Hello,

I posted most of this previously but left out some info. Basically wondering if I should sell or keep my two properties. I rent out the bedrooms individually to bring in a larger net profit every month and buffer out vacancies. My total profit each month factoring in vacancies and no payments and repairs was around $1400.

The bigger property has a finished basement/ apartment unit but found out the ceiling was 3 inches too short according to code and I could only have 4 unrelated people living on the property. With only having 4 people in the larger home I would only be bringing in about $200 profit a month from that property. Thank you for your thoughts and advice on whether to keep them, sell them, or keep one.

Below are the numbers:

Smaller home

purchased for 90k

$4500 Down

rate 4%,

78k remaining,

5 bed,

2 bath,

1600sq ft,

nice quite neighborhood,

mortgage of $700,

utilities average of $300,

Worth approximately 130k

Repairs over 6 years $2.5k

Second home purchased 2 years ago for 220k.

rate 4%,

$12, 000 down

200k remaining,

6 bed,

3.5bath,

3000sq ft,

nice quite, upscale neighborhood,

mortgage of $1400,

utilities average of $400,

Worth approximately 260k

Repairs over 2 years $1.6k

You have 200k and 28 years left on the mortgage. Will renting the house to a family cover all expenses?

Sell!

The cycle of boom and bust is starting to turn towards bust again. Real estate has been going up for a good time now. Banks have found a way around govt regulations by finding secondary lenders and easy money practices are back. This, like the last time, means people who are not qualified to get a loan can now get zero down loans. Next will be gimmick loans, interest only loans, neg amortization loans,no-no loans, 125 percent of value loans and more, then the crash.

Last time, I saw people who could not pay for a cheap car getting 500K no-no loans, and either flip the houses to another the same way or just not pay and live free in the place for years what with the bank scandals while regular people who honor their commitments lost their homes or struggled to pay.

If you sell and cash out on the upside, you can then buy 2 or 3 places for each one you sell on the dip after there is another "correction". Don't get caught all in when the crash comes. Either pay them down or sell.

The big one was purchased for $220k and can be sold for $260k? Sell it to an owner-occupant and get away from it.

Then, when you've gotten your money back-- minus whatever fees and taxes and stuff-- your CPA can tell you how to soften any tax hits-- use it to pay off a large chunk of the $90k home, to get away from the debt.

In the future, be cautious. Don't make plans if you're unfamiliar with local ordinances that limits what you can and cannot do with your property-- whether it's ceiling heights, or number of unrelated individuals, or how many parking spaces, or fire walls, or needing separate entrances, or sprinklers, or whatever. You need to know all that stuff forwards and backwards before you risk your biz plan on some bureaucrat saying, "No, you can't do that."

Also consider moving into one of the 5 bedrooms, and renting out the other four. That transforms the rental into your personal residence. Owner-occupied places have a different set of rules. I think technically, they would be boarders, and not roommates--- you want to make sure you don't get into "illegal boarding house" territory-- but you would save whatever rent/mortgage/utilities/insurance you're paying on your personal residence. Those savings could get put into a significant cash cushion, so that when the bust cycle comes back, you'll be able to get these properties at half-off, and transition into more traditional ll territory again.

Ha, reading comprehension is not my strong point this morning--

Bought for 220k.

$12,000 down

200k remaining

Worth approximately $260k

Definitely sell it. It is doing you no good.

But I don't know enough about selling to know how much will be eaten up by taxes/fees.

But sell it anyways.

Yes I agree, may be time to sell. As Richard said we are likely entering another slow down. Marginal properties will be difficult.

Another option is to do a 1031 exchange--also called a Starker exchange. That is a gov program where a 3rd party holds the proceeds from the sale and you have 90 days to find another property(or 2) to buy with that money.That way, you pay no capital gains tax from the sale to raise your owed taxes for that sale year. If you can find 2 smaller properties for under $130K you pay for them with the exchange money. If you want to buy higher priced properties you have to cough up the difference. If you buy one under the amount being held, then you have to pay taxes on the unused money. This saves you being taxed on $260K of taxes that year.