Sell house or continue as rental- Military

[Pat Eliason]

Looking for advice on a property we own in Virginia. I am a Naval Officer and we purchased in Chesapeake, VA in 2007 for $417,000. We moved from there in 2012, thought we'd be back (plans changed- we are not going back), property values went down so we have been renting it our for $2200/month for the last 5 years. After property manager fees we receive $2024/month and the mortgage is $1748/month. With normal maintenance I am about breaking even on an annual basis.

The current lease is up in June and the house will likely sell in the $350-360k range-- in June I will owe about $308k on the place.

I'd like to be done with the headache and move onto more investment properties in the Jacksonville, FL area.  I realize I will not see much cash out of that deal but would like to lose the headache.  

My question- does it make sense to sell or continue renting?  We have rented it out for 5 years, had 3 different tenants and not a single day of vacancy.  Military families have been great to the place.

Thanks in advance.

[Ethan Lee]

I am also in the Jacksonville area and my first instinct is to sell in June and reinvest that money down here. Depending on closing costs, you should get a small chunk of cash which you could use as a down payment on a property and cash flow at least a couple hundred dollars a month. It's not too difficult to find deals that will do better than break even. Plus getting rid of $308k of debt that is breaking even will improve your DTI for more mortgages in the future. The biggest reason I can see to keep it is because it's been so steady and you might prefer the low risk. It's no fun to realize the loss but moving forward, I would rather see cash flow than continue to break even.

[Pat Eliason]

Appreciate the response Ethan-- I am leaning towards selling and re-investing that and other capital in some B/C level properties in Jacksonville area.  Biggest piece for me is getting rid of all that debt-- will make financing much easier for next properties.

[Orlando Guzman]

Can you 1031 exchange it?

[Thomas S.]

"I am leaning"

Lean a little harder Pat, there is absolutely no reason in the world to hold on to this property. Rent is too low for the value of the property, this is a major negative cash flow property and you have better things to do with your life. It's defiantly not an investment.

The decision to sell should have been made at the point in time you knew you were not going back.

Sell, sell, sell.

[Pat Eliason]

Thanks Greg-- decision was made in the last year not to go back and waiting for lease to end.  Not happy to take the loss but falling into a sunk cost area now (money spent for that house was a long time ago and it would take way too long for the market to rebound).  You confirmed my gut feel but wanted to see if anyone saw the numbers differently or if I was missing something.

[Thomas S.]

Some will defiantly see the numbers different, that is the interesting thing about numbers. Take all advice with a grain of salt.

Remember opinions are like a-holes, everyone has one. 

[Account Closed]

@Orlando Guzman I agree with the others if you're trying to grow your real estate portfolio. Having a $300k loan screws up your ability to acquire new debt. I have a bunch of equity in my house but can't open a large HELOC because my DTI ratio is already too high. Good luck!

[Thomas Anderson]

One way you can get a higher price and higher income without any of the headaches is to sell it with owner financing. There are many people out there that can't get a loan for many reasons but have lots of cash to put down and can handle higher monthly payments because they want to own a house but can't get conventional financing. Become the bank and have not maintenance headaches. If for any reason they don't make payments then do what the banks do, foreclose and do it all over again. 

[Kevin Hunter]

@Pat Eliason, I would say sell.  You are losing money on this property, not breaking even.  You have not had the cash flow to save for any capital expenses that pop up.  As soon as one of those arises, roof, HVAC, windows, siding, driveway, you are at a loss.

My opinion, and take it with a grain of salt, is to sell, take the cash you get back, and invest in a better deal somewhere else...

Good luck!