almost never does when you really need it to) especially when I’m halfway across the country with no ability to fix issues as they come up. Instead I’m going to focus on growing what I’m already doing well (my amazon side hustle) and not get distracted in an entirely new endeavor that I have zero long term plans of perusing.
Gives me flexibility moving forward
At the end of the day my decision to leave my home empty instead of going through the effort to rent it out to a stranger reduces financial risk to me (for a price) and gives me the freedom and flexibility to just enjoy living life on my term which was the whole point of me retiring at age 32.
While on paper, it isn’t “most optimal” option but I’m ok with that. I’m already financially secure, I’m already retired, other than having a few less extra dollars to invest, it really doesn’t negatively impact my life.
To learn more about when you should optimize an opportunity or when good enough is… well good enough check out this article I wrote about the Optimizers Vs Sufficers The Power Of Good Enough
When I’m ready to move back to Arizona my house will be sitting there ready to welcome me home.
What would you do if you were in my situation? Rent the house out for that sweet cashflow, or leave it empty like I’m doing?
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