Let’s put some numbers together and see if that’d “scare” you into action. I think it pays to ask the question “would I buy this investment ?”
Let’s assume you can rent it out rather quickly so the monthly loss is capped at $1300. We’ll also assume uncle sam doesn’t want a part of the rental income. Let say your investment horizon is 3 years and that’ll add up to a $46,800 loss. Rent may actually drop if prices do go down but hey let’s not sweat the little stuff.
Then let’s assume a relatively modest decline of 5% per year. So in 3 years time you take off another 15% x $400k = $60k.
I’m not counting your equity buildup as it sounds like you just refinanced so I assume most of the payment over the next few years goes to paying down interest anyway.
So it seems to be a pretty sure case this investment will lose $100K+ over the next 3 years, at least on paper. And that’s not counting the personal income tax increase you mentioned.
Obvious counter arguments are:
1. some of the above assumptions are wrong … sure they can be … if you flip that around your house has to gain at least 10% for the capital gain to even out the $46,800 loss … likely or unlikely ?
2. you can hold out for 20 years … but my friend, one thing that’s constant in life is there are changes. I’m happy to hear that you earn a $100K+ income and the $1300 hole per month is not an issue for now. But judging from the fact that you had to take out equity to pay off a loan with higher interests sound to me you’re not exactly sitting in a pile of cash. You didn’t say what you do for a living but if you’re like most of us there’s always a risk of losing your job, and I don’t know how old you are and whether you’re just getting into the prime years or you’re reaching the peak.
Basically, you were fortunate that the bull run in the past several years did wonders to your financial position. It’s time to take profits and get out. I would consider offering a $10K cash bonus to the buyer to get out now.
