Author Topic: What to do with investment property?  (Read 2481 times)

planner10

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What to do with investment property?
« on: March 17, 2015, 10:41:12 PM »
This is not an ideal situation.

We bought our home for 260k. Gorgeous forever house.

Then I had to move for work out of state. About 3 years after we bought it.

At that time we tried to sell and couldn't sell even for 200k.

We rented it out for 1495/month and thought we would try again when real estate values revived.

That was 7 years ago. It is now worth between 180-190k (still lots of foreclosures that through off valuations)


We are getting 1450/month from this awesome tenant we've had for the last 3 years.  She is a single mom and takes great care of the place so we are giving her a deal (market rent is probably 1600). Piti is about 1200/month, and that's with a 30 yr after a 100k down payment. So it's actually even more terrible when you include lost investment gains.

So -
Paid 260
Today's value 180 (conservative not including costs of selling)
Equity 25k (after 7 years and 100k down)
Piti 1200 monthly plus 1200/yr hoa
Rent 1450 leasE is up in August

I know it is a bad deal. Although it is cash flow positive if you ignore the tons of money we invested to make it look that way. Repairs are non existent since the tenant has fixed them herself and the house is only 11 yrs old. Haven't had a month vacancy since we first rented it.

Option 1. we sell and push our awesome tenant out (will we owe capital gains?  Depreciation has been about 8 or 9k/year so even with that I don't think we will have any gains here.  lease is up in August. Earliest we could put it on the market is June (2 months before end of lease)
Option 2. We see if our tenant can handle a increase in rent to 1550 or so and adjust the lease to end in March so we can actually get it on the market at a good time of year.
Option 3. Keep rent keep tenant. Hope housing prices rise.


Several questions for you guys. First, which option?  Is there one I missed?
Second, our interest rate is 4.5%. Best we could get even with awesome credit because it's not a primary residence.
I could take out a line of credit on our current home at 3.5% and pay off the investment property. It makes sense on paper but I don't know if it will mess me up on taxes. If I can't write off the interest on the mortgage then the whole rent would be considered income taxed at very high %s. Can I still write off the interest against the investment property or is that interest now going toward my primary residence interest (which doesn't help me because the AMT doesn't allow me to deduct moergage interest). My income also prevents me from claiming annual losses.

If we list it, any tips?

Thanks for the help!!


MikeBear

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Re: What to do with investment property?
« Reply #1 on: March 17, 2015, 11:29:37 PM »
Have you considered, or tried offering to your present tenant on a Land Contract, or contract for deed? After all, she's been living in it, and perhaps would just as soon pay a higher monthly "rent to own" price if she can swing it.

It could be a win/win, even though you've already taken a big loss. Set the interest rate at double whatever local rate is. I have a contract I'm holding on a house I sold almost 4 years ago, and I'm getting 8.5% interest. It has a 5 year balloon, and is due next year in August. They had just gone through a bankruptcy, and couldn't get financing anywhere else.

J Boogie

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Re: What to do with investment property?
« Reply #2 on: March 18, 2015, 08:06:42 AM »
I'd go with option 3 - keep rent, keep tenant.  Not an ideal situation, but there's no great options right now, so you might as well do right by this woman who takes very good care of the house.

and since you have the ability to pay it off at 3.5%, it's worth asking an expert about the potential negative implications of that move.

Also, chargesmart can give you the ability to pay your mortgage with via credit card, giving you 1% cash back.

Thanks for sharing - stories like this always help influence my decision making process.  I have grown very wary of the idea of the dream house over the past few years.

planner10

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Re: What to do with investment property?
« Reply #3 on: March 18, 2015, 04:23:24 PM »
Thanks guys!  Yes I did ask about rent to buy or leasing. She says she would never buy again unless she got married (which is not in her current plans).

One vote for option 3. Any other thoughts?

Hindsight is 20/20. I probably should have bit the bullet, eaten the loss, and sold it when we initially moved.

jmusic

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Re: What to do with investment property?
« Reply #4 on: March 18, 2015, 04:59:37 PM »
I'd go with option 3 - keep rent, keep tenant.  Not an ideal situation, but there's no great options right now, so you might as well do right by this woman who takes very good care of the house.

I agree with this.  Just keep it as long as the current tenant is in, then sell when she moves out.  I've heard of plenty of people who rent a house for 15-20 years and never move.  "Accidental" landlords could even make money with houses that don't meet the usual guidelines in this scenario.

arebelspy

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Re: What to do with investment property?
« Reply #5 on: March 18, 2015, 05:12:24 PM »
I agree, in June see what the tenant is thinking.  If they're moving, you can list it for sale. If they're staying, you can kick the can down the road a bit longer.
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