Sell or Keep the rental?

[beingzero]

Hi All,

Need help figuring out to sell or keep a rental we own in a different state:

Original Purchase Price: 195K
Current Loan Balance: 160K
Current Interest rate: 4.05 %
Current Estimated Property Value: 250K
Monthly Mortgage Payment: 1007
Monthly HOA Payment: 175
Monthly Rent: 1750
Property Management Fees: 175
Home Warranty: 45
Cash Flow: 348

The property is an excellent school district which I have been renting out for the last 3 years and has never been on the market more than week before getting rented.

I currently live in a different state and kind of screwed up not buying the house in 2013. Now the prices are up significantly and I am worried buying at the current price levels. So continuing to rent at a pretty decent rental rate.

Should I keep renting it out/Sell it (anyway to avoid the tax hit)/tap into the equity to buy another rental or a primary residence?

Thank You.

[omega13]

I currently live in a different state and kind of screwed up not buying the house in 2013. Now the prices are up significantly and I am worried buying at the current price levels. So continuing to rent at a pretty decent rental rate.

Hi there. Would you please clarify what you mean by this? If you own this rental, how could you have screwed up by not buying it?

[beingzero]

I should have been more clear. I own this rental but I was talking about not buying a primary residence in the new city that i ended up moving to. I own a rental In NC that is tenant occupied but I now live in Atlanta where I don't own a house.

[tralfamadorian]

...renting out for the last 3 years...

Were you living in the property for at least two years prior to renting it?  If so, the time you have to sell and avoid capital gains on the appreciation will be running out soon if it hasn't already.

Also, your expenses do not include a 10% vacancy cushion or 10% maintenance cost.  If they are both included, then you are basically cash flow neutral- a few dollars in a red per month.  Personally, if I was in that situation, I would either sell with the home capital gain tax exclusion or 1031 it into an investment property that actually cash flows if that was not possible. 

[SwordGuy]

...renting out for the last 3 years...

Were you living in the property for at least two years prior to renting it?  If so, the time you have to sell and avoid capital gains on the appreciation will be running out soon if it hasn't already.

Also, your expenses do not include a 10% vacancy cushion or 10% maintenance cost.  If they are both included, then you are basically cash flow neutral- a few dollars in a red per month.  Personally, if I was in that situation, I would either sell with the home capital gain tax exclusion or 1031 it into an investment property that actually cash flows if that was not possible.

That's good advice.

[beingzero]

I have not lived there 2 of the last 5 years so I have to recapture the depreciation of ~20k and pay taxes on the gains. I think I can avoid paying taxes if I buy another rental and use the 1031 exchange but that is not likely at this point. Also the realtors will charge additional fees :-(

[tralfamadorian]

I have not lived there 2 of the last 5 years so I have to recapture the depreciation of ~20k and pay taxes on the gains. I think I can avoid paying taxes if I buy another rental and use the 1031 exchange but that is not likely at this point. Also the realtors will charge additional fees :-(

If you do not do a 1031, you will have capital gain tax and 25% tax on your depreciation.  1031 would avoid those two but you would lose about 10% in realtor/QI fees.   

Yes, there will be fees involved but given the quality of the property as an investment, I would consider you bailed out by appreciation.  You are tying your money up in a non-performing asset. Take the 10% hit, 1031 into a du/tri/quadplex that financially makes sense as an investment property in your current location, then you can move into one of the units in two years.