Case study: keep renting out or sell

[jakubdudek]

I am trying to figure out if i should sell this property or keep renting it out.  I've been renting it out for about 8 years (after i moved out) but the return on capital seems poor to me.  Anyway, here is the information, appreciate any advice!

Market Value: 212k (according to zillow)
Original Purchase price: $186k
Original Mortgage Amount: $136k
Interest Rate: adjust every year, currently 4.625%
Mortgage Term: 7/1 ARM, amortized over 30 years, fixed period over
Term remaining: 19 years
Amount remaining on mortgage: $27k
Gross Rents: $1250/month
Principal and Interest (the P&I of your PITI - should match with the above info): $192/month (~$84 principle, $106 interest)
Taxes and Insurance (the T&I of your PITI): ~$400/month
HOA costs: $400/month
Other: managed by a company as it is remote, they charge 8%/month ($100/month)

-Jakub

[fell-like-rain]

So you're paying $900 a month on taxes, insurance, HOA, and management, out of $1250 rent? Even after the mortgage is paid off, that's barely a 2% annual return on the current value of the property. You could get better rates from a CD- heck, the way things are going, a year from now you could get better returns from a savings account. I'd definitely recommend selling or jacking up the rent quite a bit.

[GoHokies]

Am I calculating it right that your Net Operating Income on this property is only $350/month ($4,200 per year) and that number does not include any reserve for repairs/maintenance (equates to a 2% cap rate)? And you are cash flowing only $158 per month with again no reserve for maintenance?  That cannot be right - are you missing any tenant reimbursements you receive?

If those numbers are right, I'd either find a way to operate it more efficiently (I'd personally want something closer to a 10% cap rate given the risk class of the asset, which would equate to an NOI after expenses of around $1,800 per month) or sell it ASAP.

[jakubdudek]

Thanks for the replies... it makes sense.  This property was never intended to be an investment, but when came time to move, renting it was a lot easier than selling it, and i did not have much bandwidth/time to spend on it at the time.  It is a loft in downtown, maintenance is essentially nothing (I had no repairs in the 8 years i had it... really there is not much to repair in there... a big concrete room, with a bathroom and a kitchen).  It's also never been empty in 8 years.  And it's managed by someone else.... it was just all too easy to leave on auto-pilot and forget about it.

I am going to work on selling this thing asap.

thanks

[tralfamadorian]

The HOA is killing any chance of this being a good investment property. Great decision to sell!