My wife and I bought a brand new townhouse right after we got married in 2007. Stupidly, we believed the market had stabilized somewhat when we bought the house for $124,458, which was $20k cheaper than it had been listed for. We put around $15k down on it at the time, which we felt was a pretty good amount. Our interest rate was 6.5% I believe. Well, 2008 hit, and the property value plummeted. We ended up having to move in 2009 due to my starting law school in a different city. Throughout 2008 and 2009, the builder continued to build to fill in the neighborhood, but by the time we were ready to move, the builder was selling brand new townhouses our size for $105k, which was more than we owed on our townhouse. Our payments were around $800 a month, I believe. I decided we should just rent the thing out, wait for property values to go up, and then at least recover our down payment.
We ended up renting the house out for $875 a month. Since we were moving out of state, we got a local property management company to manage it. They take 10% of the gross income per month. The HOA for the townhouse is $140 a month, and it includes pest spray, termite inspection, grass cutting, pool, etc. I knew we'd be losing some money at first, but I wanted someone in the house asap and planned on gradually raising the rent or just selling the house in a year or two. That was 6 years ago.
My state's property taxes are low for primary residences- 4%. What I didn't realize until it was too late, however, is that second homes are taxed at a 6% rate. This meant when we received our tax bill for 2009, the taxes went from $559 a year to $1865 a year. Our mortgage payment went up to $950 a month, so we were losing around $300 a month for 5 1/2 years or so.
After many hours of research, I discovered you can refinance an FHA home that is not being used as a primary residence. I finally found a broker who also realized this, and in March or April of this year, we refinanced the house to lower the interest rate to 4.7% interest. Our payment dropped back to $805.
Market Value: $85k
Original Purchase price: $124,458
Original Mortgage Amount: 109,458
Interest Rate: 4.75
Mortgage Term: 30
Term remaining: 55 months
Amount remaining on mortgage: $100,288
Gross Rents: 875
Principal and Interest (the P&I of your PITI - should match with the above info): P: $129.68; I: 527.17
Taxes and Insurance (the T&I of your PITI): 277.86
HOA costs: $140
Deferred maintenance notes: N/a that I'm aware of. Minor issues. House is 8 years old, however, and I'm sure the AC unit will need to be replaced in coming years.
So I was happy just losing $165 a month after the refinance. The builder had been building new units until 2012 and was selling those at $90-95k. I figured in a few years, I'd catch up to the value and at least be able to sell it for what I owe. That was until I received the recent county reassessment of $84k. On the one hand, I'm happy that my taxes, and, therefore, loss, will decline by around $30 a month, give or take, but I feel like I'm continually throwing good money after bad. One of the townhouses down the street from us sold at $85k, so I believe this to be a fair appraisal of the value of the townhouse.
There are some pros to owning a townhouse that loses money. The losses can be written off, which reduced my AGI by around $8k last year after we had a couple of months without a renter when ours moved out in October. So that does have a benefit that means I may be breaking even after all is said and done.
I have tried to raise the rent before without success. Last year when we had a tenant move out, I tried to re-list the property for $1k a month and had no interest. $950 likewise had no interest. At $875, I had someone apply and take it within a week, so I feel that may be the best I can get.
Should I continue to throw money at this thing and just enjoy the tax benefit or should I just walk away and write it off as a bad business decision?