I've talked about my rental here before but had a thought in the middle of the night - mostly spurred by conversation here - that I was wondering if folks could help me think through.
I'm considering selling it and using the profits to pay down other debts, in effect increasing our income since we wouldn't be paying to those sources each month and then not having the hassle of being a landlord, worrying about major repairs or the rent not showing up on time. (which incidentally, I do rather well, but not sure the current "profit" other than the investment itself are worth it)
The rough number are something like:
I bought rental for 105000 with mortgage at 5% and monthly payments around $740 (in a pretty well placed neighborhood to downtown Denver that will probably appreciate well over the next 10-20 years) and rent it for about $1250. So, we make about $6,000 a year (before taxes) and pay down 2500 a year in principal (and growing) by having a renter.
Worth probably $165000 if I sold today due to about $20,000 in repairs and comps show at $165,000.
The reason I am considering selling now is I'll pay something like an additional $8,000 if I were to sell a year from now because I'll then owe capital gains per the 2 out of 5 year residency rule and a very good tenant is moving out in October. It seems like a good time to at least consider the option.
We live in a second house that is about $205,000 at 4% ($1250 a month)
and have school loans of about $20,000 at %4.0 - ($300ish a month) after a pay down I'll make this month.
So, would it be more valuable to sell the rental now, apply the $50,000 or so in profit to the school loans and the current mortgage to reduce/eliminate those payments? I feel like with the tax on the rental profits and the inevitable repairs the only investment there is the hope that it increases in value while we pay down the mortgage with a renter - but feel like this, as I've mentioned before, is just paying me to be a landlord - which could be increasingly difficult depending on my next tenant.
It should be said, we got into the rental game because we saw it as essentially a college/retirement fund that would take some fluffing (me working as a landlord, dealing with stress of second home) but maybe paying down those other debts and investing the addition $500 or so a month saved from not paying the second mortgage and school loans would be a better approach?
Any thoughts on this process would be helpful in thinking through this important decision.