Why This Accidental Landlord Gave Up and Sold at a Loss

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Andy Dean
My wife and I have finally given up on being accidental landlords. We recently sold our North Carolina home for a huge loss -- despite the recent trend in rising home values across the country.

After my job compelled me to relocate my family out of state, we had decided to rent out our home instead of selling. So, why after nearly two years of holding on in hopes of seeing prices rebound, did we give up and lose $20,000 on the sale? The answer involves stomach ulcers, deadbeat tenants and the consistent loss of $300 a month.

Who Knew? I'm Actually Risk-Adverse

Turns out, I hadn't been honest with myself. I thought that I could handle risks. Like most investors, I like to think that I can stomach large swings in the stock market because I have decades until I retire.

I also thought that my ability to tolerate stock market risk-taking would translate to the world of real estate. It doesn't. They are two drastically different risk profiles. Sitting on stocks and mutual funds that are swinging wildly isn't that big a deal. You can take advantage of dollar-cost averaging and ride out the fluctuations.

I can't say the same for the real estate market. Each month, I spent hundreds of dollars on the portion of the mortgage payment that wasn't covered by my tenant's rent payments. And the value of my home wasn't rising.

I watched helplessly on Zillow (Z) as homes in my neighborhood sold for losses each month. Other sellers kept their homes on the market for nine to 12 months without reducing their asking prices, in the hopes of getting as much for them as they'd paid years before.

It's a double-edged sword that home sales are public record. When you're the buyer, you have a great deal of information at your fingertips. You know what was paid for a home. You know what other similar homes have sold for, and when the owner bought their home. But in your roles as seller, the transparency is brutal. And, in today's real estate market, the buyer still has all of the power.

I Needed a Happy Home Life

There's an old saying, "If mom ain't happy, ain't nobody happy." That's absolutely true in our household. And owning a home several states away was just too much for my wife to bear happily.

She was constantly worried about having the old mortgage plus the rent payment on the home we're now living in. Seeing the worry in my wife's face made being a landlord less fun.

I needed peace of mind and a happy home life, and I needed to provide those things for my wife as well. Blindly holding on to the house and my dream of being a landlord wasn't providing it. It was time to let the house go.

Deadbeat Renters Were Too Much to Take

It's one thing to pay a few hundred dollars out of your pocket every month to be competitive and get a renter into your home. It's a whole different kick in the pants when that renter stops paying.

Though we had saved for this eventuality, it was too much for us to pay our own rent and the mortgage. Between them, those payments quickly gobbled up my savings during the several months when the tenants weren't paying, and as the eviction proceedings dragged on through the court system.

It was in some respects a forgone conclusion that we'd have to sell our home. At some point, the negative cash flow gets too painful. It was better to sell the home before my savings account ran totally dry.

Sunk Costs

At some point, you have to realize that an investment is a sunk cost. The money that you've put into an investment shouldn't be a factor when you decide to get out of it. If the idea you had didn't pan out, you shouldn't try to hang on simply because of the money you've poured into it already. That's just throwing good money after bad.

At some point, you simply have to cut your losses. Turning our home into a rental property was a failed financial move. More fundamentally, we buying the home in the first place was a bad investment, given that we bought it in 2008 at the height of the real estate market. We held on in the hopes that the real estate market would come back. It still hasn't in our area.

Being a landlord wasn't as fun as I thought it would be. I had this dream when I was in college of being a real estate mogul like Donald Trump. I wanted to buy a home in every town my job took me to and then rent it out instead of selling after we left.

Little did I know that neither I nor my wife had the heart to be landlords. It was a costly mistake. Dave Ramsey often refers to errors like that as "stupid tax." He's right. We're not cut out to be real estate moguls. We're even done pretending that we are homeowners, at least until we move for the last time.

Are you an accidental landlord? Have you enjoyed it? How do you keep going after a set back? Have you ever thought of just giving in and selling?

Hank Coleman is the publisher of the popular personal finance blog Money Q&A, where he answers readers' tough money questions. Follow him on Twitter @MoneyQandA.

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Why This Accidental Landlord Gave Up and Sold at a Loss
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From a footprint of 1,650 square feet in 1978, the average American home has grown 50 percent, to 2,478 square feet. Yet tough times seem to be squeezing our expansionary attitude. Although new single-family homes sold in 2013 clocked in at a median 2,478 square feet, single-family homes completed in 2013 amounted to just 2,384 square feet. Homebuilder confidence has plummeted into pessimism in the last few months, hinting that the housing market's road to recovery might be rougher than expected.

While birth rates have held relatively steady for the past 40 years, everyone apparently needs more elbow room. The share of homes with four or more bedrooms has jumped from 27 percent in 1978 to 51 percent in 2013. And where would a bedroom be without a bathroom? While just 8 percent of 1978 homes had three or more baths, 37 percent of homes now fall in that category.

From 2008 to 2013, both the share of homes with four or more bedrooms and the share of homes with three or more bathrooms have jumped 10 percentage points, while median square footage is up 10.9 percent for the same period.

If there's one strong sign of new housing demand, it's home prices. After nose-diving during the Great Recession to a median sales price of just $216,700, home prices have been roaring back up. In 2013, the median sales price for a new single-family home was $268,900. But for those on the housing hunt, don't be discouraged. Home prices today still don't hold a candle to costs in 2006, according to the well-regarded Case-Shiller Home Price Index. In 2006, the index topped 200 before plummeting to less than 140, and current rates put the index just above 170.
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American homebuyers are building bigger homes than ever before. But if there's one thing the recent recession has shown us, bigger isn't always better. Although 30 percent of Americans believe real estate is the best long-term investment, homeownership isn't for everyone. There are plenty of reasons to spend less or invest elsewhere -- and leave keeping up with the Joneses to Mr. and Mrs. Smith.
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