Should I sell my house

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Trooper_IHB

Trooper_IHB

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<p>OK all, I need to make a decision. I own a house out of state that I rent out...at a small loss each month to a solid renter. The purchase price was 275K and I put 45K cash into the renovation of it (new kitchen, amp service, furnace...you name it). The re market there is doing ok from what I see, listing vs sales price average around 5-30 K under list. The purchase prices average between 225K and 750K for the best houses, with the majority being around 300-350K. The market has already dropped there about 25% which started prior to me buying, I think I bought about halfway into the decline. </p>

<p>I have whispered some comments to those in the know here, lenders, etc. regarding whether I could obtain a jumbo mortgage here to purchase, if I owned another property. It seems I will pay through the nose (interest hike) because of it...if I qualify at all.</p>

<p>So, 275K + 45K = 320,000.00 But I bought in 8/2005 when the market there had already been coming down for about 8 months.</p>

<p>I stand to lose up to 50K, but realize this could get worse as the months wear on. Should I bite the bullet and sell ? </p>

<p>Supposing I got my original 275K back, which is possible due to the brand new kitchen and entire upgrade.... that would give me 65K to bank and invest for 2 years from now purchase. </p>

<p>Thoughts ? </p>
 
<p>My completly unqualified advice: Keep the property, raise the rent to either cover the monthly loss or provide a small amount of income, and wait it out. </p>
 
<p>If you can make up the shortage of the rent . I say keep it.</p>

<p>But then again, how's the job market there? what about schools? crime rate? If certain factors as the aforementioned are not favorable. Then sell it.</p>
 
<p>Effen - I would give her a discount on rent for the inconvienience, would only allow showings with 24 hour notice.</p>

<p>Nude - I'm 190.00 in the hole a month...can't justify a rate hike for that much, perhaps 25.00 though. Thanks</p>

<p>Reason - job market good, but I'm here and not there...so can't be positive. Schools fine, crime rate - non existant (2 burglaries in all of 2006...yes you read that right)</p>

<p> </p>

<p> </p>
 
<p>Have you checked with your accountant to figure out how much of the $190 (if any) can be used to off set your income tax? Also, since it is a rental property, you can take depreciation also. How much you can deduct depend on your income I think. </p>

<p> </p>
 
I think you need to keep it: $2400 annual loss to keep, $45K loss if sold at $275K, it's a no brainer. And you would expect rent to creep up over the years, so it only makes sense to keep it. You're not so much worried about the price if you don't have to get rid of it, so ride it out. The interest you'll earn on the proceeds won't make up the loss.
 
Oh wait, the fact that you want to buy... that changes things a bit. Do you really have a choice but to sell if you want to buy your own place?
 
<p>Thank you all.</p>

<p>I'm concerned that will the developing credit market, I won't qualify for a mortgage because of the "added risk" that I own another property...or pay dearly with higher interest rate.</p>

<p>Also, most of my capital is tied up in the house...it will take me about 3-4 yrs to save up 10% down on a future purchase. I don't think I'm brave enough (or stupid enough !) to HELOC for a future downpayment. </p>
 
Geo - I've had some whispered conversations with lenders here on IHB. With my current scenario....to obtain a jumbo and owning the other property...the rate quote was....and I quote, "ridiculous".....which means, no house for Trooper.
 
That makes it tough. If you aren't able to buy anyway, I'd keep the house. If by selling that will enable you to buy your own, I would sell... and then wait another year or so to buy. I think borrowing now, you are dealing with too much investor nervousness. My take is that qualification requirements will ease a bit after 12 months or so, although not so much the interest rates. That may just be a better time to qualify.
 
<p>Trooper,</p>

<p>Oh, I see your predicament. I was sort of in the same boat. I wanted to purchase a 2nd home and rent the current one out. But lending got tighter and the negative on the potential rental went against me. I actually have enough in reserves to handle the shortage. But lenders aren't taking any chances these days. </p>

<p>Then in that case. How bad do you want another home? If it's bad enough then sell your rental.</p>

<p> </p>
 
<p>Well, I wouldn't think of buying anything for a year or two. But I think selling my house now, before it drops any further in value, might be the right way to go.....bank the cash so that I'm ONE of the qualified buyers that exist down the road.</p>

<p>I just hate the thought of my capital being tied up in a depreciating assest..... that could conceivable earn no value for many years. I'm not desperate to buy a house mind you, but I think I'm like all of you that don't own yet....I have "house envy" and want to be able to have something to call my own.</p>
 
<p>Trooper,</p>

<p>You have to do the hard work of looking at all the various angles posted here. </p>

<p>It is complicated, even without the unknowable parts.</p>

<p>Transaction costs, interest rates, tax advantages..... oy, vey!</p>

<p>One thing I will tell you: real estate should be approached as a long-term proposition.</p>

<p>Transaction costs are signficant. These past few years notwithstanding, it normally takes a long time to offset them.</p>

<p>As we are also seeing - painfully so - real estate is not liquid.</p>

<p>Best wishes to you in whatever you choose to do!</p>
 
<p>Janet,</p>

<p>yes, the tax advantages and the depreciation confuse me the most. (taxes...on rental...claiming income....etc) I understand I can depreciate the structure and innards over a 27.5 yr period....but I have to pay it back upon sale ! Can someone explain to me how this is beneficial ?</p>

<p>Also, upon sale, I would have no write-offs. I will probably hit AMT this year and without a write off, I would be donating a lot to the government. Crap. I need an actuarial.</p>
 
troop - The benefit for some is that the tax is defered, and paid at a 25% rate rather than their marginal rate. If you are in a 15% marginal tax bracket, then depreciation is not of benefit, but if you are in a 36% marginal tax bracket, paying the tax on recaptured depreciation will probably seem more attractive.
 
<p>awgee,</p>

<p>Please correct me if I am wrong. Is it not paying tax (25% rate) on the recaputred depreciation a must, regardless of whether depreciation was taken or not? Thank you.</p>

<p>Trooper,</p>

<p>You have the same question many of us have. I have been down on this road a few times. Basically, if you hold on to your real estate investment for a long time, you will have a good size of equity (think of it as a piggy bank). Down the road, many people opt to 1031 exchange to avoid immediate tax. You may not even have any gain when you sell so I would take advantage of any tax deductions now.</p>

<p>If you sell now, only future will tell you if you make a good choice. Me, I just ask myself if I want to quit being a landlord or do I want that nice piggy bank of mine in a very long unforeseeable future. Good luck with your decision.</p>
 
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