Keep renting or sell now? I'd like your opinion

[LivingAlmostLarge]

It's more like a car loan when you are debt. Do you continue to pay the $450/month or do you sell the car, and take out a $3k loan to cover the difference of what you can sell the car for and what you owe? say you sell for $15k and owe $18k.

Sure you need a car, but you buy a beater for $2k = new amount owed $5k. The idea is you just dumped $18k of debt for $5k. A third of the amount!

Sometimes you have to stop digging.

[ScrimpAndSave]

Because the market stinks!

At least around here it is impossible for people to sell.

[Justout]

Thanks for all the input guys!

Yes it's a difficult situation indeed. The apartment costs me $450/mo but to sell it I'd have to come up with about 30k to pay the bank. So do I take a chance and cut my losses now or do I stick it out and hope the market turns around soon? That's my dilemma.

Is it possible that this property will go up significantly in value in the next few years? Maybe. But it would have to go up by 5400 in 1 year to keep up with my losses, otherwise I'm just going deeper in the hole.

[Tree0164]

You have 2 choices here either increase the rent or sell it

Maybe you can work it out with the bank for a short sell so you don't owe the bank 30k.

Or could you sell your primary property and move into the condo?

[jamiefic]

Like the last person said, I would also get information about a short sale - the bank might be willing to work with you if you talk with them (especially with the market right now...they don't want to lose money either, if there would be foreclosure). If you go with a Realtor to help you do a short sale, make sure to interview them well and they know what they are doing. That's a lot of money to lose each year since we don't know when the market will turn around...

[AmbitiousSaver]

I'm actually in the EXACT same situation you're in. But we have credit card debt, a HELOC, and two car loans as well as they just resigned the lease (good tenants) so I'm mulling over the decision for a year before really deciding. Well, and I have a fixed rate mortgage and the value of my property is still above the mortgage.

We lose about $300/mo on ours... that is if you don't count the HELOC which in all fairness isn't really the mortgage in my eyes, its a credit card attached to the mortgage. I could also get rid of the property manager which would cut that loss down to $150 but I'm not 100% as to how I would proceed with that.

I've gone over the situation in my head forwards and backwards about keeping or selling. If I sell next year, I can probably have a 8-15K loss at the end of the closing with realtor fees in mind as well. But on the other, my tenants are actually the ones paying a big chunk of my mortgage... we were like you and bought the house in '05 and moved in '07 after our neighborhood was tagged by gangs... and we found out we were having another child.

Long term, the house could be a great investment. But it probably won't turn a profit till 2011... and I'm not in dire straights over it. I'm more concerned with my CC, HELOC, Student loan, and car debts... if I got rid of those I could more than comfortably keep both homes... the one we live in and the one we rent out. Have them paid off in 15 years and use that to supplement my retirement in addition to my Roth IRA.

I could be making a really bad mistake by keeping it. I am losing money every year on it... but I'm trying to find myself at a decision I won't second guess in years time. That and I have a year to mull it over. I don't want to make a decision out of fear... the original plan was to buy it and live in it then eventually rent it out & when its paid off is when I'd be generating income on it. We just moved out of it a few years earlier than I anticipated.

I don't really have any advice... just sort of wanted to let you know you're not alone and good luck in your decision. I guess just sit down and really think about your goals... was it in your plan to begin with to one day be a landlord? If you'd feel better selling in the long run, perhaps that is the best decision. Mine on the other was to be a landlord at some point, so I don't know what I'll do... I have a year to think about it though.

[LivingAlmostLarge]

The $300/month you send AS to the house could be paying off your high interest credit card debt. So it's cost you more than $300/month.

[momof1in150]

Many banks are happy to work a short sale with you. We have had several short sales in our area recently and it works in everyone's best interest. The bank will let you sell the property for less then you owe. They write off the loss but you don't get penalized with the loss (it doesn't get counted as income). The reason that this is good for the bank is that they don't have to go through the foreclosure process which initially will cost them $30K-$40K just to get the process started.

Talk to you bank/mortgage company and see if they will work with you.

Are you paying a mortgage on the property you are currently living in? Would it make more sense for you to live in the condo?

[AmbitiousSaver]

Originally Posted by LivingAlmostLarge

The $300/month you send AS to the house could be paying off your high interest credit card debt. So it's cost you more than $300/month.

But I don't have any high interest debt, all of my debts are below 8.5%... I guess I'm just saying I'm hesitant to sell my other property because although yeah its operating at a loss now, I can conceivably see it turning a profit within 3 years regardless of what happens in the housing market. And then I'm thinking about the long term aspect, yeah I could put that $300 into an account at a 5% rate of return, it would take a long time to get back to the level my rental is at where someone else is paying the mortgage (the rental income does cover the P&I) because that only generates $180/yr, and I do get a tax writeoff for the loss... that writeoff affected our tax return by $2000 in our favor... whereas if the rental makes 5% in appreciation - thats $13500 in one year... I'm really doubtful that my house will depreciate by much since I owe less than the tax assessment. And I only owe $223K on the first mortgage... again I really hate to think of the HELOC as attached to the house because that was spending we did in addition to the house, so its more like a CC to me.

That is actually what keeps me holding onto it. Do I sell for a loss now, lose any equity I've gained when in 3 years I'm pretty confident the rental would be operating at a profit. Which is sort of similar to the OP... but I'm not sure if they said they could forecast when it would turn a profit or if they ever intended to be a landlord in the first place. My plan from the beginning was always to have a rental to supplement my lack of a pension, but again - I have a year to think it over and am trying to weigh it all out. And I'm not necessarily trying to defend my point, but just bringing it up so if there are faults in my logic that I'm not seeing... maybe someone can point them out so I'm not so wishy-washy on the subject and perhaps the information woud also benefit the OP.

[LivingAlmostLarge]

Because one major catastrophe by the renters and you'll be out the entire profit.

My BIL's rental the toilet fell through from the second floor to first floor on top of the first floor toilet. Besides the flooding, imagine if it had fallen on one of the renters????!! YIKES!

They were gone for Christmas break thankfully so none of the 3 boys were hurt, but they also weren't around to shut off the water. Well the neighbor called the HOA and the HOA called the owner. The OWNER had to drive 3 hours from his house to fix the problem.

Then he did the repairs. THEN he paid for a hotel for my BIL and the other renters. THEN he had to deal with all the contractors. Then he had to deal with insurance and claims for all my BIL and he roomie's possessions.

The end of their lease came and they were kicked out because he was selling the place. Said it was TOO MUCH MONEY to have to deal with repairs. It ate into the profits.

So what happens if something breaks? Or a fire breaks out? Or any other liability? Even some friend visiting and slipping down the stairs? They can sue you. But besides that say the furnance breaks or the hot water heater.

You pay a premium for repairs done NOW, not tomorrow, not when you have time, not when you can get estimates from 3 different people. NOW, NOW, NOW. And when the repairs are going on don't expect rent.

[gamecock43]

Livingalmostlarge, you make a very valid point I never thought about. Very good point against owning a rental.

[AmbitiousSaver]

Originally Posted by LivingAlmostLarge

Because one major catastrophe by the renters and you'll be out the entire profit.

My BIL's rental the toilet fell through from the second floor to first floor on top of the first floor toilet. Besides the flooding, imagine if it had fallen on one of the renters????!! YIKES!

They were gone for Christmas break thankfully so none of the 3 boys were hurt, but they also weren't around to shut off the water. Well the neighbor called the HOA and the HOA called the owner. The OWNER had to drive 3 hours from his house to fix the problem.

Then he did the repairs. THEN he paid for a hotel for my BIL and the other renters. THEN he had to deal with all the contractors. Then he had to deal with insurance and claims for all my BIL and he roomie's possessions.

The end of their lease came and they were kicked out because he was selling the place. Said it was TOO MUCH MONEY to have to deal with repairs. It ate into the profits.

So what happens if something breaks? Or a fire breaks out? Or any other liability? Even some friend visiting and slipping down the stairs? They can sue you. But besides that say the furnance breaks or the hot water heater.

You pay a premium for repairs done NOW, not tomorrow, not when you have time, not when you can get estimates from 3 different people. NOW, NOW, NOW. And when the repairs are going on don't expect rent.

All very valid points. I will admit I think I got too sucked into David Bach's "Automatic Millionaire Homeowner" scheme that I guess I never considered those points. I thought that was why there was insurance. Which reminds me... I have to call the PM to find out if she ever found a dryer vent cleaning company cause the tenants dryer seems to be taking longer to dry clothes. Sometimes I wonder what I'm paying for... she told me it should only cost $65 for the repair to the A/C they just did, but my deposit this month was $150 less than the usual. So the invoice was 2x what I expected.

Anyhow, you've convinced me. But I do wonder, how do other people be landlords successfully? Again, I'm trying REAL hard to get the whole David Bach mindset of becoming a landlord out of my head... but I value your insight as its making me realize a few things I don't remember his book ever touching on.

[disneysteve]

AS - I read that book too and I found it disturbing. I thought it painted a way, way too rosy picture of becoming a landlord. He made it sound like it is the easiest thing in the world and anyone not doing it is an idiot. The old saying of if it sounds to good to be true... came to mind.

Certainly, people can and do make money owning rental property. But the bottom line is that YOU are NOT making money. You are SPENDING $300 each and every month and expect to be doing so for the next 3 years (if all goes as you expect).

It has been a while since I read the book, but I'm pretty sure he advised only buying a property that had a positive cash flow. Yours has a negative cash flow. That isn't an investment. It is an expense. Cut it loose and move on. If you still want to do the rental thing, take the money and find a place that will have a positive cashflow.

[LivingAlmostLarge]

I read that book too and the MAJOR difference is every point has positive cash flow which bulks up the savings fund for repairs on the unit.

Sure appreciation is great, but do you have the cash cushion to handle if people's checks bounce? Or they trash the unit and you need to do repairs?

[disneysteve]

Originally Posted by LivingAlmostLarge

Sure appreciation is great, but do you have the cash cushion to handle if people's checks bounce? Or they trash the unit and you need to do repairs?

Also, what if your renters leave and it takes you a while to find a new tenant? You'll need to cover all expenses during that period.

[loveviolet]

If you have a high tax bracket (> 30%), it might makes more sense to keep it. Also if you have a stable tenant which doesn't cause you any trouble, you might want to wait for a while until market turns better.

Also when you do your calculations, be sure to include the property tax as well. (remember to do your tax appeal too to reduce your property tax!)