I'm definitely losing money!

[irakusa]

I have a house in Leadville that is likely worth about 20-30K less than what I paid. It is rented out, at just over the mortgage and utility costs. (800 - 750 = $50 in the black if you choose the simple math).  There is still some equity, so it wouldn't be a total loss if we sold today, but - that's still a big loss! The only short-term benefit is likely the depreciation at tax time. 

Renters are good, taking decent care of the place and have been there for a couple of years now.  Rent is as high as is reasonable in that market.

I'm thinking it's just better to wait it out, rather than sell.

Thoughts?

[Hamster]

My first thought is that "likely worth about 20k-30k less" sounds pretty vague. If it's a $100k house, then that's a big decrease. If it's a $500k house, then the margin of error for determining market value could easily be +/- $25k or more.

You could always ask a real estate agent for a comparative market analysis or price opinion (just tell them straight up that you aren't sure if you want to sell yet, but would like to get an idea of value) and decide what you think based on that. Also, you need to factor in transaction cost of selling if you do sell - you could be out a lot more than $20k.

In the long run it sounds like a bad investment to hold with negative real cashflow, but your current carrying costs are mostly covered by the tenants (except maintenance, potential vacancy, and the cost of you managing it?). I know nothing about the market in Leadville, but if vacancy rates in your area are low, and local demand is high and prices are increasing (like many are right now) it may be worth holding for a while and waiting for things to recover.

As someone who is not a stock market timer, I may be hypocritical for suggesting you consider timing the real estate market. I think I've been pretty good at judging real estate buying/selling opportunities based on market swings, and as long as you can afford to hold a property that is being rented, then it's pretty safe to wait until the market is favorable for you.

[tryan]

Assuming property taxes and insurance are escrowed in the mortgage ... your still running negative if you consider maintenance and vacancy.

That said I would stick it out.  You've made it work so far.  Just hope a rising tide will lift all boats.

[arebelspy]

Plug in some reasonable appreciation calculations based on your local market versus the negative cash flow and see where you're at.

I would bet, since there's equity, selling, cutting your losses, and investing that elsewhere will be much better, but it'll really depend on the numbers.

[Another Reader]

I would also look at any major repairs you expect in the next few years.  For example, is the roof almost gone?  Will siding have to be replaced soon?  Is the furnace ancient?  If the anticipated repairs and capital improvements are going to cost a bundle, especially if the costs will eat up a lot of your equity, I might sell and move on.  These items usually add much less than their cost to the value of the property and avoiding them by selling can often make sense.