What to do with my townhome, looking for suggestions

Question

Hi, BP

Looking for suggestions on what I should do with my townhome that I'm renting out. My tenant put in her 60 day notice today.

I purchased it as my personal residence in 2008. Lived in it until 2014 and it's been rented to same (awesome) tenant for two years.

1588sqft, 2 bed w/ loft, 3 bath

It's in Concord, less than 10 minutes from Concord Mills.

It's in great condition, great location, have had very few minor issues, it cash flows a few hundred bucks a month, but I just don't want to find another tenant (or be a landlord). Debating on cashing out.

I owe $110k on it. It would sell for $130s.

Interested to hear what others would do. Open to suggestions. Thanks!

Kenneth Reimer · Answer

@Brian Compton Hi Brian, congratulations on your past success with your rental. It appears that your problem is being addressed with logistics and processes. The real question you have to answer is if the money is worth your time. For many of us on BP, this question is answered yes, because we love what owning real estate does to our lives. However, it sounds to me like being a landlord is not something you're even remotely interested in, and that's okay. Therefore, you just have to find if the money is worth your effort. If it is, then I would then take the step to address the question of how to make it easier (with a property manager, different tenants, etc). If it isn't, then I would sell it and get back on track to building the happiest life that you can. Life is too short to hate being a landlord for $100 in monthly cash flow.

Russell Brazil · Answer

Im a firm believer that the way to really build wealth long term in real estate is to hold property for long periods of time. I say keep the townhouse. Hold it another 10, 20, 30 years. The mortgage balance will continue to decrease and hopefully the property goes up in value as well. Hopefully your rents continue to increase each year. Hold, Hold, Hold.

Pearce G. · Answer

If you're netting ~$300/mo on ~$25K equity, your return is somewhere in the mid-teens. Hard to beat that, especially after transaction costs to sell the townhome and buy something else.

But if you're just not into landlording, I get it.

Most obvious answer is to get a property manager. It will cut in to your return, and you still need to manage the property manager, but it would allow you to continue building equity without the hassle of landlording.

Quick story: I bought my first house in 1988 for 110K with 10% down. Lived there 2 years and sold it for 120K. I was young and single and didn't really have to sell it, but I thought I was brilliant for doubling my money in 2 years. I looked it up recently, and that house is worth about 430K. If I had kept it as a rental, it would be paid off and cash flowing at least $1500/mo. In hindsight, it was about a half million dollars in lost opportunity.

Thomas S. · Answer

Based on your personal position and the fact that you are neither a landlord or investor the obvious answer is to sell. Most investors providing advice only see through their own eyes and will normally advise a option to hold. In your case this is bad advice. Unload the burden and move on with your real life interests. Holding on to this property will only be a nuisance regardless of how you choose to manage it.

Kenneth Reimer · Answer

@Brian Compton 40 weeks pregnant !! Brian, your wife has given you your decision.

Daria B. · Answer

PM fees vary. I have property in Maryland and my PM charges 10% of gross rent while others I hear charge for placing the tenant and turnovers. You would need to talk to the local PMs and tell them/negotiate what you want and are looking for.

Pearce G. · Answer

@Brian Compton property management ranges 8%-12% of monthly rent. 10% seems to be most common. They will find you a new tenant, but there is usually a one-time charge for that. I'm sure there are some quality PMs from your area here on BP who would like to work with you.

You definitely need to include major repairs in your financial calculation of overall cash flow. If you expect property management costs and major repairs will turn your cash flow negative over the next 3-5 years, then yes, it probably makes sense to sell. Or if it's just going to keep you up at night, cash out and put that money to another use.

Jim Adrian · Answer

For a pm you will typically see 50% of first months rent and then 10% of rent each month after than. This would become a wash or near loss I suspect. Call around and ask what they would charge.

Brian Compton · Answer

LOL. @Kenneth Reimer wins!

What to do with my townhome, looking for suggestions

What to do with my townhome, looking for suggestions

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