Wanting opinions on selling a rental property.
My wife & I bought our first home in '05 in central CA just before the height of the bubble for 142k, spent another roughly 15k in renovations so let's round up all in cost at 160k. After the crash, we moved and rented it out. We are currently negatively cashflowing about -$100/mo. I've been told by professionals in the area that it could sell in today's market around 120k (for round numbers, easy math). Mortgage balance is about 105k at 5.875% with 18 years left on 30yr loan.
Refi option: We've looked into refinancing (4%-ish) a year or so ago and it didn't seem to make sense from a cashflow standpoint as I recall the payment would have adjusted to a monthly net zero cashflow but would take us 4-5 years to recoup closing costs from the monthly "savings", plus that new mortgage would then begin a new 30 year schedule (for a $0 cashflow rental).
Sell option: On the other hand, if we sell the property, the way I understand it, we could deduct the difference of Purchase price - Sale price as an "ordinary loss" on our tax return. It gets a little messy with depreciation and I need to get more clarity from my CPA on how it's factored in the loss category. I'm still unsure about if or how the cash we receive from the sale is treated tax-wise also.Keep in mind that we're all in 160k and only selling for 120k not counting the negative cashflow scenario for the past several years.
Ordinary loss: 142,000 - 120,000 = -$22,000 (so this amount would lower our taxable income).
Sale proceeds: 120,000 - 105,000 = +$10,000 (sale price minus mortgage & estimated closing costs).
My payment is for the most part not going to change much (as long as insurance and taxes don't get crazy) but rents can go up in the forseeable future years and I may net zero that way buy doing nothing. Expenses are about as low as I can get them and property management fees have also been renegotiated well below avg PM fees in the area. Also we have other income producing properties performing very well that offset this small monthly loss so it's not going to kill us to hold the property.
I'm open to any number crunching, tax advice, corrections to my very rough numbers but ultimately I'd like feedback on whether or not it makes sense to sell this dud or continue holding it forever or until we get closer to our original all-in price so my pride doesn't suffer too much from cutting our losses. :) Thanks for any feedback you're willing to offer up!!!