Would you sell this property or continue renting?

Question

I became an accidental landlord, when I bought a house 3 years ago, and did not sell the house I had lived in for 10 years.

Here are the facts:

House purchased: $200,000

House Mortage remaining: $162,000

Rental History: 3 years at $1750 a month

Rental Maintenance: Year one $6500 roof replacement, Year 2 ~$3000 in appliance maintenance, Year 3 ~$9000 in repairs after the 3 year tenants ruined the inside of the house

Property Management: $175/month

Taxes, Insurance, Interest: ~7500/year

House Value: ~$255,000

Home improvements since purchase: Approximately $15000 in upgrades while I lived there. Deck, hardwood floors, countertops, etc.

It seems to me like I am better off selling and investing the gains in my stock portfolio, but I would like to hear other opinions. The house just got finished with the renovations after the last tenants, so it is in tip-top shape. I also think I could rent it for $1900/month and possibly lose the property manager. The house seems to be appreciating in value, but I think it would take at least a few more years to get to, say $300000 in value.

I hope most of the maintenace is DONE for a while on the house, but the tenants destroying the inside really stings this year (had been good tenants for ~3 years until the end), and makes me think I am done dealing with the property.

Darius Ogloza · Answer

It is unclear whether you failed to sell 10+ years ago because you wanted to hang onto the property or you couldn't find a buyer.  Unless the market has changed dramatically, this factor should be considered if you are thinking sale.

Honestly, at $1,900 monthly rent your gross cash with be $22,800 and your fixed monthly costs are only $7,500 (assuming no good reason to maintain property management for a single family).   Given that you have made substantial capital improvement and repairs over the most recent years, you should be good to go for a pretty long while if you can locate a long-term tenant.  If you sell you will take $75,000 out of the deal.  Can you think of an investment that will pay you 20% annual cash on cash? ($15,300/$75,000).

Nathan Gesner · Answer

It sounds as if you may not be cut out for investing. Have you considered investing in a fund? Let them find the deals, handle the headaches, and you make a profit.

Joe Villeneuve · Answer

I'd sell it and invest the profits in more cash flow properties...NOT the Stock Market

Gerald Gardere · Answer

I was lucky! I drove by my rental (and yes, they lived there for 3 years as well) and was surprised when I saw stains on the driveway and what looked like a overgrown foliage around the outside HVAC unit. Notified the PM; they had 3 visits that week: day one, notified tenant to remedy lawn and driveway; day two, inspected. Day three, inspected interior. Most important is what lesson you and I learned...keep an eye on your investment no matter how long good tenants have lived in there.

Seems as though you have one foot out and other foot dug in a bit deeper (by wanting to manage yourself). What are your goals? If you sell to buy another, you lose equity on both ends of that transaction. What are your goals? How soon do you need to pull money out of the investment (5, 10, 20, 30 or 50 years)?

Also, did you file an insurance claim for the roof (and fence)?

$9000 in repairs is a lot, sounds like your house became the party house. Recommendation: do drive-by's and keep an eye on your investment. If the lawn is neat chances are the inside is good - maintain the normal semi-annual inspection period. Trashy and overgrown lawn, you may need to inspect the inside sooner than later.

Theresa Harris · Answer

How much are your mortgage payments?  You only listed interest.

I'd probably sell it and use the money to buy one or two rental units.  In year 2, I am guessing you bought new appliances as $3K for maintenance is high.  Once you sell it you will probably have $80K left after fees and can use that as down payment on another place-do 20% down and save the rest to get another property down the road.  Look at a duplex or a unit with a suite where you can increase the amount of rent coming in.

Andrew S. · Answer

If you're that interested in being an active landlord, then I'd sell it. Sounds like a fairly nice house.  If you select good tenants, manage them, and get good luck then you could make money. Otherwise the stock market is another good option

Would you sell this property or continue renting?

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