Keep rental property?

19 Replies

Hello,

I purchased my first primary home in May of 2009. Just bought a new primary in April 2014 and kept our first as a rental property. I'm just trying to figure out whether or not it's worth keeping this house As a rental. I paid $170 and it barely has appreciated since we bought it. I might be able to sell it today for around $175.

Taxes, insurance, principal/interest-$1230

I have a great tenant paying $1300

If you factor in repairs and vacancy- I'm losing money. :(

I owe $150 and that's not enough to bring 20% equity for a refi.

The only positive to this property is I went in front of zoning 5 years ago to get the property approved for a duplex. But to put up a mirror image of house attached I would be spending $100 k and needing to out of pocket 25% which would make it not even worth it in regards to cash on cash return.

I'm just starting to question my self if I should be keeping this rental property around or get rid of it and continue acquiring properties that are cash flowing more (a lot more)

Any opinions/thoughts would be much appreciated.

If I need to sell it, I want to do it now as opposed to later.

Thanks!

You do understand that "IF" you sell it for $175k with a $150k mortgage balance you will be lucky to pull $5-10K out.

Why not try to do a lease purchase with a $5K option and a sales price of $175k in 2 years.

Maybe raise the rent a little and find a buyer that will be able to get a mortgage in 2 years.

You will not have realtor commission, probably not need to contribute any closing costs and net $30k tax free.

@Bob B. Hey Bob. What do you mean when you say $5k option?

Do you have any more info on lease purchases? Anywhere I can get a sample of one?

I appreciate the help!

That's a tough decision. If you're losing money and the property is not appreciating I'd say sell it now. It doesn't sound like there is any good reason to keep it. Even if you broke even, you'd be winning.

You could try FSBO as a possibility to save on commission. You can always hire a Realtor later if necessary.

MT Agent # 539039464

@Nancy Brook That's actually the way I've been thinking. I might ask my current tenant to see if she's interested in buying. I'm also going to look into this lease to own option as well.

If you sell it, you'll basically break even. 

If it's not costing you too much to keep it, though, you might want to look at it as a retirement account you're paying into.  I'm assuming you have a pretty good interest rate on it, since it was your owner-occupied property.

And you've already paid for 16 years on a 30 year mortgage, right?

And remember, that you get tax write-offs on it as a rental.

Let's say worst case scenario, your actual out-of-pocket is $150/month.  In one year that equals $1800.  Times 14 more years paying the mortgage = $25,200.

At that point, you no longer have to pay any mortgage payment.  I don't know how much of the $1230 was just the mortgage payment, but let's say it was $1,000.

So, now you've got at least $1000 cash flow.  In approximately 2 years, it's paid off the losses, and now it's all income.

Sounds like a decent little retirement income to me.  So, it just depends on whether or not you're looking for a long-term retirement plan.  Personally, if I could afford to keep it, I would.

@Sue K. that sounds great. Only thing is I'm only 6 years into mortgage. Maybe by year 8 I will have enough equity to refi and I can then create some cash flow. Technically, this property isn't costing me anything right now since I haven't dealt with any vacancy or repairs yet. I know eventually something will go though. I like your thought process of a retirement account though. Especially since someone else is paying for it :)

This post has been removed.

Originally posted by @Benjamin Haberman :

Sue Kelly that sounds great. Only thing is I'm only 6 years into mortgage. Maybe by year 8 I will have enough equity to refi and I can then create some cash flow. Technically, this property isn't costing me anything right now since I haven't dealt with any vacancy or repairs yet. I know eventually something will go though. I like your thought process of a retirement account though. Especially since someone else is paying for it :)

 LOL, Oh my gosh, I need more coffee ha ha!  I can't do math without the correct level of caffeine in my blood :-)

@Benjamin Haberman , what I think @Bob B. means with the 5k option is that whoever you do owner financing with will pay you 5k as an "option fee" or think about it as a "down payment". Their cost to secure the house for themselves and for you to take if "off the market place". This is your money to keep. In 2,3 or whatever you agree to, they will refinance and pay you back the full purchase price. You could apply the 5k option to the purchase price but that is negotiable just like anything else is.

Hope that clarifies that a bit for you.

What Juan said.

Thanks Juan Maldonado and @Bob B. I'm going to see if my tenant is interested in this option

Originally posted by @Benjamin Haberman :

Hello,

I purchased my first primary home in May of 2009. Just bought a new primary in April 2014 and kept our first as a rental property. I'm just trying to figure out whether or not it's worth keeping this house As a rental. I paid $170 and it barely has appreciated since we bought it. I might be able to sell it today for around $175.

Taxes, insurance, principal/interest-$1230

I have a great tenant paying $1300

If you factor in repairs and vacancy- I'm losing money. :(

I owe $150 and that's not enough to bring 20% equity for a refi.

Anyone who says that you are losing money doesn't understand investments.

The tenant is building you equity in the property faster than your estimated loss of $150pm (and you're $150 is taking into account intangibles like vacancy and repairs - which haven't happened).

Admittedly, it's not the greatest investment, but if $150 a month is a problem for you, you have bigger problems than this property.

My suggestion is to double down on the interest payments and get this thing paid off quicker. And whats to say what it'll be worth in 20 years time? At the very least you'll have a $250k asset that can be liquidated. Not to mention any increases in rents over the next 20 years.

Remember that the longer the mortgage runs, the greater amount goes to principal, and you've just done the hardest part! Rent goes up, mortgage principal proportion goes up, interest proportion goes down.

Your best exit strategy is likely to be selling to tenant - no carrying costs, no significant repairs, low or no realtor costs.  You probably want lawyers to guide you through the process - but it should be relatively straight-forward.

I go flat rate MLS or discount if you are trying to sell it as an investment property.

While the numbers aren't great for you - they could look better for someone with more capital.  Especially if they can do better on a loan than your current interest rate and/or build another unit.

Originally posted by @Benjamin Haberman :

James DeRoest this is great info! How much extra do you recommend paying off a month?

 As much as you can afford in my opinion.

Isn't the figure something like $1 in interest paid early saves $1?

This isn't really advice, just information that someone else is in the same boat as you. Additionally, my opinions are that of a relative novice and are just that, my own!

Purchased condo in Jacksonville, FL as primary in 10/2009. Purchased new primary residence 03/2013. Carried the double mortgage payments a while then then got a tenant in 10/2013. Renting for $1,050.00/mo, covers all but $88.00 of PITI and HOA fee.

So far we have been lucky and no repairs or issues came up.

We are hoping to sell it before mid-2016 at a profit to skip capital gains taxes, as we do not feel comfortable with a condo due to the HOA horror stories and we are worried it's just a matter of time before a large assessment is needed. No basis for that opinion other than being a pessimist.

Long story short, we are just viewing the $88 as reasonable payment due on a second property.

Benjamin -  Lot's of great advice here.  Just a couple of additional thoughts.....

     From a buy & hold perspective, just a few things to consider prior to pulling the rip cord on your various exit options.  

     Do you like the property?  I don't know your market, but it seems odd that you're not realizing any appreciation in light of the 2009 purchase date.  I've been hurt on a number of properties, but not those bought in '09.  Why do you think value is relatively stagnant post Great Recession?  Is it market, neighborhood, location, property issues?

     If you like property from a buy & hold perspective, I'd encourage you to completely exhaust your refi options prior to exiting.  Do you have any  capital options to assist in 30 yr fixed refi.  Extending term and lowering rate could turn this property into a nice cash flowing machine for you.  If you don't like the property, then definitely choose your best exit option.  Best of luck!!

  

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