I understand this is not a cut and dry question.

I bought the house in 2011 for 100k
Have rented it out since 2015.  Tenants moving out and wife and I are not sure on what to do from here. We have heard the housing market is crazy right now with people offering above asking and basically having bidding wars.  

I have also seen that interest rates are climbing and climbing, possibly to go back down next quarter.  

I am in the process of putting on a new roof and gutters due to hail and wind damage.

3br 1ba house on 1 acre.
Mortgage-$800
Rent-$1200(wanting to increase to $1400 and have had several people interested)

Cons: tenants have a hard time maintaining the yard as it is on a 1 acre lot. Most renters aren’t the ambitious landscaping type of people. Losing the easy income. Paying taxes on gains.  Spending a week over there every time a tenant moves out.

Pros-easy income, but headaches of being a landlord. When tenants move out we usually have to scramble over there to paint and clean for a week (not entirely a huge deal, just a PITA).

So what day you arfcom …… ?

RENT or SELL?!?!

What's your net income on the property relative to your equity in it if you sold today?

Do not count principal payments as a cost as that goes to equity.  Only count your interest, taxes, and insurance and don't forget upkeep.

Are you making a % on your equity that is worth the headaches or aren't you?

Let's start there and then I've got a few other things to throw at you.

Include the law maintenance fee in the lease agreement and hire it out.  Keep the rental. It's so cheap, it's crazy not to. Once it's paid off, it's going to be a nice income stream or a bag of cash when you sell. Will probably be worth at least what you paid for it but more likely 3x...

Pm sent!  Thank you!

I know it’s a no brainer. I have to convince my wife we need to keep it.

We had it paid off once and refinanced.

what is the house worth now and how much do you owe on it?

House is worth around $140-150
Owe $97

Presumptive estimate that you owe around $70k and it can be sold for $250k.

Take the $180,000 of equity, figure the $600 you make in rent and realize that earning 0% in your cash out would mean 30 years of renting to break even.

To me it's a no brainer to take the money and run.

Edit:

Now that the facts are out keep the house.

I didn't get your PM but piecing together the bits from this thread, I'd take a rough guess that your situation looks something like this:

Attached File


At first glance, I'd say you are making decent money but the big elephant in the room is your appreciation assumption.  A decade ago, it would have been reasonable to expect 2%-6% appreciation per year on average over the long term.  This fact alone would significantly increase that 11.5% that I calculated because you own the property with leverage.  

For example, 2% annual appreciation doesn't just translate to 11.5% + 2% = 13.5% but rather 11.5% + (2% * $150k / $53k) = 17.2% because your financial leverage on this property has a multiplicative effect on your returns.  Appreciation affects the entire value of the property but the actual cash you have tied up in the property is only a fraction of that.

Here's the problem in 2023.  There is no reasonable expectation of appreciation when the Fed is raising rates, the yield curve is inverted, a recession is all but a foregone conclusion, and higher unemployment is most likely going to follow here in the next few months to a year.

The bigger problem is that multiplicative effect I described works both ways.  A small 2% drop in your rental house's value is a loss of almost 6% of your equity.

I presume you have a fixed mortgage so I get that you'll probably always be able to generate positive cash flow from this house.  I'm not arguing that you won't.  I'm just arguing that the total returns on the money you got tied up in the place might really suffer over the next year or two to the point that you could be better off doing something else with that money in the mean time.  

You have all the facts though and I don't so just take this for what it's worth.  If you are happy to just collect the rent and not worry about the value you have in the property then that's fine too.  You won't go broke doing that as long as you are confident you can keep it rented out in good times and bad times.

Bidding wars ended 6 months ago.

Thank you very much for this well thought out and descriptive reply!

I will heed this advice and apply it to my decision.

I am heading over to the rental Sunday to clean out, paint and repair.  I am also waiting on a check from my insurance company to determine how many out of pocket expenses we will incur.

Get rid of it, sounds like a headache

Based on what others have posted regarding the current real estate market I would be a seller especially if you can do so at a profit.
I'm originally from IL so I always kind of follow the market there.  I see NOTHING positive about that market long term.

Too many unknowns in the future with taxes, interest rates, presidential strategy, illegal immigration...

I'd rather take a guaranteed $50k today instead of a few thousand $ a year in rental income for a decade with uncertain math.

You missed that boat about a year ago. The housing market is much slower now, but the value is high.

There is something to be said for being free of the burden of finding and managing renters.

Yes we missed the boat big time.

We have renters in there now. They seem to be decent. So far have paid rent on time or early. They have already paid Februarys rent.

I sold my main residence and moved back into my rental house figuring I'd renovate it a bit by bit since I'm retired.
Now, I wish I'd sold it to the real estate firm that had been renting it for me.

Sell it

This, family member is renting and it’s $50/month (two tenants) and they have a lawn service to do the lawn and hedges.

Find a service or guy and include it either in the rent or billed as a service like water and power.


Keep it if you can have the tenant pay the mortgage.  Also look at depreciation and write offs like tools, maintenance and other costs.