Author Topic: Should I continue to rent this property or sell it?  (Read 2236 times)

mx711yam

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Should I continue to rent this property or sell it?
« on: May 18, 2015, 02:57:52 PM »
This is my first post, but I have been browsing for a while.  Below is my situation, I need some guidance.

I owe 54k on a property that is worth 150k.  I currently rent it out at 1295 a month and use a leasing agent/property management company.  They charge 80% one month rent to lease and background everyone, then an ongoing 10% to manage.  I don't have the time or patience to deal with it myself as I had the previous three years.  The tenant I have now is just now leaving and the management company is thinking we can get 1375 a month now. 

Mortgage on rental is 15 year 3.875%.  Bills with pi, taxes, insurance are 1100.  Property management comes out to netting roughly 100 a month, however 500 goes to principal every month so I view it as making 600.

Rental had been totally gutted and redone in 2008, including roof.  New hvac done this year, so likely won't need any significant repairs for 10 years.

Mortgage on primary home is 3.5% 30 year fixed, owe 172k worth 300k.

Investment portfolio 180k, all tax advantaged.  I will also be collecting a pension.

Those are our only debts at ages 29/28.


Do the numbers make sense to continue as a rental or should I sell it and try to pay off my primary home faster?
« Last Edit: May 18, 2015, 03:02:07 PM by mx711yam »

cbgg

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Re: Should I continue to rent this property or sell it?
« Reply #1 on: May 18, 2015, 03:56:48 PM »
Based on what you've said it sounds like:
1) This property is completely cash flow positive (+$1200/year)
2) This investment  is almost completely passive
3) Ignoring any possible gains (or losses, but in this market I assume gains) in the value of the property, you are currently earning a return of $7200/year (from $600/month*) on a base of $100,000, aka, returning about 7% on your investment.

Maybe my math is rudimentary, but I don't see any particular reason to sell the property, unless you have a concrete idea of where you can get a better return elsewhere. 

I don't see why you'd sell it to pay off your primary home as your interest rate is only 3.5% (much less than the 7% you are currently returning) and your real interest rate is presumably a bit lower due to the tax credit.

*I'm assuming that when you calculated this you put in some sort of reasonable allowance for saving for long term repairs, vacancy, etc.  If not, account for that and see if the numbers still look good.
« Last Edit: May 18, 2015, 04:08:59 PM by cbgg »

SMCx3

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Re: Should I continue to rent this property or sell it?
« Reply #2 on: May 18, 2015, 04:05:21 PM »
I would keep the rental.

CashFlowDiaries

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Re: Should I continue to rent this property or sell it?
« Reply #3 on: May 27, 2015, 02:58:56 PM »
Here is exactly what I would do.

Keep the rental however refinance into a new 30 year mortgage and go back to 80% LTV. Then use that equity you just pulled out to buy another rental just like that one with a 30 year mortgage.  This will boost your monthly cash flow way more then $100 per month all without using any of your money from your bank accounts. Which will set you on your way to financial freedom.

Is that ultimately what youre looking for?  To retire off of passive income?  If so, this is your best option.  That is a great rental you have there and you should definitely not sell it.

cbr shadow

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Re: Should I continue to rent this property or sell it?
« Reply #4 on: May 27, 2015, 03:20:58 PM »
I'm not sure I agree with "This rental is cashflow positive".  Someone like Arebelspy will likely jump in and be much more clear than I am, but here's what I'm seeing:

$1295 Rent per month ($15,540 Yearly)
PM takes .8 * first month =  -$1036 (1 time fee yearly)
PM takes .10 * each month = - $129.50 per month, or $1554 Yearly

$15,540 - ($1036 + 1554) = $12,950 

Your Mortgage with taxes/insurance = $1100/month or $13,200 Yearly

So you're "cash flow positive" $250 per year.  This doesn't include any repairs or vacancy which can add up very quickly. 
Unless I read something in your post incorrectly, you're not cash flow positive on this property.






CashFlowDepot

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Re: Should I continue to rent this property or sell it?
« Reply #5 on: May 27, 2015, 03:34:35 PM »
Keep it!  Do not refinance to pull cash out.  That house will never be free and clear if you use it as an ATM machine. 

The objective with rentals is that they will be completely paid for as fast as possible so your cash flow goes UP.  Same with your personal residence.

If you need cash to pay off other debt or to build up a nest egg, try wholesaling properties.  You can make $3,000, $5,000, $15,000 per wholesale deal.  I've made as much as $100,000 in one week on a package of wholesale properties.

Do wholesale deals then use the cash to get your rental properties paid off in 4-5 years instead of 30 years.

The great thing about wholesale flips is that you do not need to buy the house, you don't need to get a loan, you don't do any fix up. 

mx711yam

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Re: Should I continue to rent this property or sell it?
« Reply #6 on: May 28, 2015, 07:32:45 AM »
I had a second rental property and sold it this year.  I do not enjoy anything about rentals and it's not my goal to amass a bunch of them.  The only reason I have kept this one is because it's so easy to rent and in a really good location.  Other than that, I just find them to be a hassle.

My goal is to retire in the next ten years, so I'm trying to set myself up for that.  I don't really want to refi cash out this thing, I'm trying to have it paid off in the next year and a half.