My sister, who is 50 y.o. and lives in Florida, owns a house in West Seattle. It's set up like a duplex, but really is a SFH.
Valued at $850k-$900k, she owes $550k on it. The mortgage is interest only at 2.7% and resets to 30 year variable in November.
At first she told me rents are $2700. I said, "OMG Sell!" But then she said, "well, if we rented the second unit and got new tenants in the top unit who pay market price, we could get $4200 total."
Yeah, well then, maybe, do that ... yesterday?
Assuming her rate sets to 4%, her monthly mortgage payment becomes $2626, and PITI is $3330.
P = $ 792
I = $1,833
T = $ 550/ mo $6,600 / yr
I = $ 150/ mo $1800 / yr(seems high)
PITI = $3330
ITI = $2540.
$4200-3330 = $870 per month income (cash flow)
$4200-2530 = $1670 per month
The glaring problem is the variable rate mortgage. When rates rise she'll have a tough time. She could pay down the note to a conforming $417k and see what fixed rate she could get, but she's recently divorced and her alimony runs out in 2 years, so she doesn't think she can secure a loan without a co-signer, given her salary.
Personally I think it's a great asset. West Seattle is prime real estate. What worries me is the size of the note, the resetting of the note, and opportunity cost of $ tied up in this asset that's returning 2.35% on the value of the home, 3% on what she paid for it ten years ago. ... but it's potentially an appreciating asset.
Any advice? Continue to rent it out? Sell? Any other info you need? One other bit of info - the ex owns 25% of it. He's said he's cool with whatever she decides to do. This isn't the battle he wants to pick. And I believe him. So while this may raise red flags in your minds, knowing him, he's going to do what he says.