Sell or hold rental in military town

[Steve B.]

I need some help in figuring out whether to keep renting this house out or sell. Here are the numbers, if I left anything out or you want more information let me know:

Single-family home

Original Mortgage = $114,500 VA Loan @ 4.00% (no PMI)

Mortgage Balance: $104,000

Conservative Market Value = $130,000

Mortgage payment+Insurance+Taxes $756/month

Rent: $1300/month

Property Mgmt = 10%

Vacancy: 15% (military area)

Maintenance: 5% (everything is brand new inside)

Yearly NOI = $3400

A little about this house. I purchased it in 2007 in Watertown, NY as an owner-occupied. I moved away to the Albany area a year later and decided to keep the house as a rental. It is worth mentioning that the Watertown market is heavily dependent on what is happening with the Army at nearby Fort Drum.

At the time of purchase, Fort Drum was rapidly expanding and the entire area had a severe housing shortage. It was so bad that people were living in Syracuse over an hour away because they couldn’t find a place to live nearby. The market has since corrected itself, with the base building thousands of new homes on base and numerous apartments being built off base. Fort Drum has also experienced a reduction in personnel, resulting in less need for housing. Further cuts could happen depending on what Congress decides on, but nothing is official yet.

People rarely stayed for the full lease term because they would get military orders to somewhere else or deploy. Fort Drum was the most deployed division in the Army, so what would happen is most new Soldiers would cycle in to a brigade as they were gearing up for their next deployment to the desert. Soldier deploys, wife/family wouldn’t want to stay in Watertown for a year, so they would go back home. Until last year this wasn’t really a problem, as I would always find a new tenant right away. Then in January of 2014 my tenant moved out. Watertown received over 200 inches of snow last winter and is usually frigid cold, so absolutely nobody moves in that area unless they just got orders to Fort Drum. Even then, most military members move in the summer as well. This tenant was renting the house for $1450.

Then in April 2014, (still vacant) my property manager was showing the home and walked into a waterfall. Apparently a pipe burst in the upstairs bathroom and inside the basement. Still unsure how as the heat was on. Water literally got everywhere; there was over 2 feet of water in the basement as the sump pump went out too. Long story short, insurance paid out and I completely gutted and remodeled the entire house. New kitchen, new bathrooms, new flooring, the works. I also paid almost $5,000 out of pocket for a few other things to be done. The house is almost 100 years old so it made a significant improvement to the home as I opened everything up and made it look more modern.

Now the real fun started. Lease signed on September 2014 for $1350. Yes rent declined $100 after a complete reno. Tenants wife decided the place was too small so they wanted to break the lease. Property manager said no way but you can find a suitable replacement. They did, didn’t pay October rent, so kept security deposit instead. Replacement tenant signed lease for November, pays rent, and never moves in. Literally disappeared off the face of the earth. Did not realize this until I never got paid for December and talked with the neighbor.

As such house is STILL vacant, asking $1300. I would say a bit below market rate but there is a TON of homes and apartments on the rental market. Plus its winter. House is getting showings but everyone complains that its too small, its 1200 sq feet for a 3 bedroom. Complete opposite of just 2 years ago. This is why I am considering selling and getting out of this market all together. Also because I had a significant loss of income last year. However with the market primarily tied to Fort Drum, I don’t think too many people in the military are buying homes since they move frequently. This is really a hard decision to make, so any advice is appreciated.

Thanks