I bought a 3 bedroom 2 bathroom house in Wilmington, NC in 2009 for $205,000. I had to move to Utah for work in 2014, at the time I would have had a hard time selling it and would have been upside down if I had. I found a property manager and have rented it ever since with no problem keeping a tenant in it so far (knock on wood). The problem is I pay about $40 a month towards my original mortgage on the house.
Fast forward to now, I owe $179,000, the comps in the area for similar properties are $230,000-$240,000. My current mortgage is the primary at 5%. I am new to this and am looking for the best path to take. If this was your property would you refinance to try and get the property to cash flow or refi and pull the equity and buy more properties or sell? Thanks for your help.
P.S. If you are an investor in NC and know a good lender I could talk to about a redo on an investment property I would appreciate that info too. Thanks!
I would sell before the expenses push you into serious negative cash flow.
Unless your rent is in the $2000/month range your are headed down a rabbit hole.
I would sell! or even seller finance it to your tenants if that is an option because then you get cash flow for awhile longer and they get to worry about the maintenance aspect. It all depends on your strategy and current needs.
@Clayton Smalley You will only be able to pull out up to 80% of the property value on a refinance, which for you would look like ($240,000 x .8 = $192,000 - $179,000 = $13,000). Refinancing your loan to $192,000 probably wouldn't significantly help your cash flow situation, and the $13,000 would only get you into a cheaper rental somewhere out of state (in a possible war zone unless you have additional capital to also invest).
If you sale at $240,000, however, you would probably have around $45,000 after selling fees to invest elsewhere. I would recommend doing a 1031 exchange on this money into another property or possibly two. Are you interested in investing locally, or out of state? If you are looking out of state, you could probably acquire two properties that combined could cash flow much better ($700-900/month). Locally, you could invest in a MF property and possibly see around this much in cash flow as well. Invested locally in a single family home in Utah, you could probably expect a $300-450/month cash flow.
I hope this helps! It appears you would be better off considering selling. If I can be of any further help to you, just let me know!
@Clayton Smalley , check the last date you can claim you lived there. If less than 3 years have passed from that date you can sell that property and take the first $250K ($500K if married) of gain tax free. You would have to recapture any depreciation taken. But if you can document that you lived in the property for 2 out of the 5 years immediately prior to sale the gain will be tax free.
Otherwise, a 1031 exchange into a better cash flow asset would be appropriate.
I am trying to read between the lines but I am not sure if I have all the information I would need to help you with this situation. So some questions I have. Does the rent you receive only cover your mortgage minus the $40 you pay? How do you pay the other expenses; repairs, maintenance, property management, capital expenditures? Are those covered by the rent and then you have to put $40 per month towards the property?
My advice would very greatly depending on the answer to this question.
depending on when you actually stopped living in the home you may still get the sale of primary residence exclusion. If you live in the home for 2 of the previous 5 years and sell, you get to exclude all the gain on a sale that size.