Hi All,
This is my first post on this forum, but I've been a long-time lurker. I hope you guys can help me with an issue I've been wrestling with for a while. I'll start off with some basic info:
Age: me - 32, wife - 31
Kids: 1 (toddler)
Household income: About $90k
Retirement: $238k
Savings: $40k
Debt: Primary mortgage ($82k) on a 15-year fixed at 4.875% (10 years remaining). Second mortgage ($33k) on a 15-year fixed at 6.34% (14 years remaining with plans to pay off within 5 years). No other debt.
Now then, here's my dilemma. My wife and I bought a house in California back in 2001 for $115k. At its peak in 2007, it was worth about $285k, but with the glut of foreclosures in the area, we would be lucky to get around $100k for it right now. We had it on the market for 9 months last year with only one serious offer (for $200k), but the buyer backed out of the deal just one week prior to closing. Since then, the value has continued to plummet.
We moved from California to Texas last August when our first child was born, and decided to rent the house out for a "year or two" until the market recovers a bit. We're currently renting a house here in Texas with plans of buying a new home within 3 years (saving for a 20% down payment). We're getting $1100 a month for the California house, but we're still losing about $300/month after expenses, which includes a property manager. The negative cash flow hurts a bit, but we're doing OK all-in-all. I guess these are the options that I'm running through my mind and would like some feedback:
1. When the tenant's 1-year lease is up next year, put the house back on the market and just try to unload it for whatever we can get. This eliminates the negative cash flow and allows us to "move on" with our lives so-to-speak.
2. Hang on to the house as a long-term rental property. Part of me keeps going back to the age old philosophy of "buy low, sell high." I know that the housing prices in that area are rock bottom right now, so I don't know how much sense it makes to sell right now. What makes this a bit more tempting is the low interest rate and the fact that it would be paid off in only 10 more years, at which point any rental income would be at least 80% profit after expenses . And, of course, there would always be the option to sell later if the market really came back.
3. Take a "wait and see approach." Keep renting it for a few more years in hopes of a market recovery, but be prepared to hang on for the long haul if the recovery is slower than anticipated. My fear with this is that I would lose the capital gains (if I even have any!) exclusion if I sold after 2013.
Of course, there may be other options that I haven't thought about, so I'm open to any suggestions. I really just want to make a sound decision because I'm really kicking myself for not selling it back a few years ago when I knew in my gut that the bubble was about to burst. Oh well, live and learn I guess.
Thanks, guys.
This is my first post on this forum, but I've been a long-time lurker. I hope you guys can help me with an issue I've been wrestling with for a while. I'll start off with some basic info:
Age: me - 32, wife - 31
Kids: 1 (toddler)
Household income: About $90k
Retirement: $238k
Savings: $40k
Debt: Primary mortgage ($82k) on a 15-year fixed at 4.875% (10 years remaining). Second mortgage ($33k) on a 15-year fixed at 6.34% (14 years remaining with plans to pay off within 5 years). No other debt.
Now then, here's my dilemma. My wife and I bought a house in California back in 2001 for $115k. At its peak in 2007, it was worth about $285k, but with the glut of foreclosures in the area, we would be lucky to get around $100k for it right now. We had it on the market for 9 months last year with only one serious offer (for $200k), but the buyer backed out of the deal just one week prior to closing. Since then, the value has continued to plummet.
We moved from California to Texas last August when our first child was born, and decided to rent the house out for a "year or two" until the market recovers a bit. We're currently renting a house here in Texas with plans of buying a new home within 3 years (saving for a 20% down payment). We're getting $1100 a month for the California house, but we're still losing about $300/month after expenses, which includes a property manager. The negative cash flow hurts a bit, but we're doing OK all-in-all. I guess these are the options that I'm running through my mind and would like some feedback:
1. When the tenant's 1-year lease is up next year, put the house back on the market and just try to unload it for whatever we can get. This eliminates the negative cash flow and allows us to "move on" with our lives so-to-speak.
2. Hang on to the house as a long-term rental property. Part of me keeps going back to the age old philosophy of "buy low, sell high." I know that the housing prices in that area are rock bottom right now, so I don't know how much sense it makes to sell right now. What makes this a bit more tempting is the low interest rate and the fact that it would be paid off in only 10 more years, at which point any rental income would be at least 80% profit after expenses . And, of course, there would always be the option to sell later if the market really came back.
3. Take a "wait and see approach." Keep renting it for a few more years in hopes of a market recovery, but be prepared to hang on for the long haul if the recovery is slower than anticipated. My fear with this is that I would lose the capital gains (if I even have any!) exclusion if I sold after 2013.
Of course, there may be other options that I haven't thought about, so I'm open to any suggestions. I really just want to make a sound decision because I'm really kicking myself for not selling it back a few years ago when I knew in my gut that the bubble was about to burst. Oh well, live and learn I guess.
Thanks, guys.
