Sell now or later?

[nedwin]

My wife an I own a zero lot line (as they're called in Alaska, it's 1/2 of a duplex) in Anchorage.  We bought it when we moved there, but have since moved to Colorado.  Our initial plan was to lease it for 6 months until the spring and sell it then, but that time passed in 2012.  We have had the same tenants for 3.5 years.  The current lease expires at the end of April, so it's time to decide whether to sell or lease for another year.  The financials are as follows:

Present value:  $225,000 - $235,000
Current Mort. balance:  $185,850
Interest:  3.75%
Rent:  $1,600/month
PI:  907/month
TI+FHA PMI:  390/month  (taxes are $2,900/yr, insurance is $685/yr, PMI is $85/mo.)
HOA:  75/month
Monthly cashflow:  $230

I figured the present value based on a market analysis provided to me last year by a realtor in AK.  He is in the process of doing a new market analysis, but I do not expect substantial movement from last year one way or the other.  The monthly cashflow does not consider maintenance or vacancy, so is overly optimistic in that regard.  However, I do withdraw $200/month from the house to augment our student loan payments and we have a $2,000 emergency fund specifically for this house, on top of the damage deposit.

Rent payments have been early every single month from our tenants.  The husband is retired and the wife is a physical therapist at a large hospital.  Their daughter moved to AK a year or two ago, and is now buying a house in Anchorage herself.  They seem to like living in AK very much.

The boiler was replaced in fall of 2009 and the roof was replaced during the summer of 2013, so I do not anticipate any large maintenance or repair items in the short term.  If we sold the home now for $225,000, I would anticipate about $22,000 net proceeds, if $235,000 then $32,000.

I know this home does not meet many (any?) of the fundamentals for long term real estate investing, but that has never been our goal.  Our goal was to rent it until we built more equity, then sell.  We're comfortable being a landlord, but do worry because the house is so far away.

Our inclination is to continue to rent to the current tenants until they move, then sell.  What are your thoughts?

[jmusic]

Our inclination is to continue to rent to the current tenants until they move, then sell.  What are your thoughts?

This is a pretty decent plan.  Maybe even reinvest the free cashflow back into the mortgage once you have a good cash cushion.  Get rid of the PMI ASAP!

[MrFrugalChicago]

So I had a condo in a similar situation. I could make maybe a few 100 a month if nothing goes wrong. Ended up selling over renting, because keeping money tied up + potential disasters was not worth a few 100. In 20 years it would have been an awesome gold mine.. but not really how I am planning to retire, so I sold.

The fact that you can sell without losing money is good. Sure keep the tenants a bit longer if you are comfortable with property values not crashing. Not sure how Alaska property values are.. if you are an oil town, does it rise and crash with the price of oil?

[monarda]

Have you asked the tenants how long they intend to stay in your place, now that their daughter is moving to the area? Could mean either longer or shorter than they originally intended.  Are they planning to move in with their daughter?

Or, if this family keeps their separate spaces, have you asked your tenants if they'd be interested in buying the place from you?

It's hard to advise without knowing anything about your current real estate and rental markets.

Is the place likely to sell quickly at $235K? $225K?
Are the tenants going to be able to find a similar place to rent (i.e. what's the rental market like?)
Reason being, if your tenants find another place to live and your place ends up not selling right away, you could lose a fair amount of cash.  Talk to a realtor about the market for both rentals and sales before you made any timing decision.

I'd guess that unless the rental market offered many choices for your tenants to live when they moved out of your place, as an older person I wouldn't feel so comfortable with a month-to-month situation with your place on the market.
If I were an older tenant, I might pick up and move in April rather than live with uncertainty of a house on the market. But you'd have to discuss this with your tenants.

See what your realtor says.

[nedwin]

Jmusic - Right now we have narrowed to two choices, sell now or continue to rent to the current tenants as long as they want to live there (within reason), so reinvesting to eliminate PMI is not attractive to me.  Plus I think I get a better return using the cashflow from this to pay student loans that are over 6%.

MrFrugalChicago - Anchorage is definitely an oil town, but it is not as tightly linked to the price of oil as other areas from my understanding.  Anchorage is 300k people so it has other industries, plus the oil companies in Alaska have longer time horizons than the developers in North Dakota, Texas, Colorado.  But if low prices persist Anchorage will feel the pinch.  Already the state government is facing a huge deficit because its royalties and taxes are way down.

monarda - Very good points.  I think it would close within 60 to 90 days at those prices, at the longest.  As far as the tenants, we would likely not renew their lease if we choose to sell.  I think it would be much easier to sell a vacant house than if it was occupied.  That means we would have to pay at least one mortgage payment, probably two.  We are prepared for that.  I hadn't thought that they might move in with their daughter.  I know she lived with them for a year or two before now.  I'll ask my realtor about that as he is helping her buy a house.  I think they are more likely to stay in AK with their daughter buying there.  I haven't talked with my tenants about what they want yet, I wanted to reach a pretty firm decision before going to them.  As far as timing, spring/summer is prime time in Alaska.  As for selling it to them, I've offered it to them in the past and they weren't interested.

Thanks everyone for your input.

[clarkfan1979]

Do you go back and visit at least once a year? Is so, you write-off your trip. I would be willing to keep it as long as you have the same tenants.