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Pretty self-explanatory here. I have owned the home for just about a year; I still believe in the neighborhood's long term potential, but there is a bit of buyer's market due to COVID and it is causing homes to sit for a while on the market, thereby inducing price cuts, thereby reducing the value of my home (based on a CMA). What should I do? I figured I just sit tight on it; either rent it out or live in it myself. Is the long term hold the move here? That's what seems to make sense to me but I want to make sure I have considered everything.

Edit: To clarify, the original intention of this property was to buy it, live in it for a bit, and then rent it out perpetually as a source of income. The going rate in the area puts the property (if fully rent it out) at a -$50/month cash flow.

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  • Are you still living in the house, per your original plan? Do you have a reason to move other than to move on to the next phase of your plan?
    – chepner
    Commented Aug 10, 2020 at 14:19
  • @chepner Ideally I would like to move to a different part of town just because of proximity to my friends
    – Runeaway3
    Commented Aug 10, 2020 at 16:12
  • @Runeaway3 if you can rent it for a loss of $50 a month will you then save more than $50 a month in gas and Uber fares when you hang out with your friends?
    – Freiheit
    Commented Aug 10, 2020 at 17:35

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Your options are the same as if prices had not changed. You bought the home, you own it now regardless of what the surrounding market has done.

Those options are:

  1. Sell the home, likely at a loss and after a long listing period
  2. Live in the home. It's change in value won't change that arrangement much.
  3. Rent the home, per your numbers at a slight loss
  4. Leave it sit empty. This is obviously a terrible choice but it is an option.
  5. Abandon the home and let the bank repossess it. Also a terrible choice.

I think you should stick to your original plan:

the original intention of this property was to buy it, live in it for a bit, and then rent it out perpetually as a source of income

The only change here is that you will either take a loss on rent or extend "a bit" to a longer period of time.

If there are other circumstances such as a job change, retirement, relocation, etc. You should edit your original post to be more specific to your situation, circumstances, and needs.

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It may be worthwhile to study what happened home owners that bought prior to 2006. The market crashed later that year and those that had ARMs had a lot of difficulty holding onto their homes. Some also had difficulty holding on because of lost income or failed attempts at trying to take advantaged of government programs that reduced mortgage balances. While I cannot be certain those failed attempts probably involved fraud.

Those that bought before 2006 experienced what you are, but far more drastically. In my own case, my home purchased in 2005 could not be sold for half of what I paid for it. But for me it did not matter. I had a fixed rate and my income stayed constant.

I also aggressively paid down my mortgage (and other debt) and that provides a meaningful buffer between my own financial well being and the whims of the market. In your case having a paid for home would certainly turn it into a profitable rental. It then becomes a very easy business proposition to evaluate. Do I sell this home for X dollars or kept it earning Y dollars per month in rent?

One way to get aggressive with your mortgage payment is to rent out part of your home. It gives you experience being a landlord and provides cash that you can throw at the loan balance. That is what I would recommend, in your case, renting out part of your home and use the proceeds to pay down the loan balance. Do this while building your knowledge and team that will be part of your land lording business.

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