Author Topic: Another sell or rent dilemma...sorry  (Read 1663 times)

ether

  • 5 O'Clock Shadow
  • *
  • Posts: 3
Another sell or rent dilemma...sorry
« on: July 04, 2013, 01:29:05 PM »
We are looking to move and I'm trying to decide between selling and renting out the current house. 

It's worth about $330k, with PITI payments of $1300.  Could probably be rented between 1700 and 1800.  Mortgage is $235k, so we could net about $75k after selling fees.

Here's how I'm doing the math in my head:

1750 gross
-175 maintenance/vacancy
-1300 PITI
=275/month gross
+380/month principal paydown
=655/month income
=$7,860 annualized
With a $75k investment, that's ~10.5% ROI, not including appreciation, which even at 1.5% year (low, I think for Colorado), comes out to $4950.  If you include that, ROI is ~17%.  This still doesn't include the depreciation benefit (28% tax bracket), which would be about $2k/year.

What do you think?

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28260
  • Age: -999
  • Location: Seattle, WA
Re: Another sell or rent dilemma...sorry
« Reply #1 on: July 04, 2013, 01:53:44 PM »
You'll have a slight loss each month on average.  I'd sell and take the 75k.

I think you'll probably see more like 85k (selling costs should be about 8%).. do you have a large capital gain on it?

You aren't calculating in your expenses properly (as most new people don't), turnover costs, collection loss, maintenance (5% vacancy and 5% maintenance? what about long term capital repairs?), not paying yourself for managing it (whee, "free" job that you may hate).

I'd estimate you'll net a loss of 50-100 each month (median month you'll net $450.. then when it's vacant you'll lose 1300, then when big repairs hit you'll lose money, etc. - making your average month slightly negative.)

Unless you want a project (where you do the management and repairs yourself for free) to eke out some extra money as a side job, I'd lean towards selling. 

All that said, it's not terrible - it's close to break even and the tenant pays down the mortgage for you.  It'll probably come down to your inclinations to be a landlord.

To give it another perspective, I wouldn't buy that property as a real estate investor (put down 75-85k to break even or slight loss on cash flow).  If you have a desire for rental property I'd sell it and move it to a more profitable investment.  You can easily buy a turn-key brand new (built in 2013) duplex that grosses 2700+ rent (instead of 1700) for that same 75-80k downpayment, cash flows you way more, and is managed for you, so takes no work.

We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

ether

  • 5 O'Clock Shadow
  • *
  • Posts: 3
Re: Another sell or rent dilemma...sorry
« Reply #2 on: July 04, 2013, 03:00:58 PM »
Thanks for the perspective.  One of the attractive things to me about this house is that we recently refinanced at 3.375%, which you can't touch anymore,especially with an investment property.  Doesn't change the math though.

What are reasonable estimates % wise for maintenance and vacancy?  No major repairs expected on this house, a/c, furnace, roof, and appliances all less than 7 years old.

Where do you find duplexes like the ones you mentioned?  I've looked on zillow a bit with no luck.

dudemize

  • 5 O'Clock Shadow
  • *
  • Posts: 8
Re: Another sell or rent dilemma...sorry
« Reply #3 on: July 05, 2013, 10:55:36 AM »
I think arebelspy gave you some good advice.

I like to use the 50% rule which says that half your monthly rent will go to repairs/taxes/insurance/referral/vacancy costs and I've found it to be fairly close with the house I'm renting out at the moment.  I'm doing a little better than what the 50% rule suggests, but not by much. 

I just had a tenant move out and it cost me $3800 (including $650 realtor fee for tenant referral) to get the house ready for new tenants plus it was vacant for 1.5 months.  It rents for $1450/mth so that was another $2600 in costs roughly.  I will likely sell when these tenants move out.