Sell this home or rent it?

Question

An owner-occupied townhouse next to an university in NJ where most of the tenants are students. It is worth 280k. Will rent for $1800/mo easily. Owes to the bank about 120k, the equity is 160k. Property tax is $6100/yr. Mortgage payment is about $800/mo. Association fee $165/mo. The returns are poor I feel, if I keep the house and rent it out.

However if I get the equity out, I could partner with someone to do some fix and flips. So i am leaning towards selling it.

Whats your thoughts?

However if I get the equity out, I could partner with someone to do some fix and flips. So i am leaning towards selling it.

Whats your thoughts?

Steve Smith · Answer

@Sam Erickson  the comment was made to insure that IF Abdul was planning to hold the unit for income that he include vacancy. I am well aware that There are other ways to insure income if needed

Sam Erickson · Answer

@Steve Smith This is not always the case.  I have a student rental in Whitewater Wisconsin. What I have been able to do is charge the students per semester.  So during the full year lease term they only make 3 payments to me.  One prior to fall semester starting, one prior to spring semester , and one for the summer months.  I then weigh the payments heavy for the fall and spring semester making summer the lowest payment and very minimal per month.  If you break down the total paid for the year it ends up being the same per month though, I just receive differently.

What actually ends up happening that works nicely is the students end up using the property during the summer just to store their things while they go home for the summer.  I now have a unit that is producing income with no one in it and I'm able to go in and clean, make repairs, upgrades etc.

Jon Klaus · Answer

I'd sell. Your equity isn't earning it's keep. Redeploy it and make it work hard.

Account Closed · Answer

@Steve Smith excellent idea

Steve Smith · Answer

@Abdul R.  If you planning to rent to students remember to include a higher than normal vacancy rate. As most  schools are not year round

Sam Erickson · Answer

I suppose there is an argument to be made for both and I think it depends what your goals our.  If your looking for monthly cash flow to live off of I would sell.

Abdul R. · Answer

Thank you @Sam Erickson  I was thinking the same. I applied the 2% rule, 50% rule. Used the analysis spread sheets. Exactly right, It does not make any sense to keep it. I have friends asking me should I sell it. Keep it, they say. They don't look at cash flow. They look at the mortgage pay down, possible appreciation of the property, tax benefits etc. I thought I would post it here to find what you all have to say.

Sam Erickson · Answer

Sorry mixed up your numbers your equity is 160K making your numbers actually worse.  Sell.

Sam Erickson · Answer

I would sell it for sure.  Using the 50% rule you making $100/month, $1200/year.  Viewing that equity as the cash investment your at 1% annual return.  I would think you could take that $120,000 using it as down payments and buy multiple units that all at least cash flow $100/month, rather then just having 1 unit.