Hi,
I am new to this forum and I would like to have your inputs on whether to keep or sell my current rental property, and whether there are any tax implications if I decide to sell this place. Your thoughts are highly appreciated. Here are the numbers:
Original purchase price bought in 2005: $235,000
Current market value: $235,000 (estimated)
Cash sunk in to remodel it over the years: $15,000
Refinanced in 2013: 30-year @ 3.625%
Outstanding loan balance: $160,000
Monthly mortgage w/escrow =$1,200 (Principle and interest $830/month +Taxes and Insurance: $370/month)
Remaining years left on the loan: 24
Monthly gross rental income: $1,600/month (renter pays their own utilities)
Estimated Maintenance fee: $150/month
Monthly vacancy $1600/12=$133
Property management: self- management
The house that I lived in that is detailed above, I later refinanced and turned into a rental. The purchase price was $235,000, I sunk in about another $15,000 cash to remodel this place. After living in there about 9 years , we refinanced this property to a 30-year term mortgage at 3.625% , I have been renting it out to the same tenant for almost 5 years now, we currently charge her $1,600/month, and the lease is due in April. Now she decides to move out. That leaves us either to have sell this place or to look for another tenant in hope the next one is just as good as her:
Option 1: Listing for sale: The thing is that since we bought the house in 2005, the property value hasn’t gone up at all. I doubt it will go up much in value in the next 10 years. I will be lucky if I can sell it for the same price I bought it for, plus I may have to spend an additional $10,000 to $15,000 to fix this place up, and I will have to pay about $14,100 in closing costs (say a 6% commission rate). Would it make sense to sell it, write off the losses and invest my $1200/month in index funds to have a better return and I don’t have to deal with any tenants? Also, will there be any tax liabilities on the sale?
Option 2: If I continuously rent out this place, assuming I still charge $1600/month, with a $1200/month mortgage (escrow included), let’s say $150/Month estimated maintenance fee with factoring in 1 month vacancy $1600/12=$133, if I did my math correctly my ROE would be (1600-150-133-1200)/1200=9.75%. The property does generate some positive cash flow for us and it has been low maintenance overall. However, with the current tenant moving out after living in there for five years, I am expecting I’ll have to spend a couple of thousand to refresh the place up so it’s will be ready for the next tenant, which will eat my ROE as well. Important to note, this house is rather old (built in the 1950’s). I think we will have to sink a bit of money into it in the coming years due to this.
What do you think is a better choice? I appreciate your feedback.
Thanks again,
