Do you want to continue? Advice needed on if to sell a rental.

5 Replies

Good morning,

Yesterday, I received news that my tenant is ending her lease early.  This shouldn't be a problem, as I have a solid termination clause in the lease.  The question is, do I immediately look for a new tenant, or list the property for sale?

Quick numbers:

Purchased at $237k, currently valued roughly at $266k, I have $144K left on the mortgage at 3.976% (principal payment is ~$350/month), current rent is $1800, net cash flow is $245/month.

This is a townhouse that was built in 2012, and nothing of note has needed replacement.

I'm confident that I could easily get a new tenant in for $1800-2000, but I believe that maintenance cycles will be coming due in the near future.  The house has two AC units and two furnaces.  

I was laid off last year (as were many) and went through a portion of my savings.  Between the relatively good RE market, the time of year, current low-interest rates, and my reserve being less than desirable, I believe that it would be advantageous to list the property for sale.

This would also give me a chance to wipe my financial slate clean of some consumer debt, finish a stalled renovation and get it rented, and still have the cash to put down on a duplex in the near future.

I am interested in hearing the community's thoughts and appreciate the insight.

@Eric Klug   It sounds like you have answered your own question. Ultimately, wiping your slate clean from consumer debt is always desirable as it is some of the worst debt you can have. It looks like you will still have rentals and the opportunity to continue investing. 

Best of luck!

@Eric Klug I agree with the other posts, it sounds like you answered your own question. It's a great option as long as you use all (or the vast majority) of the funds to pay off debts, complete the rehab and purchase a new duplex. Don't fall into the trap of using the proceeds of the sale for more liabilities... There are so many stories of people stepping into $100k and buying a new car, renovating their kitchen, going on an elaborate vacation, etc. 

I disagree.

If you sell, there's a very good chance you'll spend the money paying off your debts, maybe celebrating with a new purchase or vacation, or whatever. A year or two down the road, there's a very good chance you'll have created new debt and you'll be kicking yourself for selling a good property that would have continued to build wealth over time. You're right back to where you started.

Based on what I know, I recommend you keep the investment and start hustling to pay down your personal debt. Get a better job, get a second job, deliver for Door Dash at nights and weekends to earn extra money, sell the couch set and sit on pillows, sell your TV and spend your time educating yourself or earning more money, etc.

You'll be better off hustling to get your finances in order than if you take the easy way out by selling off the investment.

Sell it.  Currently, you have $122k tied up in a property worth only $237k.  Sell the property, take the equity out minus closing costs, and you should still have around $100k left...which at 20% DP, should get you a PV worth around $500k.

Find two similar to the same property you have now, and you should double your cash flow too.

Don't fall in love with the isn't the asset.  Your cash is, and the equity in your property is just your cash on vacation.  Get it off its butt and make it work for a living.