Potential risky investment?

3 Replies

Hello! I have a dilemma that I keep going back and forth. I'm currently going through a divorce, and my ex-husband and I purchased a townhome together using his VA loan in Utah. I cannot afford the payments on my own and I would not eligible to refinance either. He purchased a rental house in Idaho before we married, but we were together at the time. The equity has since ballooned significantly. Although I did help some with the management of that property, legally, if that house were to sell, I would be owed nothing.

Our divorce is amicable, and he said it would be fine if I had rented it out. So the problem is, he lumped all of the closing fees, etc., into the loan. The payment is $1,460 and HOA is $91/month for a 4-bedroom 2.5 bathroom 2000 sq. ft. 2-car garage. The construction was completed May of 2017.

Comparable townhomes renting in the area are between $1,450–$2,000/month. I don’t believe I’m looking at anything more than $195 over my mortgage. Only because I’d like the price to be competitive, because I’d like this rented out very soon. I’m also worried because this time of year is probably the worst time of year to rent out a place as it’s in the middle of all the big holidays.

Is this too much of a risk? Should I just sell it? It has not gained enough equity at all. I’d struggle to break even…I do have a chunk of savings set aside that would help cover a few months. Would you say this is riskier than average? It’s home value has gained 4.5% over the past 6 months. It would be difficult for me to let it go only because I know of the potential equity in a few years I could make from it if/when I sell it and put that into a better rental property solution. I feel somewhat confident in the market here in Utah. Your advice would be very much appreciated!

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tl;dr

Having a dilemma about an investment that could be too risky. Recently purchased, and doesn't have a lot of equity to sell at this time. The potential return I would get from selling it in a few years  and could use that to invest in a better rental property. 

@Melissa Coombe Without know all the details of your situation, are you planning on staying in UT or moving to ID? Idaho is a community property state. I am not a lawyer and not sure how it works when you live in another state, but assuming that the property is in ID and owned by both of you through marriage, you should be entitled to half of the profit if it were sold. You could try to rent it out for somewhere in the middle range on a short term 6 month lease to attract renters for the lower comparable price, maybe about $1750 and then after 6 months raise it to the more competitive $2000. Or for now, as you mentioned, for holidays try renting it as an Airbnb and see if that works out. Or just sell it now, it would probably sell fast if your market is like mine right now. You don't know what the future will bring, prices may decline in the near future. It is a tough decision. Best of luck to you.

Sell it now. If you rent it out you will need to do repairs and cosmetic work to sell. Likelihood is you will have negative cash flow if rented so selling now is your best option.

Keep in mind the real estate market is prime to make a correction. If you hold you are at a greater risk of being upside down.

@Melissa Coombe  

I know this is 2 months old but I am still adding this for other people to see my opinion. Most new construction of a single family dwelling does not make sense to rent. You will likely be taking money out of pocket for repairs, cleaning and vacancies. One month of vacancy can wipe out all of the positive cash flow from one year, so can a pricey repair.  

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