Author Topic: To sell or not to sell..  (Read 3155 times)

Eurotexan

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To sell or not to sell..
« on: April 05, 2016, 09:10:33 PM »
I have a dilemma I would love some input on and I know you guys give great (and honest!) advice.

I own two rentals and rent the home I live in. Weird, I know. I am an accidental landlord of the two rentals; one is a SFH with a pool, expensive to maintain but a charming cottage on almost 0.5 acre about a 15 minute drive from Downtown Dallas. I have had it rented to the same tenants for about 5 years and they look after it very well, but their rent is way below market, especially since the rental market here has exploded recently. They pay $1675 when the market is closer to $2300. The rent covers my mortgage and escrow on a 15 year note but just about. It's not designed to be a rental house, it just worked out that way.

My second rental is a townhouse in a popular part of town which I have rented for 2 years, have a great tenant who pays right at market and this rental is cash flow positive (again on a 15 year note). I am keeping this rental.

I rent a SFH north of Dallas, with a pool. The rent is reasonable, we love the house, the school district and it's close to family and friends, and bonus, the landlord maintains the pool! I plan to extend another year (there won't be a rent increase) I could happily stay here for a many years.

My question is whether to sell the SFH rental with the pool. It barely cash flows, I just spent about $10K updating the pool, I repaired the roof and did some cosmetic work and it looks great. The lease expires at the end of August and it looks like the market is still going strong. However, I love this house, I lived in it for two years before I rented it out (met a boy.. silly me!) and it's my dream home. It's within walking distance of shops and restaurants and even the lake. Rather than selling it should I hold on to it for another 6 years until my daughter graduates from High School? I can't move back now, the public schools near the rental are bad and my daughter's father and his family (who we all get on really well with) live a mile from us currently. We have a great set up and my daughter is settled. It's also too far to live in the dream house and commute, even if she could stay in her school under her dad's address.

If I sold the rental I could make about $150k after commission. I would have to pay capital gains tax though as my income is too high this year and I haven't lived there for many years. I could buy somewhere close to where I am living now but I don't want to buy here, it's classic suburbia, huge homes, fancy HOAs and cars everywhere. Its fine for us now, but I have no reason to stay once my daughter graduates and I don't think it makes sense to buy knowing I will sell in about 6 years. I don't really like the idea of 3 mortgages on one salary, it's too risky. Two is my limit.

So, do I hold on to a far from ideal, not really cash flowing rental for the next 6 years with the plan of living there after that? Is it worth it to keep hold of my dream home?

Or do I sell this year, make a nice profit, invest in the market and find another dream home in 6 years when I am free from the wretched school systems?

Appreciate your input!

Telecaster

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Re: To sell or not to sell..
« Reply #1 on: April 05, 2016, 09:12:17 PM »
However, I love this house

Don't fall in love with something that can't love you back.

Travis

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Re: To sell or not to sell..
« Reply #2 on: April 05, 2016, 09:20:30 PM »
What's stopping you from gradually increasing the rent over several years to generate the profit it sounds like this house ought to be making?  If you're willing to hold onto it for 6 years and you're 5 into it already, why not hold onto it for a few more until the mortgage is paid off? It'll be nearly all profit at that point.

ShoulderThingThatGoesUp

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Re: To sell or not to sell..
« Reply #3 on: April 06, 2016, 10:22:24 AM »
It sounds like you could make that house cash flow better pretty quickly, but your post doesn't read like that's something you're considering - why?

Axecleaver

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Re: To sell or not to sell..
« Reply #4 on: April 06, 2016, 10:28:14 AM »
If you love the house, you should hold on to it in case you want to move back there at some point in the future. Maybe your relationship doesn't work out, maybe you leave the area for a job, who knows?

But you need to address the below-market rent. Would you be open to having a discussion with the current tenants? They are probably just as much aware of the deal they're getting. Maybe some mid-point between where they are today and full market value (it's worth a little $ to keep solid renters in the property). If you sell, they'd be looking at the same problem. There is a win/win scenario in here, somewhere.

UnleashHell

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Re: To sell or not to sell..
« Reply #5 on: April 06, 2016, 11:00:20 AM »
start increasing the rent to get in line with the market.
after 6 years move back into it for a year then sell with no capital gains as its your residence..

Mother Fussbudget

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Re: To sell or not to sell..
« Reply #6 on: April 06, 2016, 12:46:04 PM »
start increasing the rent to get in line with the market.
after 6 years move back into it for a year then sell with no capital gains as its your residence..
+1.  Do exactly this.  Increase the rent by $200/month - bump by another $200 next year, then $200 more the next to be in-line with current market.  Increase by an appropriate amount to match the market in the 4th year.

obstinate

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Re: To sell or not to sell..
« Reply #7 on: April 06, 2016, 12:55:02 PM »
From what you've told us, selling seems to be the right idea. You'd get better returns in the stock market and you can always buy another house when you decide to eventually move to where you intend to live in six years.

Eurotexan

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Re: To sell or not to sell..
« Reply #8 on: April 07, 2016, 08:26:46 AM »
Thank you for your thoughtful responses. I had honestly not looked at the idea of increasing the rent and getting it positive cash flow and ready for my return!

I will talk to my tenants to see if they are interested, I like the idea of a gradual increase.

UnleashHell

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Re: To sell or not to sell..
« Reply #9 on: April 07, 2016, 08:45:01 AM »
Thank you for your thoughtful responses. I had honestly not looked at the idea of increasing the rent and getting it positive cash flow and ready for my return!

I will talk to my tenants to see if they are interested, I like the idea of a gradual increase.

Or just charge the same amount - in sterling. to your Jersey account....

MsPeacock

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Re: To sell or not to sell..
« Reply #10 on: April 07, 2016, 09:53:49 AM »
When the lease is close to being up let the tenants know that there will be a 10% or whatever increase in rent. Don't ask them if they are interested. Give them a time frame for renewal (usually 30 days or whatever) and if they don't want to renew look for new tenants at market rate. If you have been a good landlord and taking care of the property it is likely that the tenants will be fine with, and have been expecting, an increase in rent. Repeat for the next several years.

it is easy to get in the place w/ long-term good tenants that you don't increase rent. Better to have a set policy of x% or so every year or two and move towards that unless there are extenuating circumstances. A regular increase is necessary because your property tax and maintenance costs will go up annually no matter what.