Should I sell or keep

4 Replies

Hi folks

I live in southern california and I am wondering what to do with the townhouse that I used to live in as my principal residence:

Bought in 1999 for $350,000 (4 bed 3 bath townhome)
Current Market Value: $725,000
Current Loan amount $235,000
Monthy loan payment $1920/mo
(15 year loan; 5% fully amortized loan; 11 years left in the loan term)

My wife and I moved out last month and we have a renter in the property now:

Rent: $3,000/mo
HOA: $250/mo
Tax: $400/mo
Insurance: $200/mo

Is it better to keep this property and let the tenant pay off the mortgage (currently have 5% loan) or sell it.

I'm currently renting in L.A., looking to buy a sfr for my family. I don't need the equity from the townhome (although it can help to reduce debt load) to buy my next home.

I like to get some feed back on whether it makes sense to keep this property or sell it and keep the money either in cd, stocks...and look for other rei.

Regards

Chuck

Thanks for your input.

On the surface it looks a bit "thin" as far as rentals go. I hate having ANY DEBT, but you're well on the way to paying that off, so I might be inclined to keep it in your shoes.

However; the appreciation on this place has not been great, less than 5%/year by my calculation. So the "leverage" hasn't been a great factor for you. And it's doubtful that housing prices will continue upward in the next 5-10 years as they have in the previous 10 years or so.

Also I'm having a bit of a problem figuring out your present loan. To arrive at a $1920/month P&I @ 5%/15 year, requires a beginning balance of $243K. After 4 years that loan would have a balance of about $195K, so tell me if I misread your original post.

Thanks

all cash

all cash....thanks for your reply

you are correct, my current loan balance is about 200k (i approxmiated my loan balance...didn't think that principal came down that fast).

My dilemma is whether it is better to cash out and put the 490k in the bank and earn 5% ($22,500) per year or have a net cash flow of $1,800/year in a deflating housing market....

Assuming in 10 years from now the home is fully paid off AND the fmv of the home in 2016 is equal to current fmv of $725k....what would be the benefit of keeping the property?

What is the proper method to analyze this situation. How does a rei view this situation? Your input would be further appreciated.

regards

Chuck

Well I wouldn't put the proceeds in the "bank" at interest, I'd invest it in mutual funds. But I take your point.

I'm guessing that the townhome qualifies for the "2 out of 5 year" rule for preferential tax treatment which is one more reason to sell it now.

I don't like being a long distance landlord, I sold all of my rentals before I moved 200 miles, so I wouldn't keep it unless you KNOW you might move back and re-occupy it.

Your math analysis is correct. I realize a lot of people on this site will chime in with things like "tax benefits" etc, but those can be ignored. Hold rental property ONLY for superior income, and this doesn't look like a vehicle for that.

all cash

I agree with All Cash, the margin is very thin and since the market seems to be lukewarm as far as expected appreciation. Selling the property and investing it elswhere such as stocks, bonds, mutual funds or even other rental properties if you are interested in that kind of stuff. Good luck with that.

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