Author Topic: What should we do with this rental property?  (Read 1805 times)


  • 5 O'Clock Shadow
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What should we do with this rental property?
« on: December 04, 2013, 08:15:37 PM »
We purchased a brand new townhouse in 2003 for 167,000.   We put 5% down so the original mortgage was 158,000 @ 5.375 for 30 years.  Still paying on the same mortgage.  We paid it down slightly ahead of schedule to get the PMI removed.  Our goal is to keep the property long term.   It would be a great place to downsize to if life throws a curveball.

Conversion to rental 1/1/2012 (still have the original tenant who has kept the place in great shape).

Rental Income - $1295
Late Fee - additional $75 (Interestingly enough our tenant has been late every month this year for an extra $825 in our pocket, but I should not count on this).

Monthly Expenses
Principal/Interest - $888
HOA - $150
Property Taxes - $128
Insurance $33
City License - $4.50

Total Monthly Expenses = $1203.50

Current Loan Balance - $124,854.52
Current Zillow Valuation - $135,000

We have very good credit scores and the bank has been giving us indications they would refinance if we desired.   I don't have the terms available, but assume we could get market competitive rates.

Should we refi?
Should we continue as is?
Should we sell it?
Should we aggressively pay down the existing mortgage?

- growingstaches

Another Reader

  • Walrus Stache
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Re: What should we do with this rental property?
« Reply #1 on: December 04, 2013, 08:42:05 PM »
It's a rental, so I don't see much benefit to refinancing because of the investment property premium.  You would finance a lower amount at the same or slightly lower interest rate.  You are not likely to save enough to make it worth the cost.  The property is now 10 years old, so the maintenance is going to increase.  The appliances and hot water heater will likely have to be replaced and there may be furnace/AC issues in the next few years.  The roof probably has 5 to 10 years, depending on your climate.  When you add in vacancy and collection loss plus repairs and maintenance, you will be out of pocket over time.  You will experience a vacancy at some point and you will have turnover costs when that happens.

Unless you see rents and/or values going up over the next few years, or you believe there is a good possibility you would occupy the property again, I would consider selling.  You have a loss that is larger than the depreciation recapture at this point so taxes should not be an issue.  If Zillow is right, and it rarely is, you would probably have to bring a little cash to the table to sell.  But it's not going to generate any cash flow for a long time and it has the potential to cost you thousands if a major capital improvement is required.

In your shoes, I would talk to a knowledgeable local real estate agent or two to get a better picture of market value and I would get the refi details from a couple of lenders.  With that information, you will be able to make a more reasoned decision.

different but real

  • 5 O'Clock Shadow
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  • Posts: 6
Re: What should we do with this rental property?
« Reply #2 on: December 06, 2013, 10:29:18 AM »
Question... When looking at this particular deal. I seem to remember you can use your IRA to create a self directed Reit. Assuming one had the money in an ira (Same question for a 401k (possible or not?)) would there be a value in creating the IRA inside current program, pay off or borrow through the IRA, and have the monthly payments go back to the IRA? Maybe I am completely wrong in what it is or isn't.

So the second question is can someone explain the options with self-directed tax deferred funds? Thanks