Author Topic: Sell or keep a rental  (Read 2474 times)

Giro

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Sell or keep a rental
« on: May 08, 2015, 05:13:00 AM »
Okay, here's the information...

We kept my husband's former house and have been renting it out waiting for the housing market to improve in the area.  The rental market has been really good and everything tells me it will continue to be good.  The house is 10 miles from the biggest employer in a 100 mile radius.  The home prices are much better than they were three years ago when we moved, but they still aren't fabulous.  DH bought the house at the height of the market...2007.  He also never paid extra on the mortgage.  It was before he met me, so he was a helpless male being.  :)

Other relevant pieces of information - We have no other debt.  We own our home and another home that we rent out.  I plan to retire in 4 years and he plans to retire in 6.  I just turned 40 last year.  We are already FI.

Mortgage - $114,000
Taxes and Insurance - $4000/yr
Rent - $1050/mo.
Net income after mortgage and expenses (assuming just minor repairs - the house is in very good condition and we maintain it well) - $200/mo

The current renters renewed every year for three years until they got orders and will PCS June 1.  Leaving May 15.   We spoke to a realtor and we were preparing to do the painting and cleaning once the current renters were out and then we were going to list it.  She said $135k should sell it by September maybe or $128k and just get rid of it quickly.  $128k is just about breaking even.  ...maybe walk out with $2k if we can get her to reduce her commission a little. 

While doing this, several folks approached us inquiring about renting.  We only rent to military because my husband is a retired officer and he believes he has power and could ensure that rent was always paid.  He let someone come and look at the place yesterday and she wanted to give him the deposit and sign a two year lease.  Her husband is still in Korea but they will be moving here in June.  She wanted the keys for June 1. 

Should we keep the home and take the two year lease and plan to sell in two years...hoping for a bit more market recovery?  Should we try and just pay off the home and keep it as a rental when we retire because of the constant ability to keep it occupied with renters? 

I'm at breakeven if I sell.  I'm at very very small return if I rent and that is assuming no major repairs are necessary. 

My husband hates going over and fixing things after working all day....BUT, we fixed that about 4 months ago and "hired" a maintenance guy who lives right across the street.  He's a friend of ours and charges us only when we call him and he's very fair.  He's a licensed electrician and a great handy man.  I've actually given him more money because he was charging me so little. 

Thoughts?
 

 




humbleMouse

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Re: Sell or keep a rental
« Reply #1 on: May 08, 2015, 12:10:30 PM »
This one seems like a no brainer to me.  You have a rental property that you are making money on and it is in demand to be rented by good tenants?  And you are considering selling it to maybe break even???

You are in a situation where you can let somebody else build you wealth, for free.  Keep the $200 a month in a seperate bank account and use that money to pay repair people when you don't want to deal with the property.  Then, keep the rental property and have somebody else build you wealth for free.  If you want to sell the house in 5 years, it will probably be worth more and you will have a whole bunch of equity that somebody else worked for.

lise

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Re: Sell or keep a rental
« Reply #2 on: May 08, 2015, 12:15:45 PM »
I think I can read some emotion in between the lines of the OP - I get the feeling they want to be free of the debt.

One thought, since it's so in demand and someone wants it so quickly -do you think you may be under charging on the rent?

Giro

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Re: Sell or keep a rental
« Reply #3 on: May 08, 2015, 02:38:50 PM »
Thank you for the replies.  I really have no emotion about the house or the debt.  Doesn't matter to me if it ever gets paid off, to be honest.  It's the only debt we have and it's really minimal and like the OP mentioned, someone else is paying it.

I was just thinking of the opportunity cost of basically $130k (the original mortgage amount).  I'm not sure, really. 

Just wanted some ideas


Exflyboy

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Re: Sell or keep a rental
« Reply #4 on: May 08, 2015, 03:46:40 PM »
I'm a landlord and I don't like the hassle very much.. But I make $15k a year profit on two properties (both paid off).

Looking at this situation your making $2400 a year (at some risk, liability.. their dog bites someone, they get hurt on your property.. it could burn to the ground etc).. Vs walking away with about $2K profit.

To me selling it and getting out is a no brainer as your making very little  for the hassle involved.

Now you could put up the rent a little, maybe make $3 to 400 a month, then use that extra to pay down the principle (mortgage > 4%)  or invest if mortgage <4%.. But for me it wouldn't be worth it.

Disclaimer.. I am FI and really don't need more money.

Nords

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Re: Sell or keep a rental
« Reply #5 on: May 09, 2015, 06:15:31 PM »
Okay, here's the information...

Mortgage - $114,000
Taxes and Insurance - $4000/yr
Rent - $1050/mo.
Net income after mortgage and expenses (assuming just minor repairs - the house is in very good condition and we maintain it well) - $200/mo

Should we keep the home and take the two year lease and plan to sell in two years...hoping for a bit more market recovery?  Should we try and just pay off the home and keep it as a rental when we retire because of the constant ability to keep it occupied with renters? 

I'm at breakeven if I sell.  I'm at very very small return if I rent and that is assuming no major repairs are necessary. 

My husband hates going over and fixing things after working all day....BUT, we fixed that about 4 months ago and "hired" a maintenance guy who lives right across the street.  He's a friend of ours and charges us only when we call him and he's very fair.  He's a licensed electrician and a great handy man.  I've actually given him more money because he was charging me so little. 

Thoughts?
If I had the answers to these questions then I would've stopped landlording 15 years ago.

You have no compelling reason to sell, even though you're working for peanuts.  You don't have any compelling reasons to be a landlord, either.   

What you seem to have is a minor hassle, and you're taking more risk than you need to.  You have an asset-allocation problem, and now you'll want to figure out what you'd prefer to invest in.

If you decide to keep the property, then the tenant demand seems to indicate that you need to raise the rent.  If your equity is rising, too, then perhaps it's worth seeing whether the bank will refinance for a lower rate (even if you restart the length of the mortgage).

If all of this seems like a hassle, though, then it's time to liquidate.  When you do that, you're more interested in eliminating the hassles than you are in optimizing the profits.