Interested in opinions on keeping this house as a rental property

[Marvel2017]

Market Value:  $293,000
Original Purchase price: $293,000
Original Mortgage Amount: $234,000
Interest Rate: 3.25
Mortgage Term: 15
Term remaining: 14
Amount remaining on mortgage: $222,000
Gross Rents: $1,900/month
Principal and Interest (the P&I of your PITI - should match with the above info): $1,660
Taxes and Insurance (the T&I of your PITI): $265
HOA costs: $165


2,700 sqft single family home built in 2005. In a gated neighborhood with really nice pool club, amenities, 10 min from airport, low crime area, walking distance to shopping, growing area, lawn maintenance included in HOA fee ($165/mo). We have a 15 year mortgage on the property. It will be paid off in 14 years at this point. Monthly mortgage payment is $1,660 - $1,000 of this is going to principal. Property tax plus insurance on a monthly basis is about $260/month (let's say max $300 if rented since insurance would go up). We are moving to a smaller living space that will be significantly cheaper. Oh, and we can probably rent the house for $1,900 or so. I'm assuming future property tax, insurance hikes, and HOA fee would be covered by upping the rent (who knows). Now my thoughts are as below, opinions?

So our total monthly cost for having the property (minus maintenance and not counting principal portion of mortgage) would be $1,300 and if we can get $1,900 a month rent I think that is a pretty good spread. If we sell the house we'll pay probably 5% commission on sale which would equate to about $15,000 "expense" just for getting out of the house. I feel like the biggest risk with this setup is that the value will drop to a point where our net-tax rental income minus expenses of holding it aren't high enough to cover the drop, make sense?

Our new living abode will cost us very little so we won't be stretched keeping the house. Any thoughts?

[Cheddar Stacker]

The real estate experts around here and at biggerpockets would say dump it immediately. I'm inclined to agree. Here's why:

$293,000 / 1,900 = 0.65%. If you can't get at least 1%/month in rent it's likely a bad rental investment.
Monthly cash in = 1,900 (hopefully)
Monthly cash out = 2,090 (hopefully)

So you'd like to pay $190/month, hope for appreciation in property value and rents, hope you keep your tenants, hope there aren't unforeseen expenses, all to save $15K in commissions while tying up $56K in capital that could be earning you a 7% return ($3,920) in the stock market?

I would take the cash out and use it for something more profitable. Either way, I hope it all works out for you.

ETA - And congrats on the downsize, it sounds like that was a good decision that will set you up nicely.

[zoltani]

I agree, it does not make sense to keep this property.

Why are you subtracting out mortgage principal and maintenance, to make the numbers look better? 

There are better deals out there, especially in TN.

[The Vacant Road]

I don't even have to run calculations to know this doesn't cash flow, and that is the purpose of real estate investing - cash flow.  This home was also purchased at market value?  No bueno.  Always buy a real estate deal below market value, or simply don't do that deal. 

The best homes are also lower middle class, as those are the types of homes that will always be in demand. 

Dump this property, join a local investing club, get properly educated, and then try again.

I hope you do well!

[MOD EDIT: Spam link removed.]

[MarkFerguson]

I agree wih the others.  Dump it. You will be paying out every month for this home.  What's the point of downsizing if you are still spending it all on the same house

[SwordGuy]

So, in the best of all possible worlds, in which your tenants always pay on time and never leave, plus nothing ever wears our or breaks, and in which this is all so trouble free and so close to home that you'll never need to hire a property manager either, you will pay $290 a month in cold hard cash for $1000 of equity funny-money.  And, of course, in the best of all possible worlds the house will gain value above the inflation rate will sell within 30 days of when you want it to sell.

So, in this best of all possible worlds, does the investment make sense?   In theory that's an excellent return.

In theory, socialist man will herald a new age of virtue and prosperity too.  And the war on drugs and poverty will end substance abuse and poverty, too.

In reality, the longer you do it the more likely repairs and vacancies will come up.   A three month vacancy in which you have to keep the utilities on will cost you over 1/2 your theoretical profit that year.  A new roof could cost another 1/2 a year's profit.   

But it's not just lost "profit".  It's hard-earned, hard cash out of your pocket!   How much would it hurt if that $290 a month suddenly became $2050 piti plus $200 utilities plus $100 advertising?   Don't forget another $10,000 in cash for that new roof and some repairs before it can be rented out again.

What if that house isn't empty for 3 months, it's empty for 6 or 12?  And you have to rent it out at $1500 just to get someone in it?

Unless your day jobs and savings provide that kind of slack, it's a higher risk than you're counting on.

[escolegrove]

We are real estate investors and we don't follow any of the "traditional" rules on investing even though I am an avid member at bigger pockets. While we only have $200ish a month "blog" after mortgage/escrow before expenses  said we don't lose any "cold" hard cash every month from the beginning. The other thing is that although our profit margins are "slim" we highly leverage the debt, putting as little as possible into the houses. So any equity was earned by the house, another basket. It really depends on your plan.

We are looking for fire in 15 years or so. So we invest VERY different from someone looking to invest now :)

Good Luck!

[Marvel2017]

Good points, thanks. Selling the house!