Should I rent or sell?

Question

So I have a property in Huntsville, AL that we lived in for a while and really enjoyed. The property is almost 7 years old, no issues, it's really a great house. We have had it rented for a year now and a new lease was signed for another year in May. The current tenants have indicated they want to move out at the end of the month but understand they are responsible for the rent and utilities but would like for us to find another renter...

Here are my questions.

1. Am I able to find another renter and still hold them accountable for the rent associated under the current contract? Basically double charge?

2. Or should I sell the property?

Details on the property: So I have a negative cash flow with this property because I (never intended to rent it) got a 15-year mortgage. The property actually brings in a fair amount of rent for the area. Property values have gone up recently and because the 15-year mortgage I'll have about 80K after all the fees are paid. I have no pressing reason to sell or to keep renting it, kind of neutral about the whole thing.

Both these options seem to lack creativity but figured I would post and get some other insight from everyone.

Any thoughts or ideas would be greatly appreciated.

Chris Sellers · Answer

Casey,

I wouldn't try to get double rent.  Hold them accountable until you can rent it out or sell.  Works out best.

Rent vs Sell depends a lot on your goals.  If I'm negatively cash flowing and don't have a great plan for what I'm doing with the property, I'd probably sell.

Good Luck,

Chris

Jason Grey · Answer

It all depends on you. Here are a few questions to ask yourself that may help you to answer rent or sell. (You may or may not have asked them already....

If you hold on to the property until the note is fully paid off, would you continue to rent or would you sell it then?

If you sell now, how would you invest your approximately $80,000?

Can you get more rent for the property to get out of a negative cash flow situation?

Do you expect the potential selling price/value of the home to continue to appreciate?

There are other questions of course but these will get you on the right track to make a decision that best aligns with your personal goals.

ps.

If you personal message me your address I would be happy to send you comps on your address. I'm a broker here in Huntsville.

pps.

Concerning the 'double rent', that is a bad idea. Avoid.

Casey Rumfelt · Answer

Appreciate the input from both of you.

Chris I agree with you. The two things that are against this house is 1. negative cash flow 2. no real plan for it...

The only thing that I will say is the property earns me more than double what I pay into it towards the principle. So negative CF now means faster paid for property = CF later. Even if I had positive CF I would just put it all towards the property anyway.

Jason - With the money from this property I would just put it into something else, maybe a commercial property (5 or more units, or something that hits all the widgets needed for an investment property). I don't believe I can raise rent enough to escape the negative CF situation. My goal is it have some great investment property(s) so that by retirement (6 years or so) I’m not looking for another J-O-B.

I know HSV is kind of a hot market right now and being from the area your perspective is greatly appreciated. I know you can't predict the market but do you think that it would be advantageous to wait to sell vice selling this year?

The home is in South Huntsville within "The Dairy" subdivision. I'd be interested in seeing the comps but I am afraid the new houses still being build will actually hinder me when it comes time to sell... but maybe not.

As far as the rent goes (and I need to talk to an attorney, if you know a good one let me know) but I want to offer a settlement for the tenant. Basically, tell them what they are responsible for and then discount it significantly for a one-time payment to be free from the property. Something on the lines of “Total amount responsible for is 15,000 dollars, which we can drag on for another 8 months or you can cut a check for 10K and be free from the situation.” Seems like a win-win, they are free of all responsibility and I can then rent / sell the property on my own timeline. However, if you include lawncare and utilities which they are also responsible for until May you can easily tac on another 2K (ish).