Author Topic: Keep or sell rental property after moving into new house?  (Read 2918 times)

discodarwin

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Keep or sell rental property after moving into new house?
« on: June 21, 2016, 12:20:13 PM »
Should I Keep or sell my rental property?
Here's what I did, some of which may have been non-mustacian, but... it is done  :P
I sold a rental property in another state, and used the proceeds to purchase a new house in Arizona.  I then moved from my current house into the new house and changed my last-lived in house into a rental. (I moved in April 2016).  I couldn't do the 1031 exchange for a few reasons (foreclosure, etc.-- I tried).

Now my questions is, I've got appx. $171,000 in equity in my rental (deducting what it would cost to sell it) -- but it cash flows pretty well (I think?)... should I keep it as a rental, or sell it and chunk that money into index funds?  I'm expecting to raise rents about $100 each year or two-- we had 6 people wanting the house after being on the rental market for 7 days, so it's in a pretty hot location (and I probably could've rented it for $2150 or so...)  My current renters co-own a landscaping design company, so as part of them staying there, they are using the property to train new workers and install lots of really nice landscaping upgrades (score!!)
From my simple calculations, I am still leaning towards keeping it as a rental, but I know that when I reach the 3-year mark I no longer am safe from capital gains on the sale of the home... am planning to keep it at least until then and see if it is a headache or something I can handle and low stress.

Current rental-- 1995 home, 2450 sq ft.
Rent:  $2072
Mortgage + pool service etc = $1394
Basic monthly profit:   $678

Mortgage left (25 years left?):  $175,000
Value of rental:  ~$365,000

The house is in very good condition -- we bought it 6 years ago at the absolute bottom of the market here-- have had great growth in equity since.
We live about 1/2 a mile from it, so I can do almost all of the maintenance (if needed).  Because the house is in good condition, the only real thing I expect to have to replace is the AC unit at some point, but my cousin is in the business, so I get AC at wholesale price.

Life Situation: Married, 2 kids under 4.  Wife is stay at home right now.   I've been at same job for 13 years in Arizona.

Gross Salary/Wages: ~110k

Pre-tax deductions: Paying 10% into 401k (+3% matched = 13%)  Small amount of FSA ($1200/yr),  averaging about $5500 into Roth/normal IRA per year  (need to get this to 11,000) 

Other Ordinary Income:
I have 2 rentals right now -- the other is a condo that is underwater by about $50k that I 'inherited' through marriage -- the rental income covers the mortgage after tax deductions are taken into consideration, so I pretty much have to sit on this for time being.


Rental Income, Actual Expenses, and Depreciation: Listed above-- I will depreciate the property as per normal.  Haven't had any additional expenses besides 1 visit from an electrician at $100, but it has only been 3 months now since it has been a rental.

Current expenses: After all is said and done, I have about $1850 each month left over above all budgeted expenses, not counting yearly bonuses of appx. $15k

Other investments:
Appx. 200k in 401k / IRAs / taxable


Other debts:
*Student loan at 0.75% - 18k remaining ($200 per month-- 10 years left)
*Current primary residence -- $275k loan -- 30 years fixed @ 3.5% -- appx. value = $435k.  FHA loan, so PMI is $171 a month (LAME)
*401k loan -- 49k -  (used this to get primary residence).  20 year term @ 3%

I am planning to lump the 401k into a refinance of the primary residence in 2 years when my foreclosure drops off my credit -- that will knock out the PMI as well, since I'll still be at about 75% equity.







« Last Edit: June 21, 2016, 12:32:23 PM by discodarwin »

Drifterrider

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Re: Keep or sell rental property after moving into new house?
« Reply #1 on: June 21, 2016, 12:35:48 PM »
Are you making enough free cash on the rental to make it worth your time to keep?

There is your answer.

Choices

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Re: Keep or sell rental property after moving into new house?
« Reply #2 on: June 21, 2016, 12:59:34 PM »
You could make things so much simpler if you
1- sell the rental
2- use some of the cash to make up the difference and sell your underwater rental
3- and also pay off your 401k loan and student loan
4- then put the rest toward your current house.

When everything's paid for, you can save more for retirement and save up to buy another rental in cash, or you could invest in index funds (no maintenance, renters, or a/c units to worry about, and much more liquid).

discodarwin

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Re: Keep or sell rental property after moving into new house?
« Reply #3 on: June 21, 2016, 01:00:57 PM »
I make $678 a month 'profit' on it  (plus principal paid off and appreciation + tax benefits...)  BUT I am wondering if I would make more with other investments? 

Also, in 3 years, the sale of property would qualify for capital gains, so...

Secretly Saving

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Re: Keep or sell rental property after moving into new house?
« Reply #4 on: June 21, 2016, 01:28:15 PM »
Thoughts on Arizona properties... Some areas seem to still have a fair amount of growth potential while others have already seen a decent increase.  - predictions are another 6% in some towns and barely 2% in others.  If you think the house has pretty much had its big run, then maybe sell it and make some other financial moves (max out all your pre-tax contributions, deal with condo and student loans Etc) If there is still some room for growth over the next year or two and you are still in the time period to not pay capital gains, then you could wait some more time and revisit this choice in a year.
« Last Edit: June 21, 2016, 04:21:20 PM by Secretly Saving »

discodarwin

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Re: Keep or sell rental property after moving into new house?
« Reply #5 on: June 21, 2016, 03:22:18 PM »
I think this house is in a very good part of Phoenix, low inventory, high demand... might be a good choice to wait a year and re-evaluate.  I don't have the financial know-how to create a spreadsheet/model that would analyze the two choices entirely...

Secretly Saving

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Re: Keep or sell rental property after moving into new house?
« Reply #6 on: June 21, 2016, 04:22:30 PM »
Is it in Phoenix proper?  Have you looked at the predictions for your zip code?  That will give you a general sense.

discodarwin

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Re: Keep or sell rental property after moving into new house?
« Reply #7 on: June 21, 2016, 04:46:54 PM »
Yes, in Phoenix.  Up 8.5% last year, predicted to increase by 3.5% in next year...

ShoulderThingThatGoesUp

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Re: Keep or sell rental property after moving into new house?
« Reply #8 on: June 22, 2016, 06:30:47 AM »
So you make 675*12/190000 = 4.26% yearly on it, plus principal paydown and any appreciation. But that's before any substantial maintenance costs, and hopefully you're keeping a substantial rental emergency fund for those things...like if the AC goes out on Memorial Day and you have to pay the first guy that answers double is usual rate to get it fixed. And as you say, the capital gains become worth less in three more years. Usually people on here recommend buying rental properties that pay 2% of their value in rent every month. You're at 0.5%. Seems like a "sell" to me.

discodarwin

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Re: Keep or sell rental property after moving into new house?
« Reply #9 on: June 22, 2016, 04:48:55 PM »
Great point Shoulderthing...  anyone else have thoughts on this?  Loving the #s...

discodarwin

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Re: Keep or sell rental property after moving into new house?
« Reply #10 on: June 28, 2016, 01:17:16 PM »
Anyone else have any thoughts or ways of calculating this?  THANKS!!