Keep or Sell Rental Property? (Numbers Included)

[cbr shadow]

My wife and I live in San Francisco Bay Area where we are both employed, but we own a house in a Chicago suburb that we rent out. We lived in the house originally, then moved and decided to be landlords. As our current tenant gets near the end of their lease I'd like to consider if it's worth keeping as a rental property or if we should just sell it.

Current situation:
- We rent a house in San Francisco area. Will not buy (regardless of decision to keep/sell Chicago rental)
- $250k gross income, save roughly $80k/yr
- Plans to stay in SF area for at least 4-5 more years. Unlikely to move back to Chicago anytime soon.

Chicago Rental Info:
- 3br/1.5ba single family home
- Paid $223k. Currently worth $230k
- Owe $159k @ 3.25% in 15-year loan. (12 years left)
- Mortgage payment = $1,861/month ($967 principal payoff, $434 interest, $459 escrow)
- Rental income = $1,530/month net (after PM expenses)

We have good tenants in there that want to renew the lease, but I'm considering not doing so and selling. Selling would mean probably putting a few thousand dollars into carpet/painting/landscaping to make it ready for sale. My realtor says we can likely get $230k for the house.

Before someone says "You're not even covering the mortgage with what you're getting for rent!" I do understand that, but I'm also considering that it's a 15-yr mortgage so we're paying $967 of principal off each month. I've now had this rental (and PM) for about 3 years and haven't had more than 1 week of vacancy between tenants. All of our tenants are high quality, probably because of the area being reasonably nice, great schools, etc.

We did replace major items before turning it into a rental (Furnace/AC, Wooden Fence, a few appliances, garage door opener).
As far as time commitment, the PM takes care of most of the work but I do still have to check up on things, make sure they're being efficient with sending repairmen, etc.

Should I:
A) Keep this house and continue to pay down the mortgage?
B) Sell the house and walk away with some cash from the equity we built up, invest that $$$ w/ Vanguard.

Thanks for any input!!

[cbr shadow]

Bumpity Bump

[cupcakes4all]

Hello! We followed a similar path as you (minus the home ownership). We moved from Chi-town to the Bay Area with the potential to move back in ~4 years.

A few questions to gather additional data - When did you buy? Is this a house you would want to move back into IF you moved back to the great city? Which suburb (out of curiosity) & what's your rent like in SF?

Not your question but we moved here ~3 years ago from a great 3br apt at $900/mo to a tiny 1br for $1600. We planned to move from the 1br after the first year but prices went cray after the 1st year so we've stayed but and now feel stuck. I do miss the cheap(er) home prices but not the winters!

[cbr shadow]

Hey Cupcakes,
Cool to see other Chicagoan's in the Bay Area, on top of being Mustachian too!
We bought our "Chicago" house in 2009.  It's in Schaumburg actually, but we just say Chicago :-) 
We actually left Chicago for Australia in 2014, lived there for a 2-year contract and then decided to avoid Chicago winters a bit longer by moving to SF.
We pay $2900/mth for a house in Daly City right now.  You really only pay $1600?!  Where at?  We have two large dogs, so obviously our options were pretty limited.  We're both seeing some career growth here so it's worth staying, but can't see us staying indefinitely because of the crazy RE market.

I'm interested in hearing your story as well!  Also, any insight on the above issues would be appreciated :-)

[soccerluvof4]

B- you made no fiscal argument that makes it make sense to keep it imho.

[Cwadda]

I did out a rough cashflow spreadsheet for this home. Estimated property taxes were $4,000 based on a tax appraisal price of $200,000 and a mill rate of 30.00.

You're losing $500 per month on this place, for a return of -13%.

You could sell it and invest that equity in taxable for a return of 7%.

That's a 20% swing!

[honeybbq]

B- you made no fiscal argument that makes it make sense to keep it imho.

Agreed.

[Last Night]

I did out a rough cashflow spreadsheet for this home. Estimated property taxes were $4,000 based on a tax appraisal price of $200,000 and a mill rate of 30.00.

You're losing $500 per month on this place, for a return of -13%.

You could sell it and invest that equity in taxable for a return of 7%.

That's a 20% swing!

Your math is not correct, he isn't "losing" anything.

[Unique User]

I'd sell it.  They are only covering part of the principal.  BUT, why do you need to kick them out to sell?  Can't you try selling with them in there and offer a credit toward carpet and painting? 

[Cwadda]

I did out a rough cashflow spreadsheet for this home. Estimated property taxes were $4,000 based on a tax appraisal price of $200,000 and a mill rate of 30.00.

You're losing $500 per month on this place, for a return of -13%.

You could sell it and invest that equity in taxable for a return of 7%.

That's a 20% swing!

Your math is not correct, he isn't "losing" anything.

Please provide an explanation.

[SnackDog]

He is adding $900 month to the mortgage account and paying $900 in interest and escrow (which I assume is taxes and insurance). So he has $600/mo extra from renters to save up for repairs, which should be plenty.

I would sell since plowing $900/mo into equity is not doing you much good. I would prefer to invest that money, long term.

[chasesfish]

Sell