Advice on whether to sell or hold

2 Replies

Hello all, I'm new to BP and new to the real estate world.

I purchased my first property about 7 years ago and it's current estimated value is about $7k less than what I purchased it for.  

For the last 2 years, I've been renting the property out for just enough to cover the mortgage.  I am in the military and soon moving back to the same area and plan on moving in for 2 years.  

My concern is that the property is just tying up my money and perhaps not worth holding onto.  Should I look to sell it or hold onto with hopes that the value will increase or use it as a rental property down the road?

Any advice would be very much appreciated.

Thanks,

Brandon

Welcome to BP @Brandon M. . The property has not appreciated in value lately. Is there a reason you think it might appreciate now? Do you have room to increase the rent to make it a bit more profitable? There may not be much financial difference whether you sell or hold. Make sure you calculate all the costs of selling, transfer taxes, commissions etc. Don't forget income taxes. If you have been depreciating this property on your tax return for 7 years you have lowered your basis in the property by the amount you depreciated. You may owe tax on the gain even if you sell the property for less than you paid for it.

Hi Brandon,

Welcome to BP.

I'm inferring a bit, but I think we need to clarify a couple hard truths:

1 - If the house has depreciated by 7K over the last 7 years, you probably don't have a lot of equity in it.  To say it another way - you probably don't have a lot of money tied up in this.  If you sold it today, after fees, concessions, taxes, etc. - how much would you net?  This is a key question that will play a big role in any outcome.

2- If your rent is barely covering the mortgage, you are losing money (i.e. cashflow) each year.  The house will be vacant.  The house will need repairs.  If you're not quite profitable on the good months, you will lose money over the long term.

3- I don't know what your personal finances look like, but can you afford the mortgage if you move in?  And can you afford it plus the reserves to cover big repairs?  Can you afford the monthly losses of an extended vacancy?  Your personal finances are by far the most underrated factor on the BP site when considering buy and hold decisions.

If you can afford to keep it while living there, I would move back in while you're in the area.  If nothing else, this will delay the decision of sell or rent for a couple of years.  These couple of years are huge - in part due to inflation (a huge asset to a RE investor), and in part due to the amortization schedule of your loan improving (i.e. paying more principle than interest).  Time has a way of fixing a lot of bad buy and hold decisions... With that said, this doesn't feel like a good long-term deal, and you may want to part ways with it in a couple years.

Happy hunting.

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