Should I sell for loss, or Refinance rental

[Jeff Blankenship]

I purchase a new property in 2007 for $186,000 to be used as a rental property from day 1.  The property was initial rented for $1300.  Hindsight is 20/20 and not  good investment, but I'm trying to figure best way to exit this poor decision.  Here are the numbers:

Market Value = $165,000

Current Loan Balance = $176,000

Current Rent = $1100

Tax/Ins = $3200 / yr

Property Mgmt = 10%

Yearly NOI = ~ $8500 (Rent - prop mgmt - tax - ins)

Current Mort Pay (PI)= $1050

Yearly Net = - $4,000 (negative cash flow per year)

OPTION 1 - Get a HARP refi at 4.378% (PI $900), and reduce yearly net to -$2500 ($1500 improvement, but still a loss)

OPTION 2 - Put on market and hopefully sell at market value = $165,000 (minus commission and mortgage, and closing costs).  Negative -$20,000

Yes, market could improve, rents could go up, but both could go down as well.

Anybody see an Option 3?

[Sam Elder]

Keep it.  Your annual net after HARP is -2500.  At that rate, it will take eight more years to sink another $20,000 into the property, whereas a short sale would be $20,000 immediately.  Over that eight years, you will pay down $27,809 in principle, too.  What you consider an annual loss is actually increasing equity at a faster rate than it is incurring a loss.  It's not ideal, but a $20,000 "loss" offset by a $27,809 "gain" is a lot better IMO than jumping off the cliff.  Oh, and you skip a payment (or two) during the refinance, so cash flow will be "better" this calendar year.  Rates are getting better each day (for now), so ask how much rates need to improve before you get 4.25%.  That would obviously be even better to the tune of a couple hundred bucks a year.