Case study, sell or rent Minnesota

[Canoe_Camping]

Hi guys, thanks in advance for your help.  We are trying to sell our house but we are having a hard time finding a buyer, so I have been thinking about renting out the house, would love your opinion.  We bought the house before we discovered MMM and now are trying to downsize to a much smaller house, but we need to sell ours first

Market Value: $405,000
Original Purchase price: 421,000
Original Mortgage Amount: 399000
Interest Rate: 4.75
Mortgage Term: 30 years
Term remaining: 27 years
Amount remaining on mortgage: 380000
Gross Rents: 2,500 (I am assuming this means how much I could rent it out for
Principal and Interest (the P&I of your PITI - should match with the above info): ~2000
Taxes and Insurance (the T&I of your PITI): ~600
HOA costs:0
Deferred maintenance notes:
Anything else special or unique in regards to the numbers of the property (not the property itself; things such as city assessments, back taxes, special costs due to unique features of the property, etc. etc.):  lots of landscaping, the renters would have to like to maintain them or we would have to hire out

[Another Reader]

This is a money-losing rental.  Price fixes everything.  In your shoes, I would consider lowering your price and taking the loss.

[srad]

"They" do say, Time fixes all mistakes, but how long will you have to wait to break even?  It looks like your area isn't appreciating right now so are you willing to take loss for several years?    You will have appliances fail and drains clog, not to mention having to paint and clean when tenants move out.

There are a few benefits to renting if you aren't making any cash flow:
You get to start taking depreciation, that will help offset you loss
Your loss is also a taxable event
Your tenants are paying down your principal (minimal for the first decade though)
Inflation - dollar today worth more than a dollar tomorrow... your PI doesn't change but hopefully your rent does

As for the landscaping, unless you are going to pay to have someone do it, its going to die.  I have never had tenants be able to keep any new landscaping alive.  I stopped adding landscape improvements years ago.     You also didn't mention property management, you doing the PM yourself?

How long has this been listed?  Are you listing it at 405k?  if it sells for 399k,  your mortgage is 380k Your loss won't be that painful.  So i'm with Another_Reader, sell it for  the small loss and move on. 

[Zero Degrees]

I feel your pain OP. I could have written this post myself. I am also trying to sell a home in Minnesota and having a hard time. So much for the hot seller's market everyone keeps talking about.

I disagree that selling at 399K when your mortgage is 380K is a "small loss." He's bringing a check to closing, just like me, if we actually find buyers. So I get why he is asking these questions. Let's assume he doesn't have the extra money to drop the price further - would you advise renting or staying put?

 

[tralfamadorian]

Market Value: $405,000
Original Purchase price: 421,000
Original Mortgage Amount: 399000
Interest Rate: 4.75
Mortgage Term: 30 years
Term remaining: 27 years
Amount remaining on mortgage: 380000
Gross Rents: 2,500 (I am assuming this means how much I could rent it out for
Principal and Interest (the P&I of your PITI - should match with the above info): ~2000
Taxes and Insurance (the T&I of your PITI): ~600
HOA costs:0

Rent:

Income: $2,500

PITIA: $2,600
Management: $250
Vacancy: $250
Maintenance: $250
CapEx: $250

Net: -$1,100/mo


Sell:

Price: $405,000
Mortgage: $380,000
Selling Costs: $32,400
Taxes: $0

Cash to Closing: -$7,400


Yes, bringing cash to closing stinks but it's a one time thing.  The $1k negative cash flow is the ongoing cost.  I'm sorry you are in this position OP but cut the anchor loose. 

[Another Reader]

+1.  This is an alligator. Stop feeding it.

[Kayad]

Yeah, not a close call, it makes no sense to keep this as a rental.  Might instead be a closer question between the benefits of downsizing versus staying put for a bit.