Author Topic: Looking for advice on rental/investiment property  (Read 3459 times)

Marcpereiraabc1234

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Looking for advice on rental/investiment property
« on: February 14, 2015, 09:19:06 AM »
Investor(s),

I have a financial scenario that I don't know how to proceed.

My previous house is being rented now and I don't know if I should keep it being rented or to sell it.

Here is the breakdown:

House purchased for $784,000.  Improvement 30,000.  Total: 814,000

It was purchased in 2005. The current original loan was a 7 year ARM. The house rate today is Libor 6 months + index 2.75   Today's rate is at 3.125%. This was a 7 year interest only loan at first.

I have been paying all of these years (almost 10)
The balance is 534,000. When I bought this property I put a 210,000 down payment.

Currently the payment is $2915 + 700 taxes (monthly)+ $50 insurance.  (Monthly)

The loan break down is $ 1525 principal and $1389 interest.

The problem is that the money that I collect from rent is only $2900. For taxes and insurance, I need to pay from my own paycheck every month. 

What should I do? Keep house with same ARM? Refinance? sell?

The ARM loan is a 6 months Libor. With a Max increase cap of 1% per adjustment every 6 months
 
The current loan balance is 533,000. We think with the current market improvement we can get around 700,000. ( minus sales commission. we hope)

We have a great tenant for about 1 1/5 year with a lease to expire in May. We haven't raised the rent since it has been rented in 2013.

A few things about this property Northern California
I put 210,000 down payment
30,000 improvements. To finish backyard, fan, stainless appliance.
$2,400 x 12x 8 years ( interest only loan)
House is currently rented. Rent $2,900
I manage myself the property. And I have fixed so far the washer machine (bad switch) and garbage disposal (replaced $80). I feel lucky that I could do the work myself.  House was built in 2005 so it is pretty new.

Currently I am required to send to bank $2915 month

Insurance ($550) and taxes ($7000 which includes Mel Roose fee). I pay annually .

The loan balance is going down. Would it be a good reason to hold on with this property?   The Zillow estimates an annual increase of 7% property values.


My concern is that the loan is an ARM and payment can go higher eventually. Current at 3.125% ARM (Libor + index 2.75)
The positive thing is that more than half of my mortgage payment goes to principal.  $1525 principal and $1389 interest.

I am not sure if the cost of refinance this property is worthy.  I expect higher APR rate because it is a rental unit. 

This year my tax CPA said the rental caused me a 10,000 cash flow and I have for 2014 a 22,000 suspended tax deduction for when I sell property.  I estimate the property has appreciated 60K from 1/2014

The rental collected was added to my income and now I owe 14,000 to IRS due by April 15.


Thanks for any feedback that I can get from this discussion group. Regards,

waltworks

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Re: Looking for advice on rental/investiment property
« Reply #1 on: February 14, 2015, 09:57:14 AM »
Since you already posted this on the RE forum and got a blunt: sell the fucking house, why post again?

-W

iamlindoro

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Re: Looking for advice on rental/investiment property
« Reply #2 on: February 14, 2015, 10:11:11 AM »
Since you already posted this on the RE forum and got a blunt: sell the fucking house, why post again?

-W

Well yeah, sure, but how is he supposed to get the answer he wants that way?  ;)

Marcpereiraabc1234

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Re: Looking for advice on rental/investiment property
« Reply #3 on: February 14, 2015, 11:03:59 AM »
Just want someone to have a big picture of my situation.  I just want to recovery my  down payment. I am not looking for flipping house and make easy money like many real estate owners did.

iamlindoro

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Re: Looking for advice on rental/investiment property
« Reply #4 on: February 14, 2015, 11:15:32 AM »
Just want someone to have a big picture of my situation.  I just want to recovery my  down payment. I am not looking for flipping house and make easy money like many real estate owners did.

I think our point was, if the only acceptable answer to you is one agreeing with your course of action, what's the point of asking once, let alone twice?

You are trapped in a Sunk Cost Fallacy.  Just because you made a decision that didn't work out doesn't mean you have to stay committed to that bad decision in hopes that it will become a good one.  Your situation is getting worse each month, not better. 

http://www.lifehack.org/articles/communication/how-the-sunk-cost-fallacy-makes-you-act-stupid.html

The best *financial* decision at this point would be to sell the property.  Yes, this will require taking an emotional hit.  It sucks, but it happens to us all at some time.

waltworks

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Re: Looking for advice on rental/investiment property
« Reply #5 on: February 14, 2015, 11:17:37 AM »
You can keep the house and lose money every month. Or you can take the equity you have and do something else with it. Your downpayment is gone. Long gone. Forget about it.

-W

ShoulderThingThatGoesUp

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Re: Looking for advice on rental/investiment property
« Reply #6 on: February 14, 2015, 11:28:44 AM »
Just want someone to have a big picture of my situation.  I just want to recovery my  down payment. I am not looking for flipping house and make easy money like many real estate owners did.

You gave up your down payment when you bought the property ten years ago. Now, you have a choice: keep a property that doesn't make money, or sell it. Selling it frees up substantial capital to invest in things that could plausibly make money, unlike this property, which never will.

Ricky

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Re: Looking for advice on rental/investiment property
« Reply #7 on: February 15, 2015, 11:14:45 AM »
Raise the rent to a level where you can make money or sell.

Even when you do start to cash flow, the return is still so pathetic that you'll never recoup your losses by keeping this property.

If you can't find a tenant willing to pay $4k or more, I'd get out now.
« Last Edit: February 15, 2015, 11:16:29 AM by Ricky »