I have two properties (soon to be three on Friday, woo hoo!). My first rental was initially my primary home, and I moved out 6 years ago and it's been a rental ever since. I'm thinking of selling it but want to know what others' thoughts are on when to sell a rental. A little background about this particular one:
It's on a 15 year mortgage and I squeak about $50 per month net on it. Cash flow is not a problem for me since my husband and I have high paying jobs.
It will be paid off in 10 years, then my net cash flow will be about $1,500 per month on it.
I have about $120K equity in it currently.
I think the neighborhood is in decline since I've moved but that just might be my biased perception since I live in a nicer area now. Maybe it was always a little rough around the edges and I just never noticed...
If I sell, I would like to do an exchange to buy something nicer/bigger, maybe even a commercial property (although I have a lot to learn before I buy a commercial property).
Anyway, if people could chime in as to the criteria they use when deciding to sell a property, I'd appreciate it! I just don't want to hold on to something for too long if the equity in it could be working for me although the idea of a paid of property that cash flows nicely is appealing also. Thanks!
The equity in a rental is actually working against you. Dead equity kills cash flow.
With a opportunity value of a conservative 10% your 120K equity is costing you nearly 1300/month in lost income. To pay for your dead equity you must deduct that $1300 off the top of your rental income to determine what your "true" cash flow is on the property.
My guess would be that the property itself is producing negative cash flow after paying for your dead equity. This makes the property a liability and not worth holding. You either sell or pull out the equity to reinvest.
Where is the house located?
The property is in Howard County, MD.
what erea and neighborhood in Howard County?
Interesting question. I have an inherited property that Im selling but wonder if I should truly sell also and use the profit to buy something here in FL. The state taxes and capital gains may take a huge chunk. There is no mortgage on it but it needs quite a bit of work. Its in MD and I live in FL.
@Kimberly Hastings Where is the property? I might be interested or know someone who is.
@Sandra Holt My apologies for the late reply but it sold! Happy for that. Now need to study all I can to be able to invest in FL or perhaps somewhere else.
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