Keep the Rental or Be Mortgage Free?

[ChesterT]

Hi - I was a long time Dave Ramsey fan, but was just recently introduced to FIRE and MMM. I'm still reading the blog archives and I'm both overwhelmed and delighted.

I have a condo that is worth about $130,000 and I owe $53,000 at 3.5%. This is my only debt. I lived it in for about three years and moved a year ago due to a job change/shorter commute. The condo is in a great community, and is not fancy but I upgraded a lot of foundation stuff (new HVAC, new hot water heater, new carpet, new garbage disposal, new washer, paint, etc.). I rent it out for $875 per month and after fees, property management, mortgage, taxes, etc. I make about $230 monthly cash flow.

I rent an apartment for $975. I tried to get my equity out of the condo enough to make a down, but because it is a rental I can't access very much. So I was going to sell the condo and use the cash I have on hand to buy something free and clear. It would be tight, involve downsizing, and I may have to use a little credit, but nothing like a 30 year mortgage.

I was ok with this plan until someone I really respect said to keep the rental. I'd love to get input from Mustachians and perhaps perspective from others who are further down this road. Should I keep it and keep paying high rent until I can put enough down to have a smaller payment? Or would you vote mortgage free and the freedom that brings? I make about $75,000 per year and mortgage free would move me through to FIRE at a good pace, I think, and I would feel financially independent at having such a low cost of living.

Thanks.

[Rocketman]

You have an investment worth $77,000 making you $2,700 a year that is a 3.5%.  I think that is low for a rental. Because it will improve your lifestyle and your financial picture, I would think sell.

[JLee]

I'm in a similar situation with a house worth ~$230k (owe $118k) earning about $4000/year minus expenses (usually not bad but looking at over $10k this year -- roof).

I've decided to sell it.

[ChesterT]

Thank you both for your replies.

I don't enjoy being a landlord, but if it were profitable enough I would do it.

I feel a lot better about being mortgage-free right now and stashing.

Thanks again.

[frugaliknowit]

Doesn't seem like a "winner" to hold.  Not great rent to value.

[ThatGuy701]

Would you be able to increase the rent at all? What are similar condos renting for?
If you would like to know more about rentals check out biggerpockets.com.

[ChesterT]

Would you be able to increase the rent at all? What are similar condos renting for?
If you would like to know more about rentals check out biggerpockets.com.

Thank you! Rent is the highest it can go at this point. Other condos are listed at higher but are sitting. I started at $900, but dropped it down to try and get a larger pool of applicants to choose from. I'm not a "fix-it" person and I live an hour away now, so I pay a property management company at this point. I am ok with letting this one go and being mortgage free when it is sold.

[jlcnuke]

Regardless of financial implications, it sounds like you do not like/are not comfortable being a landlord. For that reason alone I would say to sell it.  The rental could be great financially in the future but that wouldn't matter imo if it isn't something you're comfortable with, which it sounds like it is not.