Author Topic: When to sell our rental  (Read 1634 times)

Taggie

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When to sell our rental
« on: July 13, 2014, 06:58:40 PM »
We have a townhouse we rent out purchased in 2004 for 218K. We started renting it out after moving to single family in 2008. Rent is currently $1345. Browsing around these forum I see that is not a good rate at which to keep a rental property. We chose to rent only due to the crash in 2008 where the value had plummeted to 125K. Our family had grown and the home was too small. Also it was an ideal time to buy bigger with rates being low. The selling value is now up to 215k. We have a stable renter currently who has been there going on 4 years. Our goal was to get back our investment when we sold. Total due on the mortgage still is 144k. 215k minus the 6% realty fees is not quite there still. We live in Northern VA and it seems a good profile rental would be hard to come by. Should we continue to rent or sell this less than ideal rental property?

escolegrove

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Re: When to sell our rental
« Reply #1 on: July 13, 2014, 08:09:36 PM »
My husband is active duty military. We buy houses at each duty station and rent them when we move on. For us it is another "investment" basket. None of our houses follow the "rules". For us as long as the rent covers the mortgage including escrow fees and gives us extra for our "ohsit" fund than I consider it a success.

Another Reader

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Re: When to sell our rental
« Reply #2 on: July 13, 2014, 08:28:56 PM »
One of the questions I would ask myself is how the rental fits into the overall DC rental market.  Being close to DC tends to shift the discussion to appreciation and future rental rates from current cash flow.  I know someone that bought a condo around 11 or 12 years ago because the husband took a job with a military contractor and worked at the Pentagon or near there.  They did the bicoastal marriage for awhile.  Several years later, he moved but they kept the condo.  When prices dropped, they considered buying a second condo, as he was going back there for another couple of years, the original condo was occupied by a tenant, and it was cash flow positive.  I believe their condos are in Alexandria.

I would be less focused on getting my investment back than I would be on what would be the best use of the net equity in the condo going forward.  If I was satisfied with the current rate of return and I felt the value and the rent would go up over time faster than inflation, I would let the investment roll.  If I had a much better place for those dollars, I would sell at a loss and invest in the better opportunity.

arebelspy

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Re: When to sell our rental
« Reply #3 on: August 11, 2014, 10:24:23 AM »
AR's post is great, big +1 to comparing to alternate uses for the equity. 

To me this is a close call.  I'd probably lean towards selling if it were vacant (but that's based on my situation, not yours, you will likely have different goals, investment opportunities, etc.), but since you have a long term, stable renter, I'd hold until they leave, then reevaluate.
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anbeha5754

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Re: When to sell our rental
« Reply #4 on: August 13, 2014, 06:06:14 PM »
A purchase price of 218k, and rent at $1345, that means your house is yielding about a 0.615% monthly rent compared to purchase price. Normally for investors, the aim is a minimum of 1% or $2100 or $2200 a month. I understand at the time things were depressed, but what are units comparable to yours renting for in the area? If the average is $1345 for comparable units, well, I think leaving that housing market would be a good idea. But, if you are able to raise rent to match the current market that was around $2100, you're taking in $755 more a month, which annually gives you $9060. You may like the current renter, but are they worth the $9060 not in your pocket?

Think about the cost of your mortgage, insurance, taxes, cost of repairs, vacancies, all those expenses combined with the 0% your property has appreciated in 10 years, and you're only charging 0.615% of the original purchase price for rent. Great job staying afloat during the crisis, something many people cannot say, but you want the investment aspect, which is why you asked your question.

If you sold, you will walk away with 71k, which is nice since the renters have amortized most of your mortgage. But, in your current situation, I think a bit of optimization can be done. Selling or raising the rent are two financially beneficial routes. If you want a hands-off approach to real estate, a REIT is an option. If you want a different property, I would consider looking into finding something below market value and trying to keep in mind the 1% rule (house is 100k, rent is $1000).

I hope my point of view helps, good luck.