Is it better to sell at a loss or rent at a loss?
To make the long story short about why I’m in this position, basically we bought a home we thought we would be living in for at least 10 years if not longer based on my wife’s job out of training(mistake not to rent first and make sure the job was solid). The partners at that job ended up being selfish pricks who wouldn’t renegotiate in good faith after a contract issue they caused. Blessings in disguise, wife’s new job is significantly more financially lucrative in a more desirable area (over 3 hrs away).
We moved and have been renting for a year, financially we are in a good place and it isn’t a problem to pay our mortgage and rent. However we want more space to start our lives and that is where we would be strained to pay a mortgage on two homes. Initially we thought the first home we bought could be a vacation home since it is in a more seasonal touristy area, but homes in the area we would like to buy in now are much more expensive than we expected and so we need to unload the first house we bought before we buy another.
Now the issue is that in the 3 years we owned our first home it hasn’t appreciated at all. We bought when the market was much hotter and now things have significantly cooled. I think we would be lucky to sell at what we purchased the home for. We didn’t have to put anything down so we don’t have much equity and will need to pay out of pocket for closing cost (we were eligible for a loan product that doesn’t require PMI w/ 0 down). So if we sold at the same price we bought we would pay roughly 16k in closing costs out of pocket.
Alternatively we could rent from for less than our mortgage by 1k a month but even that might be pushing it. Obviously this doesn’t account for maintenance and any gaps in occupancy.
Intuitively I think it makes sense to cut our losses now, but I am having trouble articulating why to my wife who thinks we should rent it. Her thought process is that 3 quarters of the 1k we pay out of pocket goes towards the principal or our mortgage and that overtime it will eventually all go towards principal and therefore not really a loss. And also that eventually the home will appreciate in value enough for us to profit when selling.
I guess my intuition is a known 16k-20k loss now is better than covering the 1k gap plus maintenance cost over the next decade, just in hopes that it will eventually appreciate enough so that we would make a profit (likely just a modest profit). I’m sure there is also the time value of money that isn’t being accounted for properly.
What would you do in this situation, and if you can explain your thought processes I would appreciate that.