Keep or sell ocean view rental property?

[Doubletoedrag]

My wife and I bought a 3 bedroom, 3 bath, 3 car garage model home 5 years ago.  I had a lower income while living in Charleston, SC than I was accustomed to.  I soon found out that there were many other engineers with my skill set but with 25 years more experience that I was competing against for a few jobs.  I got a job offer in Texas that paid 150% more annual income so we moved and my wife quit and managed 4 rentals we have. 

Charleston rental details:
Bought for $450k - 5 years ago
Mortgaged $260k @ 4.875 - 30yr fixed
Current monthly mortgage/property tax/HOA/flood insurance/homeowners insurance = $2650
Current monthly rental rate - $2500
We paid $226 sq ft and it is now worth $260 sq ft.
Tenants are the best imaginable semi-retired type and have been there for 3 years. They offered to pay up front for the year but we declined since we've heard that is a red flag when screening tenants.
HOA has issued us 3 "special assessments" in the past year.  $2500 to top up reserves after an owner foreclosed and HOA didn't have a lien against the house to get his unpaid dues.  $3500 to purchase some land that the developer couldn't market to build 2 non-ocean view homes on.  $3000 to install an automatic gated entrance. 

You could say that the last two special assessments weren't bad considering we feel like we're getting something for the money we're paying.  The special assessments are a big concern as I feel they will steadily send us reasons why there's not enough money in reserves.

The HOA dues ballooned from $285/mo to $690/mo last year.  There's no pool or clubhouse to point to as a reason for high dues even though the builder told us a pool would be built when we moved it. 

We planned to retire there in 15 years in the Charleston house until I found MMM and realized there are many ways to become financially independent.  Now, we are planning to semi-retire in Greenville in 2020 to be close to family and have options for me to work in my field on short term projects.  My wife prefers to continue to work in real estate.  Relocating as a real estate agent will be a hurdle but not impossible.

We expect the taxes and flood insurance to continue to increase at a rate exceeds the market rental rates.  We may eventually move into the home in 20 years.  Should we sell the property, keep it or convert to vacation rental?

[Another Reader]

I would sell as soon as the lease is up and not look back.  You will continue to lose money and the house is now getting old enough to need capital improvements.  The HOA does not appear to be well run.  You have changed your plans twice in the last 5 years, you may change them again.  Who knows where you will be in 5, 10, or 15 years?  Minimize the income tax implications as best you can, but take the money and run.

[KungfuRabbit]

My current townhouse is like that too.  Horribly horribly managed.  They waste an unbelievable amount of money.  For example:

-Last year when we had a very harsh winter some of the shrubs weren't coming up right away.  The association offered to replace them for everyone (which many did)....i stuck it out and mine were up and healthy, just a few weeks late.  Thousands of $$$s wasted
-They have painted the garage doors and trim 3 times in 5 years, slightly different colors.  Thousands wasted again

i could go on, but the point of the story is when i moved in there were $170 / mo association fees, now 5 years later there are $290 / month association fees and they are currently finishing a special assessment which has made my effective payment $350 / month (its over this year, word on the street is its starting again next year though).

i really thought about renting it out but there is no way i could find a renter willing to pay enough to counteract those fees and still walk away with any cash flow.  we just moved to a single family home and close on selling the townhouse in a few weeks.  hopefully nothing goes wrong with the sale i never want to see that place again. 

When i see an association run like that the only thing i can think of is run, run quickly, and don't look back.  When anti-mustachians are in charge of your money, YOU LOSE!!!

[waltworks]

No brainer - sell it. The only conceivable reason to keep it would be if you wanted to move back at some point in the *near* future.

-W

[deborah]

Sell. How do you know what the ocean will have done in 20 years?

[Doubletoedrag]

Thanks for all of your opinions.  I'm obviously emotionally attached to the lifestyle we had while living in this house for 5 short months.  Ride bikes to farmers market for crepes and fish tacos, shrimp boats, Whole Foods, Trader Joe's, Shem Creek,  Old Village,  Pitt Street Bridge, Sullivan's Island and the Isle of Palms marina.  Kayaking in the backyard cove through marsh and massive Redfish over to Sullivan's Island.

I will go through an exercise of seeing what the rental market rate is currently. I've only checked rentometer.com so far.  My gut tells me that we have the rate set properly or possibly $100/mo less than market rate.  I'll also plug in the negative cash flow into my spreadsheet to do an investment account comparison.  $400-500/mo invested in my portfolio of ETFs over the next 23 years might turn out to be a better deal.

Natural disaster has always made me nervous on this property. 

I will have to look up the tax implications of selling.  I should net $251000 after paying realtor commissions which I'd probably invest in retirement and brokerage accounts unless there are huge capital gains taxes to pay.  If so,  I'd better get reading up on like kind investments.