[USER]

I have a property that is valued at 500k and owes 280k. The property is co-owned.

We are getting ready to put the house in the market and divide the proceeds equally.

I am divided between selling or refinancing and taking their name out of the property and own it myself.

If I do so, the property will become a rental.

With the current interest rates, I will likely only break even.

Looking at the S&P 500 performance, I am wondering if I should put the proceeds in there instead of holding onto the property.

What option makes mathematical sense.

My share will be around 90-100k after selling.

I appreciate your feedback

[Brendan]

What’s your risk tolerance like in this scenario? Your timeline before you’d need to cash flow some/all of the investment?

Higher risk, higher reward in holding the property…

Bad tenants or gaps in rentals could force you to cashflow, maintenance & upkeep costs, harder to quickly access funds, etc.

But the combination of rental income growth + equity growth is very likely to outpace an index fund over time.

Not to mention the opportunity to refi into a lower interest rate as those come down.

[Seden]

Is the mortgage assumable? Maybe you can keep the interest rate you have, if it is.

[Cory]

having a rental that only breaks even is a major liability. take the cash in invest it in something else

[Adam]

You have to re-evaluate the deal as it’s own independent new deal. But it sure sounds like it’s calculus doesn’t workout to be the “most efficient use of capital”

P.S. is this a sale of a former primary residence that qualifies for LTCG exemption?

[Tony]

You would evaluate the property like you would evaluate any real estate purchase.

I recommend pretending you have no familiarity with this property and run the cap rate while analyzing what other developments are happening in the neighborhood that might impact future occupancy rates and rents.

Supply is slowly catching up to demand across the US, so your margins will likely be relatively narrow for at least the next few years.

Personally, it sounds like investing in index funds is a much smarter approach with more reliable and consistent gains.

[Noa]

I have a rental that doesnt even break even, I have to add $300/month. It has appreciated $200k in 3 years, and I had put $135k between the downpayment and closing costs…

So, it wildly outperformed the market, so to speak.

That being said, once I have enough of a nest egg, I’ll sell and put the money in the market.

[Leemay]

If it’s beak even, it’s not worth keeping it consider it might incur repair and maintenance in the future that could eat into your personal funds.

Also, if you have to deal with bad tenants, then it will turn to a major liability and a nightmare.

If I were you, I would sell it and pocket the gain to put in the stock market.

[Jo]

What are you goals and how much time do you have to reach them? Would you hold the home for appreciation only or do you want appreciation AND cash flow?

I personally don’t want the financial burden of a non-cash flowing rental.

[Luke]

Depends if you are only evaluating $ returns or risk and desired outcome.

Rentals are a good hedge to overvalued corporations making decisions you have no control over.

Rentals offer a degree of risk mitigation (and risk adding with tenants) through diversification away from stocks and have fantastic tax benefits and if it breaks even cash flow BEFORE depreciation then it’ll be positive after.

The list goes on. But rentals are work!

[Cindy]

How bad do you want to be a landlord. It is not for the weak. It’s a part time job!

[Travis]

Does it make sense as a rental or are you trying to make it work because you already own it?

I’m fine with negative cash flow for a bit if it’s in an appreciating area and you think it will cash flow after refinancing in a year or so.

If not this may not make sense.

I think it also depends on the rest of your portfolio.

Do you already have rentals?

That makes it an easier choice.

[Author]

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