We just moved out of our twin home of 7 years and have been renting it out for the past few months. My husband is wanting to sell instead, but I am trying to talk him out of it. We owe about $147,000 and in order to sell quickly in the area, we would be lucky to even get what we owe. However, we are able to rent it for $1175. The mortgage is $840, we pay the HOA fee of $99, and property taxes and insurance run about $1200 per year. I feel like we are getting more bang for our buck by renting it, but my husband considers it a headache that he wants to unload. What would you do?
Okay so each month you are paying 840 + 99 HOA + 100 taxes and insurance = 1039. You're renting it for 1175. That means each month you're getting $136/mo, or 1632/yr, that needs to cover all other expenses.
First, vacancy. 1 month per year (8% vacancy) is a reasonable estimate. That knocks out 1175, leaving you with under 500/yr to cover maintenance/repairs (plumbing, HVAC, etc.), tenant turnover costs (new paint/carpet when a tenant moves, for example), any legal/accounting costs (paying for an eviction, for example), saving up for long term capital repairs (roof replacement, etc.), and any other costs (and yes, there are many more I can list, at least a dozen I can think of off the top of my head that may be infrequent, but will come up).
Over the long run, you are losing money on that property. Likely quite a bit. You will have many months where you collect that $136 spread, but then a large bill for repairs hits, or someone moves out and it takes awhile to get rented, and you lose all the money you saved from it, and more.
That's when managing it yourself. If someone else manages it, you'll be paying another ~1400/yr. By not paying them you're saving that expense, but giving yourself a side job. If you want that, you can probably pick up a side job that earns more than 1400/yr. In actuality, you're cash flow negative even managing it yourself, so it's a side job you're paying to do, rather than getting paid for.
If someone gave me that property free, I would decline.
I vote with your husband, be glad to get out of a losing investment without having to put any more money into it (selling for what you owe or a bit worse).
The caveat being: if it's in an area that you have particular reason to think will have strong appreciation in the short term, then you can delay selling and take the negative cash flow hoping to get it back when sold. This is more risky (akin to market timing or gambling), but some prefer this.
