Sell or rent out?

[meadow lark]

Having trouble selling a house I used to live in.  Put on the market in October, dropped the price from $165k to $135k.  I got a contract at $135, but the the buyer couldn't get it together so we are back on the market.  Now I am wondering about renting it out.
We owe $115k and have 12 years left on a 15 yr loan.  If we sold it for $130k we would maybe walk away with $1-2k.  So pretty much a wash.  So I am looking at it as being worth about $115k.  Our property manager estimates we could get $1200/ month for it.  Physically it is in great shape, with no deferred maintenance.  The one expected expense is a swamp cooler update ($1500-2000.)
   I initially decided to sell instead of rent, thinking of the house being worth $150.  Now that I am thinking of it being worth $115 I am questioning it.  My PITI is $1200, so it would be cash flow negative unless I refinance.  I just hate to start a refi and sell it in 2 weeks!

[Another Reader]

IIRC, when you lived there you commented about the floor plan being cut up with small rooms.  That may be what is keeping the house from selling.  The fact the house has been back on the market for awhile with no offers probably means it is worth less than the $130k that would allow you to walk away without any more damage. 

If you could get $1,200 a month, that might be worth considering.  To refi the house, you would have to do it as an investment property, which means a higher interest rate.  In your shoes, I would talk to a couple of lenders to get rates and terms.  Once you have that information, you can make a reasoned decision. 

I would also get it off the resale market and rented before I applied to refi.  The underwriter will know what the rent is instead of guessing and you will have at least a couple of months of rent history to show.  Talk strategy with the lenders at the same time you talk rates and terms. 

You have been making payments of $1,200 PITI plus the utilities on a vacant house for 6 months now.  That's a lot of extra shifts at work.  In your shoes, I would cut the list price to sell the house or put it up for rent immediately.

[Tallgirl1204]

What is the rental market like where you are?  Not, what are rents that you see in the paper-- what is the demand?  We live in a college town, and real estate is expensive.  These two factors make the rental market quite lively-- I have even had potential tenants show up with resumes to demonstrate their rental-worthiness.   

Another question to ask yourself is, if you didn't have a house on your hands, would you be looking for real estate?  I don't think I would have bought a rental unit, so I don't have a dog in this hunt, but it's a way to think about it-- do you want to take on the responsibility for a house and its occupants-- who may not take very good care of it?  Are you prepared for times when it might not rent and you're stuck with the payments again, or when you have to spend a couple month's rent to get it ready to re-rent? 

Lastly, have you just considered selling the house "as-is" and undercutting yourself-- just to get out from under it?  Right now it is costing you a mortgage payment every month.  Would it be worth a year's worth of mortgage payments to make it go away? 

[babysteps]

My PITI is $1200, so it would be cash flow negative unless I refinance.  I just hate to start a refi and sell it in 2 weeks!

My opinion, either find a way to *A*increase the potential rental income or *B*sell it and redeploy the capital.  As is, it's just eating you (and your 'stache) slowly.

IIRC, when you lived there you commented about the floor plan being cut up with small rooms. 
...

A chopped up floor plan suggests an idea for *A* increase the potential rental income: rent by the room
Some things to consider: How many bedrooms (currently or with low $spent)?  What's the neighborhood like?  If the neighborhood is "too nice" or a war zone this might not work.  If the neighborhood is more lower-middle/working class, and if it is reasonably close to public transportation and social service offices, renting by the room could boost your rental income if the bedroom count works.  Might even make sense to have an on-site super/head resident who gets reduced or zero rent. 

In our area a working class 3 bedroom apt rents for $600-900, or you can get $350 per room.  There will likely be a bit more wear & tear, but also better cash flow.  This doesn't work in every situation, but can be lucrative where it makes sense (we have 1 such house at the moment, and a client who is doing a rent-to-own with us is doing this as well - out of about 15 current investment properties).

Your property manager likely either loves room rentals or refuses to do them, you could start there and let the manager figure it out.  If you want to do your own research, start with a local agency like Catholic Charities or whoever runs a transition shelter (where they are looking to place shelter 'graduates' in permanent housing).  Or start with zoning/code compliance and then check with an agency.

Lastly, have you just considered selling the house "as-is" and undercutting yourself-- just to get out from under it?  Right now it is costing you a mortgage payment every month.  Would it be worth a year's worth of mortgage payments to make it go away? 

This describes why you might want to *B*sell it
If you're not a "real estate" person, and don't have a strong desire to dabble, this is worth considering. 
"Breaking even" rent vs. PITI before mgt fees, vacancies and maintenance can cost a lot vs. putting that capital to work in an index fund or other productive investment.  If you are a real estate person you could probably find a property with better return even *after* transaction costs.