Author Topic: Between Sheetrock and a crawlspace - sell or rent it - can anyone help me decide  (Read 2114 times)

gscengr

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I sometimes have a hard time asking for help but MMM has completely changed my way of thinking about the future and the other generous, like-minded souls here convinced me that this is where I need to ask for advice on whether to sell my townhome or rent it out again. 

My issue: I have a townhome, my first home, which I purchased in July 2005 with my wife.  Fast forward 8 years and after a housing bubble bursting, 2 job changes and a divorce, I now own a townhome with my ex-wife neither of us live in, which realtors tell us if we were to sell today would be valued between $135K and $145K less than what we paid for it.  Looking back, there were several poor decisions but I can only say that I have learned from them.  What I don’t want to do is repeat the mistakes, which is why I am humbly coming to you. 

When my ex and I got divorced, we couldn’t afford to sell it.  Meaning, the house was valued nearly $200K less than what we paid for it and we were way underwater.  Luckily, we were able to get great renters; however, we weren’t able to get enough rent to cover the mortgage and HOA fees so we’ve been paying the rest out of pocket, currently about $350/month.

This summer, our renters are moving out.  The market has recovered some and with the renters paying part of our mortgage, we are now in a situation to where we could afford to sell it (although we might have to write a $10K-$30K check for closing costs).  So the question is, do we rent it out again or sell it?  Here are the current numbers:

Purchase price:  $584,700 (yes I know, we bought too much of a house, a mistake I won’t make again)
Current Value:  $440,000-$450,000 (realtor says it could possibly be at $465,000 in the summer
Location: Washington, DC (specifically Northern VA) – the housing market is doing well right now
Mortgage amount remaining: $433,000
Mortgage Payment: $2770 ($33240/yr) (principal: $1,084/mo, interest:  $1224/mo)
Mortgage Type: 5/1 ARM, currently at 3.375%
HOA fees: $109/mo ($1308/yr)
Annual Taxes: $4,500
Annual insurance: $625
Rental Income: $2550/mo ($30600/yr) (if we rent again, we may be able to get $2600/mo)
Property Management:  10% of rent = $255/month ($3060/yr) (previously I was able to do it but my job won’t allow it any longer and my ex lives 3000 miles away)
Maintenance: $1200 over 2 year period ($600/yr) (tenants are responsible for minor items) – but at some point this has to go up
Age of home: 9 years old
-   Not sure if there is anything else I need to provide but if I’m missing something, let me know

My emotions tell me to sell it, but I am trying not to make an emotional decision (that may have been what got me in trouble in the first place).  My problem is that I can’t figure out what math I need to use to make a rational decision.  I’ve tried to look at it from an investment perspective (because neither of us is living in the house currently) by looking at capitalization rates and cash flow. If my math is correct, the cap rate is 3.5% ((30600-(1308+4500+625+3060+600))/584700) and cash flow is nearly -$600/month (30600- 33240-1308-3060-50).  If I was currently looking at this investment, it would not get a second look.

However, this is not the case and looking at a $140K loss with the realtors telling us the market is really good in DC right now, it’s hard not to make the case to stay.   But the market would have to rise more than inflation to get close to breaking even.  So then the question becomes, if we don’t sell now, when do we?  When it is at $475K, $500K, etc.  (One realtor told me it could possibly get to $500K next year – where she got this, I have no idea.)  To me, that seems like market timing and if I were dealing with the stock market, this wouldn’t even be a question as the only thing for sure is what I know right now.   

Other points considered:
- Refinance to better the case flow and hold it – we would have to write a significant check to get the 20% down.  We are very hesitant to drop more money into this with no guarantee of getting our money back
- Moving back in the house - not an option for either of us – she’s 3000 miles away and I’m in a new relationship where we don’t want to be in the house I lived in with my ex-wife – plus the new significant other owns the place we live in and we only pay $1600/mo so it just doesn’t make sense to me to go pay higher “rent”
 - And finally, my ex and I both have money in savings accounts tied up (losing money to inflation) in fear of having to write a check for maintenance or the possibility of selling to cover closing costs.  We don’t feel like we can do anything with it right now.

Can anyone help me determine how to make an educated decision this time around?  Is there “math” I should be doing to help me make the best decision?

Thank you in advance!!
« Last Edit: May 03, 2013, 10:05:11 PM by gscengr »

Another Reader

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You lose money in cash flow every month.  The market would have to increase significantly for you to "break even" or even sell without bringing money to the table.  Prices are increasing because of the low interest rates and that could change quickly.  You remain tied to the ex as long as you own this property.  In your shoes, I would sell and move on.

meadow lark

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Sell.  Look at the closing costs as just part of your divorce costs.  Sell and move on with your life.  I am sure your SO is tired of your ties to your ex.