Author Topic: Please help: Should I sell my place or rent it out?  (Read 2949 times)

Monark

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Please help: Should I sell my place or rent it out?
« on: January 18, 2015, 03:06:58 PM »
Would appreciate any input on my situation.  Wife and I getting ready to move sometime this Spring and I'm trying to decide should we sell the current condo or rent it out. 

Market Value: $390,000
Original Purchase price: $341,000
Original Mortgage Amount: 272,800
Interest Rate: 4%
Mortgage Term: 30 year fixed
Term remaining: 24 years
Amount remaining on mortgage: $250,526
Gross Rents: $2000
Principal and Interest (the P&I of your PITI - should match with the above info): $1,230
Taxes and Insurance (the T&I of your PITI): $238
HOA costs: $475
Opportunity Cost: If we sell, the money would all go into a taxable VTSAX. 
Transaction Cost on Home Sale: 5%
Deferred maintenance notes: We just paid a $8,500 special assessment last month.  We anticipate another similar assessment sometime in the next 2-3 years.

Let me know if you need any more information.  Thanks for the input!!!

SaintM

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Re: Please help: Should I sell my place or rent it out?
« Reply #1 on: January 18, 2015, 04:41:21 PM »
Based on your assumptions, I factor:

Sale:
$352k in proceeds on your sale (95% x 370k ... leaves room for negotiation, repairs, unanticipated extra charges)
$102k check written to you

VTSAX:
$1.8k annual dividends
$51 annual expenses


Annual rental figures:
Income:
$24k rents

Expenses:
$10k interest
$4k Mx/utilities
$5.7k HOA
$3k Tax/Ins
$14.8k Depreciation

Taxable Income: ($-13.5k) can be written against other income if you "actively participate" and your modified AGI is less than $100k
-- $3.4k benefit if you are in the 25% tax bracket.
Cash flow: $684/yr

My experience is that dividends tend to rise faster than rents, but I do not pretend to predict the future.
Personally, I believe VTSAX is too broad and has too low of a yield.  I would go with iShares HDV or Vanguard VYM, but I know that is not the prevailing view on MMM.
Is this a second property, or are you going to have to buy or rent a new place to live?

(edited b/c I forgot to subtract your current mtg from the sale.)
« Last Edit: January 18, 2015, 04:52:53 PM by SaintMichael »

waltworks

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Re: Please help: Should I sell my place or rent it out?
« Reply #2 on: January 18, 2015, 05:38:50 PM »
Sell the house.

-W

money_bunny

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Re: Please help: Should I sell my place or rent it out?
« Reply #3 on: January 18, 2015, 07:20:07 PM »

Taxable Income: ($-13.5k) can be written against other income if you "actively participate" and your modified AGI is less than $100k


I thought passive losses could only be put against other passive losses?

http://www.nolo.com/legal-encyclopedia/passive-activity-loss-pal-rules-irs-limits-deducting-passive-losses.html

Monark

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Re: Please help: Should I sell my place or rent it out?
« Reply #4 on: January 18, 2015, 07:25:21 PM »
@SaintMichael - we will be purchasing a house in the Spring.  Utilities on the condo would be covered by the renter (heat is included in our Condo Fee).  I could put the money from potential sale into a higher yielding fund such as Vanguard REIT, but I don't want so much exposure into a single asset class hence I figured VTSAX precisely because it is so broad.  Appreciate your thoughts on that aspect and curious what others would do with the money since I don't need it for the next house. 

waltworks

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Re: Please help: Should I sell my place or rent it out?
« Reply #5 on: January 18, 2015, 07:32:37 PM »
Do you have an investment strategy of some kind? If so, invest proceeds according to that existing strategy. If not, sit down and come up with one.

For long term, you could do a lot worse than VTSAX or some Vanguard Target Retirement fund. Or you can get fancier/dive in more and make it a bit more complex.

That's beside the point, though. Sell the house.

-W

Monark

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Re: Please help: Should I sell my place or rent it out?
« Reply #6 on: January 18, 2015, 07:59:58 PM »
@Waltworks - thanks for the advice.  Can you elaborate any on why to sell?  As for my investment strategy, it's essentially Vanguard index funds.  (This rental property would be the only thing beyond that)

waltworks

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Re: Please help: Should I sell my place or rent it out?
« Reply #7 on: January 18, 2015, 08:18:01 PM »
Read the other sell/rent threads. Your place is horribly cash flow negative even with optimistic assumptions about vacancy/maintenance.

-W

@Waltworks - thanks for the advice.  Can you elaborate any on why to sell?  As for my investment strategy, it's essentially Vanguard index funds.  (This rental property would be the only thing beyond that)

Another Reader

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Re: Please help: Should I sell my place or rent it out?
« Reply #8 on: January 18, 2015, 08:28:15 PM »
The rent as a percentage of the value or even your purchase price is too low.  This property will be cash flow negative.  Ask yourself, would you take the amount of equity you have in this property and buy an identical property as a rental?  If the answer is no, then sell the property.  Real estate is a great investment when bought right and operated profitably.  This property has the potential to be an alligator nipping at your heels.

Do you have a sufficient down payment for your new house to avoid PMI?  If not, the proceeds from the sale might be best used to acquire the new house.

SaintM

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Re: Please help: Should I sell my place or rent it out?
« Reply #9 on: January 18, 2015, 08:41:34 PM »
The NOLO article was generally correct, but it did not list an exception to offset up to $25k of other income. Your modified AGI has to be under $100k.

http://www.irs.gov/publications/p925/ar02.html#en_US_2013_publink1000104571

Monark

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Re: Please help: Should I sell my place or rent it out?
« Reply #10 on: January 18, 2015, 08:51:20 PM »
@Walt @Another - Thank you both, very helpful insights.  We will sell.