Author Topic: sell rental to pay off primary?  (Read 697 times)

kenmoremmm

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sell rental to pay off primary?
« on: September 20, 2017, 10:42:44 PM »
my wife and i have a condo as a rental.
value: ~$300k
rent: $1525/mo
HOA: $400
taxes: $2k/yr
insurance: $1k/yr
no mortgage

its longest period of vacancy in a 7 year window has been 3 days. repairs have been, and are expected to be minor.

primary mortgage has $328k of $345k remaining on a 30 year, 3.375% loan.

thinking i could sell, take proceeds, and pay off 90% or so and then either refi or reamortize and then pay off the primary.

thoughts? i really don't like having debt hanging over me. i know giving away a rental income is losing income long term, so there's that.

JayKay

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Re: sell rental to pay off primary?
« Reply #1 on: September 29, 2017, 10:11:50 AM »
So, just based on what you've posted, here's my thoughts.

The condo seems like it's performing very poorly.  Net income after regular expenses is 10500, which is only a 3.5% cash-on-cash return even with zero maintenance costs.  Normally, I'd say to do cash-out refi, but the numbers don't make sense to do that either.  Generally, unless the monthly rent is about 1% or more of the total price, it's not a great deal.  And you're at about half a percent.  So, I'd definitely sell.

But, your mortgage has a really low rate, so paying that off is really an end-game move.  Unless you're ready to retire now-ish, I'd leave it for the time being.

Instead, take that 300k and put that to work for you.  If you want to buy more real estate, I'm sure the cashflow from that would be able to pay your mortgage and more.  Or, you could just drop it into a fund.

Just my $0.02, hope that helps.

Cwadda

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Re: sell rental to pay off primary?
« Reply #2 on: September 29, 2017, 10:44:13 AM »
Yup, kenmoremmmm hit the nail on the head.  Sell it ASAP and put your money to work in better areas.

A.Yupster

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Re: sell rental to pay off primary?
« Reply #3 on: September 29, 2017, 01:37:44 PM »
I completely agree with JayKay. Selling seems like the best move is to sell and don't pay off the primary.

If you are buying other investment property, I suggest looking into a 1031 exchange and reinvest the proceeds in a new property  to defer the capital gain taxes.

I will say this tho about one of my investment property. I bought it knowing that my monthly net income would be negative. I have a property that I am paying about $100 per month (after rental income and paying monthly mortgage, HOA, ins, etc). But that property has increased in value by about $130K or 40+% in under 3 years. I get that some people are more interested in the cash flow, but want to make sure you take appreciation into consideration too.

www.yupsterfinance.com

Cwadda

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Re: sell rental to pay off primary?
« Reply #4 on: September 30, 2017, 10:28:03 AM »
I completely agree with JayKay. Selling seems like the best move is to sell and don't pay off the primary.

If you are buying other investment property, I suggest looking into a 1031 exchange and reinvest the proceeds in a new property  to defer the capital gain taxes.

I will say this tho about one of my investment property. I bought it knowing that my monthly net income would be negative. I have a property that I am paying about $100 per month (after rental income and paying monthly mortgage, HOA, ins, etc). But that property has increased in value by about $130K or 40+% in under 3 years. I get that some people are more interested in the cash flow, but want to make sure you take appreciation into consideration too.

www.yupsterfinance.com

Hey, you made a greatpost but can you please refrain from posting external links advertising your own blog?  Please establish yourself in the MMM community before doing so.

tralfamadorian

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Re: sell rental to pay off primary?
« Reply #5 on: September 30, 2017, 12:05:02 PM »
...I bought it knowing that my monthly net income would be negative...

I cannot wait for the RE market to cool down so I can start picking up properties at a discount from folks who bought counting on appreciation to save the day. 

Turtles All the Way Down

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Re: sell rental to pay off primary?
« Reply #6 on: September 30, 2017, 12:44:32 PM »
I agree that it's better to invest than pay off primary mortgage.  However, I wouldn't be as quick to sell.  You're making income from your rental, just not as much as you could long-term if you sell and invest in the market.  This assumes you're investing for the long-term, and of course assuming that the market will go up for the duration of your investment.

If the value of your rental is likely to stay constant in a market downturn, perhaps wait for the next recession.  I know this idea might not be popular around here, but the market will crash.  This way you reduce your risk of selling, buying high and market crashing, which again isn't bad if you're in it for the long haul.  If the value of the rental crashes with the market, get out now and consider low-risk, low-return investment.

Off the Wheel

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Re: sell rental to pay off primary?
« Reply #7 on: September 30, 2017, 12:59:16 PM »
Following along because I also weigh that debate. I currently have a rental property (my first condo) that I rent out and net a profit of about $100/month, which could get wiped out with interest rate hikes or any maintenance. I've held it for 7 years, and could clear a nice profit by this point - but figure since someone else is paying the mortgage and it's seeing 4.5% annualized appreciation I may as well keep it.

Thoughts on using calculators like these to assess? Are they relatively accurate? In my case, it tells me if I keep renting it I'll make $39K-$55K more over the next 3-5 years.

http://renterswarehouse.com/rent-vs-sell-calculator/

marty998

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Re: sell rental to pay off primary?
« Reply #8 on: September 30, 2017, 11:45:39 PM »
The market will crash.

What are you basing this on?

Genuinely curious to know...

Cwadda

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Re: sell rental to pay off primary?
« Reply #9 on: October 01, 2017, 11:57:30 AM »
Following along because I also weigh that debate. I currently have a rental property (my first condo) that I rent out and net a profit of about $100/month, which could get wiped out with interest rate hikes or any maintenance. I've held it for 7 years, and could clear a nice profit by this point - but figure since someone else is paying the mortgage and it's seeing 4.5% annualized appreciation I may as well keep it.

Thoughts on using calculators like these to assess? Are they relatively accurate? In my case, it tells me if I keep renting it I'll make $39K-$55K more over the next 3-5 years.

http://renterswarehouse.com/rent-vs-sell-calculator/

Not enough information to assess your situation. What is the purchase price, monthly rent, and market value?

Off the Wheel

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Re: sell rental to pay off primary?
« Reply #10 on: October 01, 2017, 01:45:58 PM »
Following along because I also weigh that debate. I currently have a rental property (my first condo) that I rent out and net a profit of about $100/month, which could get wiped out with interest rate hikes or any maintenance. I've held it for 7 years, and could clear a nice profit by this point - but figure since someone else is paying the mortgage and it's seeing 4.5% annualized appreciation I may as well keep it.

Thoughts on using calculators like these to assess? Are they relatively accurate? In my case, it tells me if I keep renting it I'll make $39K-$55K more over the next 3-5 years.

http://renterswarehouse.com/rent-vs-sell-calculator/

Not enough information to assess your situation. What is the purchase price, monthly rent, and market value?

Purchase price $325,000, monthly rent $1650, market value $425,000.

Cwadda

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Re: sell rental to pay off primary?
« Reply #11 on: October 01, 2017, 08:34:16 PM »
Following along because I also weigh that debate. I currently have a rental property (my first condo) that I rent out and net a profit of about $100/month, which could get wiped out with interest rate hikes or any maintenance. I've held it for 7 years, and could clear a nice profit by this point - but figure since someone else is paying the mortgage and it's seeing 4.5% annualized appreciation I may as well keep it.

Thoughts on using calculators like these to assess? Are they relatively accurate? In my case, it tells me if I keep renting it I'll make $39K-$55K more over the next 3-5 years.

http://renterswarehouse.com/rent-vs-sell-calculator/

Not enough information to assess your situation. What is the purchase price, monthly rent, and market value?

Purchase price $325,000, monthly rent $1650, market value $425,000.

Sell ASAP.  You should be getting $4,250/month to make it a worthwhile deal.  I question how you're able to get $100/month in cash flow.  Does that factor in vacancies, property management, CapEx and repairs? 


Turtles All the Way Down

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Re: sell rental to pay off primary?
« Reply #12 on: October 02, 2017, 09:58:24 AM »
The market will crash.

What are you basing this on?

Genuinely curious to know...

Short way of saying recession is coming... [/url]http://www.mrmoneymustache.com/2017/06/20/next-recession/