Should I sell?

Question

Home value is 170k

Original loan was $141,878 at 5.125% interest

Current Loan balance $130,117

Current mortgage $1,416

Rental income $1,275 and great tenant of 3 years

I think Im breaking even from the equity being put in, tax write offs and appreciate but not sure best way to look at that to make sure .

Does anyhow have advice on what I should do or look at?

I bought the house as a residence and moved out of state and when I did just rented it out.

Thank you and appreciate any advice.

Arlen Chou · Answer

@John Eckerman I think a little more information is needed to make a decision.

1) How much did you buy the place for?  You are referring to appreciation, but there is no reference to how much you can potentially gain.

2) Is there a reason you don't refi? 5.125% might have been good 3 years ago, but you should be able to get something lower then that right now.

3) What are market rents in your area? Have you raised rents over the past 3 years?

4) More importantly, what kind of property is this: house, condo, etc?

5) Is it possible that you will live in it again in the very near future?

Keep in mind you have already passed the point where you can shelter your capital gains, so you will get hit big time if you do see appreciation gain at the time of sale.

If you can get it to cash flow, IMO that would be the best option. But if you cannot cash flow and you are not going to live in it in the hear future to take advantage of the tax shelter, I would go with @Joe Villeneuve and @Jane A. and take my lumps...

Let us know what you end up doing,

-Arlen

Joe Villeneuve · Answer

Sell. This is a rental property. The bottom line isn't your tenant, it's your cashflow...which is negative.  Sell now and it's a one time loss. Hold on and that loss occurs every month

John Eckerman · Answer

So just talked to realtor and theres a comp for the exact floor plan for 187k which is  lot more that I thought.

Also if I refi I'm looking at cash flow of $150-$200/month.

Account Closed My payment includes insurance and tax and property taxes in Texas are a lot higher than California.

Account Closed · Answer

Something doesn't make sense. A 30 year mortgage with the terms you describe is only $772.51. Why is your payment 2X that? If its a 15 year mortgage then you are putting a lot of your potential cash-flow back into the house. Nothing wrong with that, I do it all the time.  But if you add the equity back, you should be making a nice return anyway.

Joe Villeneuve · Answer

Yes, maybe, it depends on what the final positive cash flow number is.

Steve Vaughan · Answer

Knowing what @John Eckerman?  Still don't know if you have a tax-free gain or not or what you have in it.  Good luck.

Aristotle Kumpis · Answer

Hi John. Your rent is not covering your mortgage, so you are negative. I see this a lot where owners rent out their property, and they end up losing money because the rent is not high enough. I would call a few property managers to validate the rental comps. If you can hang on for 6 months, you may be able to raise your rent.

On the other hand, you may also be in a good equity position, being that the property is in southern CA. You could definitely optimize your return by doing a 1031 exchange and leverage that into a few out of state properties. I guess it depends what your goals are.

John Eckerman · Answer

Thanks for all of your feedback

@Arlen Chou I will explore refinancing and it is a single family home.

I forgot to mention that rental comps in my area are higher than my mortgage payment so when he renews in the spring or when a new tenant comes in I will be positive on cash flow.

I haven't raised rent on him but I will next time.

Knowing this would you still sell @Steve Vaughan @Jane A. and @Joe Villeneuve?

Steve Vaughan · Answer

I would sell, especially if there is some 121 tax on gain exclusion left.  Because the tenants have been there 3 years, it may have expired.  What is $170k relative to your purchase price?

Folks- if you sell your primary residence you have occupied for at least 2 of the past 5 years, there could be tax-free gains to be had.  Good luck @John Eckerman.

Should I sell?

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