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

[Justout]

I'm sure this has been talked about several times but I just couldn't find a thread discussing this exact scenario. So I figured I'd make my own.

Here's the situation, probably not much different than millions of other Americans out there. My wife and I own a condo, purchased for 175k 3 years ago as our primary residence. Ten months ago we moved out and rented it out. We currently owe the bank 162k but it is now worth about 135k (due to other similar properties being sold at forclosures and short sales). Our mortgage payment is $1400 and the HOA dues are $250/month for a total of $1650/mo. It is currently being rented/leased to a tenant for $1200/mo, so the math is pretty straight forward. We drop $450/mo or $5400/year to keep this property.

For every year we rent it, our break-even point goes up by 5400 of course, in other words, that 175k will become 180.4k next year, and 185.8k the following and 191.2k after that. So for us to break even, this property must sell for 191.2k in 3 years, not including closing costs. Considering how the market is going, this is very unlikely to happen in that short of a time period. Property values would have to increase by 56.2k in 3 years. I don't see that happening, real estate agents say that there's enough inventory to last that long (3 yrs) even if no new properties listed. In 5 years my total investment in the property will be 202k, not including potential repairs, special assessment, etc.

My option is to sell for 135, cough up the 30k now and be done. Can this property, which was selling for 230 at the height of the real estate boom, sell for 202k in 5 years? No one knows, but is it a gamble worth taking? What do you guys think?

Thanks in advance for reading and for any opinions/comments/advice you guys give.

[jIM_Ohio]

You owe 162k, what is the current monthly payment? Is that on a 30 year fixed or another type of note? Sounds adjustable to me.

Why do you use the word rent in one sentence and mortgage in the other? You do not rent a condo from a bank. You borrow money to purchase the condo from the bank. If you see this as paying rent, then you should just leave the property now, walk away, and be done with this situation.

[Justout]

My fault for not explaining it properly. We do not currently live in it, the apartment is being rented/leased to a tenant. I'll edit the post to make it more clear.

[jIM_Ohio]

Why not increase the rent to cover the shortfall?
Are you deducting this (mortgage interest, taxes, depreciation) when you file your tax return?

[project15]

So it's being sold at foreclosure auction? How would you have the option to sell it in 3 years? Wouldn't your only option be to have the bank sell it right now?

[DebbieL]

"Why not increase the rent to cover the shortfall?"

Probably because rents exist in the real world, not the fantasy world where everybody thinks that real estate can only go up, up, up so they buy more than they can reasonably afford (I'm speaking of the extremely bubbly real estate market in my own city - and several others these recent years). Rents are always tied into the economic reality of what renters earn/can afford/are willing to pay. They realistically won't be able to rent the place out for $450 more per month if they are already renting it for what the market will bear.

[Justout]

So it's being sold at foreclosure auction? How would you have the option to sell it in 3 years? Wouldn't your only option be to have the bank sell it right now?

No, other apartments with similar floor plans are being sold in forclosures. Mine is fine. So this is how I know how much mine would sell for if I were to put it on the market today.

Why not increase the rent to cover the shortfall?

That would fix everything, true, however, I can't just increase the rent from 1200 to 1650. The market determines the rental price of properties not me, I can certainly ask for 1650, but I'm sure no one would pay.

Are you deducting this (mortgage interest, taxes, depreciation) when you file your tax return?

Yes we did for last year.

[jIM_Ohio]

No, other apartments with similar floor plans are being sold in forclosures. Mine is fine. So this is how I know how much mine would sell for if I were to put it on the market today.

you should have stated this up front, as this is the first post you have made on this thread which states what your goal is.

That would fix everything, true, however, I can't just increase the rent from 1200 to 1650.

I would increase rent 3% or 5% per year until you head towards break even point. If you cannot get that much rent of the property, dump it.

The market determines the rental price of properties not me, I can certainly ask for 1650, but I'm sure no one would pay.

If the market had you losing $450/month on the property, why enter the market in the first place?

Yes we did for last year.

Factoring the taxes in, did you break even? Where did the tax benefits go (did it allow you to spend more, or did you reinvest it in rental (by paying it down).

I would make it a priority to get rental to point where you break even month to month.

[tripods68]

You are losing money already. From the financial stand point, it doesn't make sense to keep the property. The question to you; can you afford to keep this house until the market turnaround? If so, how long are you willing to keep it and wait for the turnaround. Do you want to tap in your savings to keep this house? Do you even have enough cash?

[disneysteve]

Honestly, I'm not sure why there is any discussion going on here. You bought this place as an INVESTMENT. It is LOSING $450/month. You need to sell this place ASAP for whatever you can get for it. The longer you hold on to the property, the deeper in the hole you get.

Based on your numbers, it sounds like it has been losing money from day one. I'm curious why you bought it in the first place. The costs have always been higher than the rent, correct.

[jIM_Ohio]

Honestly, I'm not sure why there is any discussion going on here. You bought this place as an INVESTMENT. It is LOSING $450/month. You need to sell this place ASAP for whatever you can get for it. The longer you hold on to the property, the deeper in the hole you get.

Based on your numbers, it sounds like it has been losing money from day one. I'm curious why you bought it in the first place. The costs have always been higher than the rent, correct.

I think OP was expecting the price of property to go up, then sell, using the rent as a way to justify losing money short term for a longer term capital gain.

Penny wise dollar foolish if you ask me.

[Justout]

you should have stated this up front, as this is the first post you have made on this thread which states what your goal is.

I fixed the original post to reflect this. Sorry, I did a poor job with my explanation.

If the market had you losing $450/month on the property, why enter the market in the first place?

Again, I did not fully explain this in my original post, my apologies. I fixed it.
We purchased this property as our home 3 years ago, not as an investment. We moved out 10 months ago and have been renting it ever since. The lease is up in a couple of months and we're contemplating selling it, mostly because of the recent rate adjustment which increased our mortgage by $350. Yes it loses $450/mo but that's only in the last 2 months, we tried to refinance but the 30yr fixed didn't make much of a difference in the monthly payment, I think it came in at $1340 instead of the current $1400, plus we'd have to pay closing costs to refinance.

[disneysteve]

because of the recent rate adjustment which increased our mortgage by $350. Yes it loses $450/mo but that's only in the last 2 months, we tried to refinance but the 30yr fixed didn't make much of a difference in the monthly payment, I think it came in at $1340 instead of the current $1400, plus we'd have to pay closing costs to refinance.

My opinion remains the same. Unless you can change something to make the property break even (some combo of higher rent and lower expenses), you should sell it. A losing investment is a losing investment regardless of what circumstances conspired to get you into that situation.

[tripods68]

Here's another idea. How many rooms do you have in rental properties? This would work if you have at least 3 bedroom (2 room and 1 master bedroom) and decent 1300 sq. Rent each room by itself say $600 per room plus X 2 = $1200. Rent the Master bedroom (own bath) for $700 which gives a total $1900. Tweak it just enough to cover your expenses. But under this scenario it might just be the solution, which covers more than you need plus profit But you have to find quality renters; young single professionals with good credit history to make it work.

[ScrimpAndSave]

I would not sell.