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Eman
2016 Jan 10, 8:39pm
House is older in questionable neighborhood.
I'd sell for this reason. Otherwise, I would consider hanging onto it for the following reasons:
Option 1: Sell at $220k and net about $90k profit. Tax liability is about $30k after factored in 15% long-term capital gains, 10% state tax and 25% depreciation recapture. You walk away with about $80k.
Option 2: Do a cash-out refinance at 75% LTV. You walk away with about $67k after fees and closing costs. Your cash-flow is close to neutral, but someone is buying you a house.
The delta is $13k between the two options. If you don't see yourself as a long distance landlord and given the fact that the house is in a questionable neighborhood, I'm a seller. Also, the market is approaching the top and your rental is in a tertiary market, which tends to take the biggest hit during a recession.
Best of luck with your decision!
Thanks for your responses. Appreciate you taking the time to weigh in.
Personally, I like the littlest amount of debt option. The house has two strikes against it, it is older and in a questionable neighborhood. Right now, the price you could sell it for appears to be very high; my guess is that should you also sell your primary resident it too would bring in a tidy sum.
The economy is, well shaky. It could go either way and it doesn't appear that it would take much to push it into bad times. In preparing for that, I opt to go with as little debt as possible. Sell both properties and move to a state where it doesn't cost as much to live and you are mortgage free. It's easier to deal with money when the obligations of paying it out are limited and smaller. If it were me, I'd sell both homes and make the move.
Your input has been duly noted and very much appreciated. Special thanks to mmmarval and E-man for the thought provoking ideas/comments. Not sure if it would be a viable option due to personal risk tolerance, but hadn't even thought about E-man's intriguing cash out refi idea. Thanks to all for presenting some different angles and helping a stranger out.
Hello Patrick.net community!
I am sitting on the fence regarding keeping or selling an investment property I purchased in 2008 in the Stockton/Modesto area, and am hoping your input will help to move me in one direction or the other. Any advice is appreciated.
House is older in questionable neighborhood. Purchased for $116000. Owe $96000. Looks as though we could sell it for $220,000 (capital gains will need to be paid). Mortgage payment is $650 (includes taxes and insurance) with another $50 for lawn care each month. Rent is currently $1050, but market rate is $1200.
Spousal unit wants to sell this property along with our primary residence to buy a smaller home in a less expensive state out right, or have a very small mortgage payment, and put whatever may be left over in stocks ($50,000-$75,000).
I understand the reasoning here, but still feel conflicted about selling. It is our only rental property, so we would no longer have any real estate (other than a primary residence) in our "portfolio" which currently consists of the rental, savings, and a 401K. We are in our early 40s. Two kids. We could keep the rental and still accomplish the move with a manageable mortgage payment (about $100,000-$150,000 principal balance) using the proceeds from the primary house and our savings to put down, but wouldn't have anything left to invest in the market (or much left in savings). In my opinion, Prop 13 is also a favorable aspect in the keeping scenario as we happened to buy it at such a low point in the market.
I think part of my indecision stems from the fact that barring any unexpected circumstances, the amount of money from the sale of both/either home(s), is likely to be the largest we will see in the foreseeable future, and I don't want to screw up any opportunities it could present for our family without trying to look at it it from different angles and weighing the research as best as I can. I suppose this boils down to the age old question of stocks vs. real estate to some degree, but just looking for some input to hopefully give me some momentum instead of me remaining frozen on the island of indecision!
Any thoughts? Thank you!