Author Topic: Classic question: Rent or Sell  (Read 2299 times)

Nilbog

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Classic question: Rent or Sell
« on: March 14, 2013, 10:24:09 PM »
Hey Mustachers-

Long time lurker, first time poster.

Not a unique question but one that I've been stressing about for a few months that I'm hoping you can help with.

Stats:
Location: Seattle suburb.
Paid 220k for it in 2007 (not really relevant anymore.  We were living in it for a few years))

Currently owe: 120k
Current value (per Zillow): 140k

Rent Revenue:
Current rent 950/mo (Could potentially rent as high as 1100 but we are renting to people who take care of it and we know so we are willing to discount)

Expenses:
600 in interest per month
300 in HOA
200/month to insurance, prop tax


Obviously, at the moment, it is a money loser both from a cashflow perspective as well from a profitability perspective.  The question is, keep renting with a refinance? Or sell?

If we refinanced, that would cost 1 or 2k but would drop the interest cost down to $450, so basically we would then be breaking even (except for non-scheduled costs including a $500 move-in/out per renter fee).


So yeah, any reason to keep this place or am I just silly for holding on to it?

Very much appreciate any input!

Another Reader

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Re: Classic question: Rent or Sell
« Reply #1 on: March 15, 2013, 05:25:58 AM »
First off, you should determine market rent.  Is it $1,100?  Or is that a number you see advertised but can't really prove that is what your property is worth? 

Second, Zillow estimates of value are worthless.  Often they are off by 30 percent or more.  If this is a house in a tract neighborhood or a condo in a large project, comparable sales should be easy to find.  Call the agent that sold you the property or another agent that actively lists and sells homes in the neighborhood.  Get current comparable sales and rental information.

Third, what are your loan payments?  Did you finance $200k and paid it down?  Or did you finance $150k when you bought it?  Interest expense is interesting, but you are interested in cash flow.

Bottom line is that a property that would cost $140,000, produce $950-$1100 in market rent and have $300 in HOA fees BEFORE expenses (vacancy and collection loss, repairs and maintenance, taxes and insurance) is a poor long term cash flow investment.  However, if property values in the neighborhood are increasing 5 percent per month right now, holding onto it for a year might make sense as a speculative move.

Nilbog

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Re: Classic question: Rent or Sell
« Reply #2 on: March 15, 2013, 08:33:59 PM »
Thanks for the response Reader.

1) Other places in the area are advertised at or above $1,100.  I don't think its unrealistic but fair point, it's not proven.

2) Fair enough.  The most recent comparable was from last month for a unit with 2br 1ba (mine has 2br 2ba) and about 15% less sq ft for $120,500.  Will get agent info.

3) Loan payments right now is ~$1380.  (About $620 is principal, $575 is interest)

I think even with more detailed facts though, your bottom line remains the same.  This is a pretty poor investment.  Property values have only ever gone down since I bought though they seemed to have stabilized now.  No reason to think they are increasing rapidly.

Thanks again for the thoughts.

arebelspy

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Re: Classic question: Rent or Sell
« Reply #3 on: March 15, 2013, 09:48:43 PM »
That's a fairly clear "sell" to me.

If you want to be really sure, figure out the exact amount it'll rent for (although if you continue to rent it for 950 due to the "good tenants" factor, it may not matter what market rent is, if that's all you're taking), and look into what a refi will do payment-wise.

Definitely refi or sell, payment shouldn't be 1380/mo for a 120k loan (obviously it was based on the original higher price).

But based on the purchase price, rent, and HOA, it'll probably be a sell.

Also my post was probably not necessary.  Just reread AR's post.  Sounds like you mostly have it figured out though Nilbog.  Best of luck!
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Nilbog

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Re: Classic question: Rent or Sell
« Reply #4 on: March 16, 2013, 07:58:27 AM »
Thanks arebelspy!  Appreciate some objective advice.