Submitted by careerbeaver t3_110bm9u in personalfinance
EDIT: I did some more math after factoring in some things that you all have contributed. Thank you very much for your responses.
Option 1: rent the units
Income
Unit 1 income: $2100
Unit 2 income: $1800
Total income: $3900
Expenses (both units combined)
Taxes, insurance, interest (removes principal as it is equity, not expense): $2880
Utilities: $76
Management fee (10%): $390
Monthly hard expenses: $3348
NOI: $552
Further cash outlays budgeting (I have 20k cash saved for things like this, so maybe this doesn't go into cash flow analysis):
Vacancy (8%): $312
Maintenance/repairs (5%): $195
Capex (5%): $195
Total cash outlay incl above allowances: $4,050
Net income: $-150
Option 2: Sell the units
Assumed sale price for both units: $700k
Down payment on Unit 1: $21,000
Closing costs Unit 1: $5,900
Additional cash spent on improvements to Unit 1: $28,200
Down payment on Unit 2: $101,250
Closing costs Unit 2: $5,600
Proceeds from sale (sale price - mortgage balances - closing costs 10%): $-62,000
Net result from sale after all cash outlays: $-224,000
Okay yeah. Breaking it down this way makes renting seem like the best option by a HUGE margin.
ORIGINAL POST
I bought both sides of a duplex in Denver in March 2022. It turns out I bought at the very top of the market and now I'm under water. I'm moving to Illinois in a couple weeks and need to decide what to do with this property.
What metrics would you use to make this decision? What advice can you offer? I can't figure out if the negative monthly cashflow is worth eating for an appreciation-strong market like Denver.
Here's my financial situation:
---UNIT 1--- 2 bed 1 bath 870 sq ft (I currently live here, will be moving out March)
Purchase price: $415,000
Down payment: 5%
Mortgage balance today: $388,321
Interest rate: 3.75%
Mortgage pmt (PITI): $2,100
Estimated rent value: approx $2,100
Additional monthly expenses: $580 (8% vacancy, 5% capex, 5% maintenance, 10% management company)
Net monthly cash flow if I keep it: $-630
Estimated sale price: one realtor told me $350k, one told me $400k. 3 similar size homes in my neighborhood sold for $280k, $370k, $410k within the last 3 months
---Unit 2--- 2 bed 1 bath 860 sq ft (I inherited a tenant, he plans to move out May 2023)
Purchase price: $405,000
Down payment: 25%
Mortgage balance today: $303,750
Interest rate: 4.875%
Mortgage pmt (PITI): $1,800
Estimated rent value: currently renting for $1,800, probably not worth much more than that
Additional monthly expenses: $500 (8% vacancy, 5% capex, 5% maintenance, 10% management company)
Net monthly cash flow if I keep it: $-540
Estimated sale price: similar to Unit 1, let's say $350k
---Takeaway---
Net monthly cash flow combined: $-1,170
Net proceeds from sale of both units (assume 700k sale price, 10% selling costs): $-62,070
What do I do with this information? I can't seem to derive a decision out of it, they both seem bad.