• Page :
  • 1
  • Text Only
Voting History
rated:
Looking for some FWF insight on this.

I, unfortunately, own a condo that I paid way too much for at the peak of the bubble in 2007. I was fresh out of college, dumber than I am now, and it seemed like a good move at the time. Anyway, family has grown and we are in a house nearby now but trying to figure out long term what the best thing to do with the condo is. We have been renting it the past 2 years and wondering if it is worth it to keep renting or if we should sell it. Also how possible a refi would be.

Stats:
Location: Seattle suburb.
Paid 220k for it in 2007 (not really relevant anymore)

Currently owe: 120k
Current value (per Zillow): 135k

Rent Revenue:
Current rent 950/mo (Zillow estimates we could rent as high as 1250 but we are renting to people who take care of it and we know so we are willing to discount)

Expenses:
600 in interest per month (mortgage is at 5.75%, have been underwater till recently which limited refi options. Also had WF's LPMI which reduced HARP options for a while)
300 in HOA
200/month to insurance, prop tax


Obviously, at the moment, it is a money loser. We could probably pay it off in 2 years but even then, would it be worth it?
Lets say, best case in 2 years, it brings in 1200/mo with average 650/mo expenses (HOA, insurance, misc), it would bring in just 6600/profit. That comes with an opportunity cost of the maybe 120k I could get out of it now (selling, with fees, etc). That would give a 5.5% rate of return on that capital?

Does it make sense to keep? Am I overlooking anything? I accept whats in the past, just looking to best options in the future.
Thanks for the thoughts!

Member Summary
  • Also categorized in:
Thanks for visiting FatWallet.com. Join for free to remove this ad.

I have the same question - I have a condo I bought for 145K and is now worth 115K.

Rent Income: $850 / mo
Cost: $850 PII, $200 HOA = $1050 / mo

I figure two things:

1) When I own the property outright (in 24 years), someone else will have paid most of the mortgage
2) I am deducting the depreciation off of my income and taking that (and the mortgage interest) off of my taxes.

Anyone have advice though? I hate that $200/month cash flow hit.

I don't think you listed your options correctly. Here is what you can do:

1. Walk away - Probably the stupidest idea possible as it will ruin your credit, but I thought I'd throw it in there.
2. Sell the property - You'll basically break even after the Real Estate agent takes 6% and you throw in some other random costs of getting it ready to sell.
3. Continue to rent the property - As far as I can tell you're basically breaking even on it. You're losing ~$200 / month but you have ~$800 / month of tax deductions so they should give you a tax savings of ~$200 / month.

So for options 2 and 3 you're pretty much breaking even. My personal advice would be to do option 3. I would say you have 2 really good ways to make #3 a much better proposition. First, raise the rent. You even said it yourself that you're giving people a good deal on it, I bet if you raise it to $1050 or $1100 they will still stay there. Considering it costs you $500 / month for HOA and taxes $950 / month seems like an absolute steal. I know there are always risks to raising the rent, but if you offer a property for 75% of the going rate it will be almost impossible to ever turn a profit on a rental property. The second thing you can do is somehow find a way to refinance it. You should be able to get at least 1% lower on it, which will mean about an extra $1 K / year in after tax profits. At this point you are making ~$200 / month on it.

You mentioned trying to pay the property off early, DO NOT do this. If you can refinance to ~4-4.5%, you would be way better off just investing that money in the stock market over the long run. We're at historically cheap interest rates, so you should look to lock-in a cheap interest rate and let it ride. As inflation goes up over time rents will rise but your cheap mortgage will stay the same.

One question you need to answer for yourself though is do you want to continue to be a landlord. I think it's a great way to build wealth, but if it's not worth your time and effort then you may decide it's not for you.

Hey SCtrojan-

Appreciate the insight, thanks for taking the time!

Regarding 3 - I am just over the 150k combined MAGI that I believe excludes me from taking the passive activity loss. (Unless I am misunderstanding something)

You're probably right on not paying the property off early... it would just be nice emotionally to have it paid off.

Lots for me to think about, thanks!

One more question on the topic... any national lenders that people have good things to say about for investment property refinances?
Thanks!

dunkaroo said:   Hey SCtrojan-

Appreciate the insight, thanks for taking the time!

Regarding 3 - I am just over the 150k combined MAGI that I believe excludes me from taking the passive activity loss. (Unless I am misunderstanding something)

You're probably right on not paying the property off early... it would just be nice emotionally to have it paid off.

Lots for me to think about, thanks!


I didn't know you were over the MAGI limit. Even if you lower your interest rate and increase your rental income it will probably still be a loss from the tax man's perspective (due to depreciation).

I almost refinanced my property with Citibank, they were the best rate for me. Not sure where you work, but many big companies have preferred rates with some big banks. Mine has very competitive rates with Citibank and Wells Fargo. Otherwise you could try Amerisave, they seem to have competitive rates for investment properties.

dunkaroo said:   One more question on the topic... any national lenders that people have good things to say about for investment property refinances?
Thanks!


I have a 3% loan on an investment property from Aimloan.com.

Don't go by Zillow for any good value. They have been off pretty much everywhere, unless there are a lot of comparable sales in your area. I know when I bought my house, in Tacoma, Zillow said it was worth 20k more than what I paid for it. The second I closed it was valued at exactly what I paid for it! When I was selling it, the two Realtors I was talking to to comped me at 10k and 19k above what Zillow claimed at the time, and eventually sold for 15k more than Zillow's value.

So bottom line, you don't know what it's worth until you either do the comps yourself, or get a Realtor to do it for you.

isobro said:   dunkaroo said:   One more question on the topic... any national lenders that people have good things to say about for investment property refinances?
Thanks!


I have a 3% loan on an investment property from Aimloan.com.


What are the terms?

johnnybs said:   isobro said:   dunkaroo said:   One more question on the topic... any national lenders that people have good things to say about for investment property refinances?
Thanks!


I have a 3% loan on an investment property from Aimloan.com.


What are the terms?


Yes, that sounds quite low unless there were significant points involved.

Also need help finding investment property refi details. Amerisave seems like incredibly shitty service/ scam.

Do yourself a favor and don't go with Amerisave. They are a SCAM

*UPDATE*

To those looking for investment property refi, I worked with CMG financial to get a refi and they could handle all the provisions of HARP (including the weird LPMI I had).
The rate was ~4.175 but the fees were pretty hefty (lender fees + all other associated closing costs ended up being ~4.5% of my loan amount)

The question now is whether or not the refi and all the associated fees are worth it.
The refi would increase my cashflow greatly but in terms of expenses, it would take about 3.75 years to recover from the closing costs and all of the related fees.



Disclaimer: By providing links to other sites, FatWallet.com does not guarantee, approve or endorse the information or products available at these sites, nor does a link indicate any association with or endorsement by the linked site to FatWallet.com.

Thanks for visiting FatWallet.com. Join for free to remove this ad.

TRUSTe online privacy certification

While FatWallet makes every effort to post correct information, offers are subject to change without notice.
Some exclusions may apply based upon merchant policies.
© 1999-2014