should I sell or rent?

Question

Hi all,

So glad I found this website, I have been reading for the past few hours, and just so much to learn here. I am a newbie wanted to get into rental business. I have a townhouse I currently live in, and are looking to buy a bigger house for the growing family. I have refinanced 1 year ago and with a good rate at 3.75% for 15 years.
the numbers for the townhouse as follows

monthly mortage 949.03
property tax 123.23
HOA: $160
Total Cost monthly=1232.26

Expected Rent $1200-1400

By looking at the numbers, I will be lucky if I break even through out the year, but most likely going to have negative cashflow . Should I hold or sell this property, I have around $130000 left in the current mortgage and the house probably worth about $145000 most.

any suggestions will be appreciated.

Thanks

Ben

Ben C · Answer

to be honest, I am not sure exactly. I started having some interests to invest on real estate. If I do well, I'd like to have it as my full time job.

Ben C · Answer

I will consider that. I wish I knew this site when I did refinance, I would not have done that.

George P. · Answer

First and foremost, you didn't mention what your essential life goals are? Once determined, it'd be easier to make a decision on this one.
Second, there is a differnce between 1200 and 1400/month rent. You might want to get the number.

Jeff B. · Answer

I know you said you had just refinanced to the 15 yr, but you might think about refi-ing to a 30 yr.  That would drop your payments by 300-ish/mo.  That would provide a little cushion on the expenses and you wouldn't have to dip into your cash on hand to pay it off earlier.

Ben C · Answer

Thanks Jim. you are right on the numbers. I do have money to feed it for a while, but I am not sure if it's the wrong thing to do. I don't think this house value will go up any time soon.

I have another crazy idea of paying it off sooner (say 3 years)  so it will have positive cash flow. not sure if it's teh right move. If I sell now I will be losing money on this house for sure, not it's not easy to sell neither. If I work hard and get it paid off in 3 years, at lease I have 1 house without mortgage. will I be able to put these money and find better investement properties in this market, that's the research of doing now, and will probably help me make the decision.

as I continue to read similar posts, the number I have to most people it's a "sell".

Thanks for your reply

Jim Stardust · Answer

I'm in a similar boat though my numbers are not as tight as yours, not many people lease to own these days but I guess it depends on your area.  The townhouse is likely (well, most likely) be a rope around your neck and it doesn't seem like there's a turnaround in the housing market anytime soon to expect a relief.

You're really underestimating your costs, that $1232 doesn't have the cost of insurance, possibly utilities, the 10-12% typical estimate for repairs and maintenance.  The cost of vacancies and if you run into a bad tenant you need to evict, you're probably looking at an average of $1500-$1600 easy, can you afford to feed that "alligator" $300 a month, and if so for what reason, what's your goal?

Anthony Lewis · Answer

If she sold it she would be upside down. I wouldn't do that till it went back up.

Jeff S. · Answer

I'd be inclined to sell but like Anthony says a lease option might be your best, possibly only way to go. Good luck.

Anthony Lewis · Answer

I would lease to own it. That way they will make you larger rent payments basically they are paying you more monthly as the extra is to be considered for down payment. If I was you I wouldn't stop their I wouldn't rent I would go get another house in this economy for 50% of its value and when the economy goes up sell one and the other is paid for. The economy will not be depressed forever so now is the time to buy and you might like this scenario so well that you keep doing it! Renting in this economy is throwing money in a garbage can.