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Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: sbaTexas on March 16, 2015, 03:43:27 PM

Title: Should I sell my rental properties?
Post by: sbaTexas on March 16, 2015, 03:43:27 PM
Hello everyone. . .longtime lurker here.  Wanted to reach out for some feedback on these 2 rental properties we currently own. . .ill try to include detail but if there's something I'm leaving out please ask:

Property 1:  15 yr 3.25% rate.  12 years remaining on mortgage.  PITI is $2100, currently rents at $2800.  Purchased 4 yrs ago for $260k, still owe around $179k. .. realistic comps in neighborhood put sale value around $350k.  It's a college house across the street from a major university.  This university is increasing enrollment 30% over the next 10 years, so the location will continue to be in demand as everything builds out.  I had kids lined up to rent the house as soon as it came available and I increased the rent from $2600 to 2800 and they didnt blink an eye upon signing the lease.  The house seems to be in high demand.

Property 2:  15 yr 2.875% rate.  12 years remaining on mortgage.  PITI is $1,785, currently rents at $2000.  This was our starter house that we converted into a rental.  Purchased 6 years ago at $215k, realistic comps put sale value around $245k.  Still owe around $155k.  There is also a $415/yr HOA.

Main questions:  While property 1 is decent from a $ standpoint, I realize prop 2 is not that great.  The reason I haven't sold these and done a 1031 to purchase more efficient rental property is because I cant get over these low rates.  At what point does equity building with OPM factor in when looking at rental property?  This is very cheap debt so I'm intrigued to keep it just based on that alone. . .I know these 2 areas very well and I cant see any coming reason why the properties wont continue to appreciate.  What say you?  Thanks in advance!
Title: Re: Should I sell my rental properties?
Post by: waltworks on March 16, 2015, 10:03:00 PM
I'd probably sell #2 even if the rate was zero. You are losing a ton of money even barring problems with maintenance or tenants of any kind. I mean, cheap money is great, but if the investment isn't earning you anything (or it's losing money) it sort of doesn't matter.

I've got some terrible rentals right now that I bought purely as appreciation plays, and they have so far panned out. But that was back a few years ago when it was basically a giant RE fire sale everywhere in the US. Not the case any more, IMO, but if you know your market really well and want to gamble on appreciation (and have a nice cash reserve to cover problems and negative cash flow) then stick with it and see what happens.

-W

Title: Re: Should I sell my rental properties?
Post by: clarkfan1979 on March 17, 2015, 07:05:56 AM
How many bedrooms is rental #1? Are there any city codes to limit occupancy? Would you be able to add a bedroom or build an addition to get more rental income as the University grows?

I lived in SD and my landlord built two studio apartments on top of one another in the backyard of our single family home.
Title: Re: Should I sell my rental properties?
Post by: sbaTexas on March 17, 2015, 07:33:55 AM
Thank you for the responses. . .

house #1 is a 4 bedroom with a 5th unit outside (converted from garage).  I currently have 4 guys in the house and a couple in the outside unit. . .so 6 total for a rent of $2800. 

Title: Re: Should I sell my rental properties?
Post by: SunshineGirl on March 17, 2015, 09:52:21 AM
Those are really good numbers for a 15-year rate, IMO, and you're knocking off tons of equity every year. I would be tempted to hang onto them both -- the first one, forever! - because in 12 short years, they'll be paid off. Using OPM is a great way to build wealth.
Title: Re: Should I sell my rental properties?
Post by: clarkfan1979 on March 17, 2015, 08:06:49 PM
Thank you for the responses. . .

house #1 is a 4 bedroom with a 5th unit outside (converted from garage).  I currently have 4 guys in the house and a couple in the outside unit. . .so 6 total for a rent of $2800.

Rental #1 seems very similar to a house that I rented when I was in college. Because of the conversion, I think the value of rental #1 is going to weigh heavily based on the rent generated. If you ever considered selling, you would want the last lease to be as high as possible. I don't think a zillow estimate would be very accurate based on the uniqueness of the property.
Title: Re: Should I sell my rental properties?
Post by: Bearded Man on March 18, 2015, 07:42:00 PM
#1 I'd keep. #2, not so sure. If you sold now, you are barely making anything if not just breaking even. If you hold onto it, in a few more years it will be paid off and generating far more cash flow. Even now, you are not counting the principal they are paying toward your house, but it's something to consider, since it is paid every month right along with the rest of the payment. Yes, it's not money you get to spend, but unlike appreciation, it is just as reliable as counting cash flow since the very payment that gives you cash flow also pays principal down. In 12 years, both will be paid off and you will be clearing $5,500 (counting for inflation) before expenses, and the expenses will be very little compared to now, and you will likely be netting 4+K a month!