Overpriced, first home bought in 2007 - what to do with it now?

[Sara C.]

{Numbers included}

You've heard it before: in 2007, my husband and I were young and naive, and desperately wanted to purchase our first home. Not only did we pick a neighborhood that we didn't know well (which turned out to be rough), we bought way too high right before the crash. This particular area was hit hard by foreclosures and we soon found ourselves owing more than the home was worth. So many lessons learned. 

Long story short, we kept this property as a rental. It does not cashflow; our tenants have paid down the mortgage over the past 11 years and even now, we would barely break even if we sold. It's still not worth what we paid for it. There's a lease in place with renewal in January.

Numbers

Purchase: $172,000
Downpayment: $17,200
Owe on (interest only) mortgage: $102,303.33
Monthly payment including $100 Principal, Interest, Taxes, Insurance: $1031.45
Rent: $1125.00
Average Monthly Expenses: $150
Cashflow: $-56.45
Comps selling ~: $140,000
Improvements needed to sell: Likely $10,000

THOUGHTS ON WHAT YOU WOULD DO?

1. hold it and let it appreciate/pay down down the mortgage? If so, at what point would you sell?
2. Sell it and just move on?
3. Other ideas I'm not thinking of???

Thank you, in advance!! Sara

[Joe Villeneuve]

Sell and move on.  Based on your numbers, even with the equity buildup, you are still going to be negative in the end.  You are not going to improve this situation standing in it.  Sell and move on.  You can recover what you lost here, and make more, in your next series of deals.  The longer your stay here, the more you end up losing, and more important...you have lost time that you can't recover...like you can the lost cash you've accumulated thus far.  Sell and move forward.

REI is much like Poker, with the most important rule being "stay in the game". Every hand you lose, no matter how much you put into the pot, has not lost you any money...yet. The money you had in your control, is just in a different pile on the table, which can be recovered in future hands as long as you are "still in the game".

You haven't lost money here (yet) because you are still in the game.  If you stay in this "hand" (this property), you will be out of the game.  Then you will be counting your losses as losses.

Get out while you can, move into the next round of investing, recover your losses from this deal in future ones, and more profit beyond that.

...and please, don't rationalize this deal still can <fill in the blank here with all kinds of rationalizations>.  This deal is done.  Get out while you can.  Move forward, not backwards....there's profit ahead of you...and a cliff behind you.