Conversion math is negative 240 at month 14, so rent it anyway or sell

Bought 14 months ago at 5 percent down conventional, 6.875 percent, PITI 2,610 with escrow. Property taxes reassessed on my purchase price in year one and went up 380 a year, which I should have seen coming.

Market rent from three signed comps in the same subdivision is 2,400 to 2,450. Insurance agent quoted the landlord policy at 1,860 versus the 1,310 I'm paying now, so add 46 a month. So call it 2,425 in, 2,656 out, before I reserve anything for capex or vacancy. Negative 231, and honestly negative 400 once I put a real number on the roof, which has maybe seven years.

Selling: I'd be at roughly 318k on comps against 289k purchase, and after 6 percent plus transfer costs I clear about 8k over my basis and get my down payment back. That's not nothing when my whole business is thin margins and I could put 22k to work.

The case for holding is the rate and the loan. I can't buy this payment again. Rents in the subdivision moved about 5 percent last year, so two years of that gets me to roughly 2,670 and I'm break-even before capex, four years and I'm actually positive. I'm also already in month 14 so the occupancy question is behind me, though I'm confirming the period in writing with the servicer before I list a lease.

What I keep going back and forth on: do I want to fund negative 400 a month for three years to own a 320k tract house in a subdivision with 40 identical houses, when I'm used to deals that pay in six months. I'd like someone to tell me the hold case with numbers I haven't already talked myself into.

1 reply

5jordan_ellis2ActivePRO6

The hold case isn't the 400 a month, it's what the 400 buys. Principal on a 275k balance at 6.875 in year two is running about 280 a month and climbing, so your actual out of pocket cost of holding is closer to 120 once you stop counting amortization as a loss. That changes the question a lot.

Where I'd push back is the roof and the rent comps. Seven years on a roof in a subdivision of identical houses means every house on that street needs one at roughly the same time, which is when roofers get expensive locally. And your comps are 2,400 to 2,450 signed, so you'll get 2,400 with a concession, not 2,450.

The honest tension is that you're a six month payback operator being asked to run a ten year position. Those are different businesses and the discipline that makes you good at one makes you impatient with the other. If the 22k has a specific deal waiting for it, sell. If it doesn't, you're comparing a real asset against an imagined one.

Conversion math is negative 240 at month 14, so rent it anyway or sell

1 reply