Sell It or keep it? What should I do?

Question

Hello BP Commumity,

I have a dilemma about selling my one and only investment property (as of right now...I plan to get more properties in near future) I acquired it in 2001 for $138,000, in Dearborn Heights,MI. We took out a HELOC for $15,000 to get new roof and new windows back in 2003. My husband, children and I moved out of it when market was still down, to a new house in Livonia and rented it out since 2014. We owe $106,000 on it and it is on a variable rate of 3.625% . The monthly payment is $1,184 right now. New payment in October will increase slightly once again. We are currently getting $1,150 per month in rent. The monthly payment on the HELOC is $300 per month for 5 years. The house will need a new furnace soon.

My agent wants to list it for $145,000 and see what happens. He thinks the minimun we should accept is $130,000. Should I sell or try to refinance if I can?

Any advice will be greatly appreciated. Thanks!

Shawn Ackerman · Answer

@Mariela N-Tyler If you bought at $138K and it still may be worth $138k or less in 16 years, chances are it won't appreciate much more since we are nearing the height of real estate home prices across the country and gone through an entire market cycle.  Although every market is different I'd say the property is in a market that wouldn't move the needle much in the next few years.

With that said you owe $106K + 18K(fixed payments of $300 x 60 months) totaling $124K.  Let's say the value on the property is $145K a conventional lender will lend 80% of the value which will be $116K.  Unless you have a lender who will do a loan at 90%, a refinance is not going to happen.  And even if you can do a loan like that you will be paying PMI and a higher payment which will further increase the negative cash flow on the property.

If you can sell the property subject too the existing mortgage at or above the $145K mark with a sizable down payment, then I'd explore that option.  This will only make sense to an owner occupant since you will be leaving no equity in the property at that price and no cash flow for an investor.

Since you are negative on the property each month and don't have any equity in the property that your able to tap into I'd say goodbye to this property unless you can sell it to an owner occupant on a sub2 deal with something like a $20K down payment.  Otherwise take what you can sell it for, pay the realtor, pay off the 1st and 2nd and mosey on down the road.  Especially with the added expense of needing a new furnace looming.

If you can find a way to generate more income from the property i.e. increasing rents, adding a unit, converting to a rooming house, renting the garage and or parking, adding coin laundry etc... I'd say cut your losses and move on.  The numbers are the numbers my friend.  Best of luck to you.  Always remember to persist and you will WIN!!!!

Thomas S. · Answer

Wait, the market will dictate the price. Regardless of what you want you need to be prepared to take the best offer you get. The difference between your ask and $139,000 is very little. Be prepared to accept what you get and be done with it. Any upgrades at this point will not have any return.

Mariela N-Tyler · Answer

Thank you so much everyone for responding to my post, and I am sorry for the delay. I have called my mortgage loan servicer and I just found out that my mortgage monthly payments are going to go down starting June 1rst from $1,184 (current payment) to $961 (new monthly payment). I am so upset, not because the payments went down, but because my tenant's lease is going to be over at the end of this month and he is not renewing it! My husband is so ready to get rid of the house and start fresh. His thinking is this:

If we get rid of the property and pay the mortgage loan off and the home equity line of credit off, then we could find a new property for $80,000 either in Redford (the neighborhood he grew up in) or Westland and this will put us in a much better position than dragging our feet to pay off the home equity in five years and live with this much debt all throughout this time.

I get what he says, but I have mixed feelings. One of my thoughts were to keep the property, let my sister run an Airbnb bussiness and get more money per month through that bussiness than renting it to one tenant and get the same amount per month. My sister has ran airbnb in a property in Westland and was very successful with it. Another thing is, I do not know how hard it is to acquire nowadays a property for such low amount. I know there is a lot of competition out there.

Also, I did call my bank and they were willing to refinance the property, but because my husband's new position at his job is only 1 and 1/2 years old they couldn't do it. He had to be earning commission for at least 2 years minimum for his income to be considered for the loan application. Also, the interest rate they were going to give me is of 5.375% which I thought it was very high, but the lady at the bank explained it is due to the 85%LTV they are offering me. I could wait until November ( which is the month my husband will have 2 years in his position) and refinance then.

I guess after writing all this, I should put my emotions aside and just sell the property.

Thanks again to all of you for your input!

Joe Villeneuve · Answer

Sell if you can.  There's no reason to keep it unless you can't cover the debt with the proceeds, but you are only going to get 75% of the ARV on a refi, so if it's worth $140k (and @George P. is correct on the value), you will only get $105k on the Refie (minus fees/costs), so you wouldn't have enough to pay off the debt to begin with.

It's always better to unload a losing deal before the additional future losses do too much damage.  Stop the bleeding....move forward while you still can.

George P. · Answer

138 in Dearborn Heights is a lot. I have 13 in Livonia

Sell It or keep it? What should I do?

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