Should I sell, keep renting out or refinance my property?

Should I sell, keep renting out or refinance my property?
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#1

Property Facts:

  • Bought for $190K (2005) now has a 5% fixed 30 year FHA loan refinanced (2013).
  • Mortgage monthly cost: $1,300 total [~800 loan / ~500 tax/ins/PMI)
  • Monthly rent income: $1,300 total [$1,300 rent -100 credit for property upkeep - 100 property management]
  • Net: 200 loss each month out of pocket

a) Should I sell this house? I may get $25K out of the house if I can sell for 175K worst case (160K - 135K balance - 15K realtor fees.)

  • I have other debt I could pay with this cash.

b) Should I refinance this house as an investment property? Refinance at 4.5% with monthly payment of ~1,050 - with 75% loan at appraisal of ~$190K with 2,800 closing costs rolled into loan.

  • Doing this I don’t have to pay any money out of my pocket and earn 50 bucks a month.

c) Should I do nothing?

  • Continue paying $200 dollars a month on current loan terms.

d) other options?


#2

Good to see you have a lot of details already figured out. Some things we’re missing to make a better decision. Your approximate FICO score and the interest rate on your other debt.
But some key things are popping out. If you’re currently in an FHA loan it means you’re paying mortgage insurance which you’ll want to get rid of if you can… by refinancing your rental at a 75% loan to value you could potentially cash out $5,000 to pay off your higher interest debt you mentioned. Your assumptions of 4.5% for this kind of loan are in the right ballpark.
If you did the cashout, got rid of mortgage insurance, rolled the closing costs into the loan and lowered your rate you would save around $200/month (plus the monthly mortgage insurance) so you would now be breaking even or be in the black. Your new loan amount would be around $142,000 and your P&I would be $720/month approximately.
Doing nothing is not the right move. It’s more, should you refinance and get better terms on your mortgage or sell. Refinancing could be a good first step. At least you’ll break even every month and you could potentially increase the rent your charging to start generating cash flow. Plus, you’ll need to get an appraisal for the refi so you’ll know what the home is actually worth in the event you decide to sell. Plus, your accountant can make sure you’re getting all the tax benefits from having a rental property.
If you need cash right away to pay off more than $5,000 in debt then you might consider selling to pay off the other debt you mentioned.


#3

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