Author Topic: Case Study : Sell Rental Property or Keep It?  (Read 2546 times)

RH

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Case Study : Sell Rental Property or Keep It?
« on: October 01, 2014, 03:44:59 PM »
Hello,

I have rental property for the past 10 years, same tenant. I charge him $1450 mo (no property mgmt. needed). Realistically I could get $1900/mo but current tenant is good, no stress. Property is out of state and has been refinanced over the years. Would I be better off keeping it or selling and investing proceeds in index fund, do 1031 exchange, etc...I am getting a bit tired of rental properties and like the concept of index funds.

Market Value: $305,000
Original Purchase price: $230,000
Original Mortgage Amount: $200,000
Interest Rate: 3.5% (refinanced a few years ago)
Mortgage Term: 30 yrs
Term remaining: 20 yrs
Amount remaining on mortgage: $109,000
Gross Rents: $1450/mo
Principal and Interest : prin $430/mo, interest $319/mo
Taxes and Insurance (the T&I of your PITI): $409/mo
HOA costs: 45/mo
Deferred maintenance notes: appliances are 10 years old.
Anything else special or unique in regards to the numbers of the property : None

marty998

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Re: Case Study : Sell Rental Property or Keep It?
« Reply #1 on: October 01, 2014, 03:55:45 PM »
Your 10 yr capital growth isn't spectacular, but it's significant growth nonetheless. Whether they are a good tenant or not you should charge a market rent, or every so slightly below so the tenant has no option but to pay more if they want something similar.

Leaving $500 a month on the table is a quite charitable of you.

An option you have is to borrow against the equity you have in the rental property and invest that in an index fund.

tracylayton

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Re: Case Study : Sell Rental Property or Keep It?
« Reply #2 on: October 01, 2014, 05:24:03 PM »
I would send a notice that you plan to raise the rent by $250/month and if he doesn't want to pay the higher rent, then I would sell or rent it out for market value. A great tenant is hard to find, but I wouldn't rent it out for that much below fair value. That being said, I had a tenant that I didn't raise the rent on for 5 years because she always paid like clockwork.

olivia

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Re: Case Study : Sell Rental Property or Keep It?
« Reply #3 on: October 01, 2014, 05:31:30 PM »
$250/month is quite the jump!  I would raise it 10% max unless you want him to leave, in which case you may as well raise it to $1900/month.  You are saving money by not needing a property manager, and responsible tenants can be hard to find.

RH

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Re: Case Study : Sell Rental Property or Keep It?
« Reply #4 on: October 01, 2014, 06:56:32 PM »
Mmmm...a HELOC...I complete forgot to consider that. If I can maintain a 9% ROI, I would be inclined to keep it. How can I calculate my current ROI on this property and how much would rent need to eventually be raised to in order to reach 9%. I have a hunch the tenant would probably move out and I'd need to get a prop mgmt. co to help out with things.

I find it a bit confusing to get the ROI because my tenant is paying down the principal, etc..., so I am having a hard time figuring our how much of my own money I have applied to the mortgage (I used to live there a few years and often times throw extra prin payments at the balance every few months).

Property is located 30 minutes SE of Seattle in an area with top schools.


waltworks

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Re: Case Study : Sell Rental Property or Keep It?
« Reply #5 on: October 02, 2014, 07:37:32 AM »
Awful, awful rental. Sell yesterday, invest in something (anything?) else.

-W

jnc

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Re: Case Study : Sell Rental Property or Keep It?
« Reply #6 on: October 02, 2014, 07:52:40 AM »
If you sold it at the market value of 305k, so given your remaining mortgage is 109k, you should get at least 176k after closing costs (assuming closing costs of 10% maximum)

That 176k invested at even 5% return would become:
year 1: 185k (9k growth)
year 5: 225k (49k growth due to compounding)

Your current rental situation will not yield anything close to this. So if you are not planning to move back into this property (or have another good reason to keep it), you should probably sell it.

escolegrove

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Re: Case Study : Sell Rental Property or Keep It?
« Reply #7 on: October 03, 2014, 10:19:01 PM »
Honestly it really depends on your goals and investment strategy. We are buy and hold investors for the long term cash flow. So I personally would keep that as a rental but I would increase rent to market rate. For us rentals are additional "baskets" for retirement growth. So just because we have made money doesn't mean I want to "sell".  I have 5 great tenants all on or close to market rate. I think if you were "making" more money it might be more "worth it". At a minimum you need to do what you are comfortable.