Townhome rental advise

4 Replies

Hi BP community! I’ve been stocking you for a while now, gleaning as much wisdom from these forums as I can. I am hoping you all might be able to help me sort through a decision to keep our town home as a rental or sell. We close next week on a live-in fixer house and will be moving out shortly there after. Our original plan was to rent the townhome but as I’m learning how to run the numbers on rentals it does not appear to cash flow. Here are the particulars ... It is a 3/2.5 townhome that we bought new 8 years ago. We are the first owners. It is in highly desirable area next to a lake and high end retailers. We owe $143k on it. It currently values as $320k. Mtg/tax/ins/hoa is $1300 + vacancy, repairs, etc. Going rent is $1600-1700 Our long term goal is to acquire multiple rental properties and this would have been our first BUT now I’m thinking it would probably be best to sell and buy something that cash flows better? What are your thoughts?

Look at it this way: if you had the money right now, would you buy the townhome as an investment property? If not, then I suggest you sell it and use the equity to buy a solid investment for a better return.

in addition to above, (good advice), you dont have to pay capital gains tax on this when you sell if it appreciated in value but only because you lived there. if you turn it into a rental, you will be on the hook for capital gains tax

Definatly not a good investment. It will have negative cash flow long term. The value of the property is far to high to ever work as a rental.You should sell and put your equity to work for you.

Your $177K equity is presently cost you $1474/month in lost income based on a opportunity value of 10%. If it is saving you 5% on your mortgage interest you are at a negative income of $737/month before any expenses on the property.

If you rent for $1700 - 50% expenses (long term) - debt repayment - lost opportunity value you would have  $1187/month negative cash flow. You would need an appreciation of 4.5% annually to hope to break even when you sell. 

With the upside of selling and huge tax saving selling now plus value so high I would take money and invest in cash flowing properties.  Don't hold for appreciation as it looks like you already got a good amount.don't be greedy it could bite you in ***. My neighbor did this in2007 and still holding a house that will never get to level it was because he wanted to be greedy.  I took my 100k and ran. He got nothing other than more mortgage payments and lower valued home.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here