My husband and I purchased our first home in 2007 when we were 18 and 22 years old for $115,000. We were young and broke and used a VA loan and financed the closing costs too so our first mortgage was $117,500 at 6.75% interest. We refinanced in 2010 to a 4.75% interest rate but added in closing costs again and ended up with a fresh 30 year loan for $113,320.
The military sent us several states away so we put the home on the market in March 2014 for $129,000(we put more than 30k in improvements too so this is a loss), we had very little interest, namely because there are so many homes on the market in our town (mostly due to changes in personnel at the air force base that sent a lot of people away at the same time). We were fortunate to find our own tenants and moved them into our home in July 2 weeks after we moved for a rent of $900 per month, we left the home on the market as an "investment property" but by March 2015 we still had no buyer so we pulled it off the market. In July 2015 our tenants moved out and the home has been sitting empty since. We put the home back on the market for $125,000 in early December 2015 (6 month contract with the realtor) and we have still had no interest, I believe the home was shown once and the feedback was "living room is too small" and they're right, it's a little living room and there's nothing that can be done about that.
I had some interest from tenants if we're willing to drop the rent to $750 per month but my mortgage/taxes/interest/insurance total $756 per month plus I'm paying a 10% cut to the property manager (if it's actively rented).
So, it's a bad situation all around. I don't even know if I can get it to sell without dropping the price way down, we owe $104,755 right now. We could start making extra principal payments and have it paid off early, but investing the money could be a better decision as well.
Right now the biggest advantage I have to keeping it as a rental is the reduction in taxable income I'm getting from claiming a loss (but there's a limit to the number of years you can do that, right?).
Any recommendations? Hold out for a buyer, rent it at a loss, drop the cost and sell it for a loss? Hope for a better situation in the future?
Here is a case study I completed:
Category | Monthly | Comments | Annual |
Salary/Wages for earner #1 | $7,635 | | $91,624 |
Salary/Wages for earner #2 | $2,917 | | $34,999 |
Pretax Vision/Dental Ins. | $36 | | $427 |
Healthcare Flex Savings Acct. (FSA) | $208 | | $2,500 |
FICA base salary/wages | $10,308 | | $123,696 |
|
401(k) / 403(b) / TSP / etc. | $764 | Room to increase? | $9,162 |
Employer Match | $305 | | $3,665 |
Income subject to IRS tax | $9,545 | | $114,534 |
|
Life/LTD Insurance | $52 | | $621 |
Paycheck income before tax | $9,493 | | $113,913 |
|
|
Rental real expenses | $765 | | $9,178 |
Rental depreciation expense | $267 | | $3,200 |
Rental taxable income | -$1,031 | | -$12,378 |
|
|
Federal Total Income | $8,513 | | $102,156 |
|
Federal tax | $995 | 2015 rates, MFJ, stand. ded., 2 exempt. | $11,940 |
State/City tax | $232 | Guess, using 6.00% * Fed. Taxable | $2,785 |
Soc. Sec. | $706 | Assumes 2 earners paying | $8,467 |
Medicare | $149 | | $1,794 |
Total income taxes | $2,082 | | $24,985 |
Add Health + Daycare reimb. | $208 | | $2,500 |
Untaxed Income | $2,234 | | $26,808 |
Income before other expenses | $9,088 | | $109,058 |
Monthly Average Expenses: | | | |
Mortgage | $591 | | $7,094 |
Rent | $1,998 | | $23,976 |
Property Tax | $78 | | $941 |
Home/Rent Insurance | $85 | | $1,024 |
Cable TV | $183 | | $2,196 |
Car Insurance | $151 | | $1,812 |
Car Maintenance, Registration, etc. | $50 | | $600 |
Charitable contributions | $20 | | $240 |
Christmas/Holidays | $25 | | $300 |
Clothing/Shoes | $25 | | $300 |
Computer (paper/software/etc.) | $10 | | $120 |
Dining (Pizza, Restaurant, etc.) | $200 | | $2,400 |
Electricity | $10 | | $120 |
Emergency Fund | $250 | | $3,000 |
Entertainment | $50 | | $600 |
Financial Fees | $5 | | $60 |
Fuel/Public Transport | $250 | | $3,000 |
Groceries | $700 | | $8,400 |
Hair Care | $10 | | $120 |
Household; Maintenance | $75 | | $900 |
Internet | $70 | | $840 |
Medicine (OTC + Prescription) | $75 | | $900 |
Miscellaneous | $100 | | $1,200 |
Pets | $100 | | $1,200 |
Phone (cell) | $225 | | $2,700 |
School Tutition/Books/Etc. | $20 | | $240 |
Sports/Recreation | $200 | | $2,400 |
Subscriptions (paper/magazines/etc.) | $20 | | $240 |
Non-mortgage total | $4,986 | | $59,829 |
Loans: | | | |
Southwest Rewards Visa | $1,493 | | $17,916 |
Student Loan | $55 | | $655 |
Personal Loan | $449 | | $5,393 |
Truck Loan | $616 | | $7,387 |
|
Other tax-advantaged investments: | | | |
Roth IRA | $385 | Room to increase? | $4,615 |
Roth 401k/403b | $515 | Room to increase? | $6,174 |
Total Expense | $9,089 | | $109,062 |
Total to invest | $0 | | -$4 |
|
Summary: | | | |
"Gross" income | $12,021 | | $144,253 |
Income taxes | $2,082 | | $24,985 |
After-tax income | $9,939 | | $119,268 |
IRA+401k/403b/TSP/457 (Savers' credit) | $1,663 | | $19,952 |
Living expenses | $5,664 | | $67,970 |
Non-mortgage loans | $2,613 | | $31,351 |
After-tax investable | $0 | | -$4 |
|
|
Time to FIRE?: | | | |
Extra income after RE (pension, SS, etc.) | 30000 | /year | |
Time to FIRE | 10 | years | |
Safe Withdrawal Rate | 4.00% | percent | |
Real return on tax-deferred investments | 1.50% | percent | |
Real, after tax, return on taxable investments | 1.28% | percent | |
Current Savings | | | |
Roth + HSA | $74,000 | | |
Projected Savings at Retirement | | | |
Taxable | $290,319 | | |
Tax-deferred (e.g. trad. IRA/401k) | $137,288 | | |
Roth + HSA | $201,354 | | |
Total projected stash | $628,961 | | |
| | | |
Projected Expenses in Retirement | | | |
Non-loan, non-work expenses | $59,829 | | |
Annual non-tax retirement expense | $59,829 | | |
Income taxes | $3,937 | | |
Total | $63,766 | | |
Total loan principal due at FI | $77,715 | | |
| | | |
Stash needed for retirement @4.0% SWR | $921,867 | | |
| Need $292,907 more. | | |
Filing Status | 2 | 1=S, 2=MFJ, 3=HOH | |
# Exempt. | 2 | | |
| Earner #1 | Earner #2 | |
Ages | 26 | 30 | |
|
# of earners | 2 | | |
Total Income | $102,156 | | |
Std. Deduct. | $12,600 | | |
Act. Deduct. | $12,600 | | |
Exemption | $8,000 | | |
SL int. (approx.) | $148 | | |
AGI | $102,008 | | |
MAGI | $102,156 | | |
Taxable | $81,408 | | |
1040 Tax | $11,940 | | |
Saver's credit | $0 | | |
Tax after n-r credit | $11,940 | | |
Child Tax Cred. | $0 | | |
EIC | $0 | | |
Net Tax | $11,940 | | |
Monthly | $995 | | |
|
Mtg. Int. (approx.) | $4,926 | | |
State tax | $2,785 | 6.00% | |
Prop tax | $941 | | |
Charity | $240 | | |
Item. Deduct. | $8,891 | | |
Version | V7.06 | | |
Loans: | Orig. Prin. | Orig. Length | Curr. Prin. | Yrs left | Rate |
Mortgage | $113,320 | 30 | $104,755 | 26 | 4.750% |
American Express Credit Card | $2,000 | 0.0833333333333333 | $0 | 0 | 15.000% |
Southwest Rewards Visa | $4,422 | 8 | $4,422 | 0.166666666666667 | .000% |
Student Loan | $5,500 | 10 | $4,933 | 8 | 3.150% |
Personal Loan | $25,000 | 5 | $13,012 | 2.5 | 2.990% |
Truck Loan | $35,206 | 5 | $15,659 | 2.16666666666667 | 1.900% |