My wife and I moved out of our first home late last year and converted it to a rental. It seemed like the obvious choice because we bought the house as a foreclosure in 2010, and it's in a small, walkable town where property values are booming, buying competition is high, and rentals are relatively few and far between. Having a positive cash flow came easily with this house.
This is our first rental, and things are going well so far. We live about 20 minutes away and manage and maintain the property ourselves, and our tenants are great. Cash-flow positive, easy tenants--seems simple, right? Keep the house!
Well, I'm doing my income taxes and wrapping my head around the ideas of adjusted cost basis, depreciation, and capital gains for the first time, and this has me wondering if maybe there's a better way to put our equity to work. Here are the numbers:
Market Value: $270,000
Original Purchase price: $102,000
Original Mortgage Amount: $81,600
Interest Rate: 4.625%
Mortgage Term: 30 years
Term remaining: 22 years, 8 months
Amount remaining on mortgage: $71,531.72
Gross Rents: $1600
Principal and Interest: $427.76
Taxes and Insurance: $448.82
HOA costs: none
Deferred maintenance notes: Probably need a new furnace within 1-2 years and a roof in 5-8 years.
If I sell and end up walking away with $180,000 that I invest in the market, a 7% return would provide higher annual returns. I'd also avoid capital gains tax on the significant appreciation we've seen, and I'd have no responsibility for maintaining the property.
So what am I not thinking about here? Thanks!