Great insights. You already answered your own question.

Sell now for a price below your competition. I can’t advise you on a price. Consider your location, view, yard size, upgrades, and price it a little less. What does your realtor recommend? I’ve been reading that in San Diego, the Sold houses were priced more agressively, and that offers are 93% of list price.

The investors with negative cash flow are pure fools. They believe their monthly money loss will be overcome by increasing appreciation. You obviously don’t believe this, so why would you consider renting it out?

Well, hopefully you’ll get more advice.

In my opinion you are evaluating your situation realistically which seems to be rare nowadays. Running a monthly negative is often typical of rental units, but that is a very large negative, and beyond what I would recommend. It becomes a matter of opportunity cost of money. What could you gain with that $1300/month by investing somewhere else for the next 5 – 7 years ?, as it will be that long before prices get back above where they are now if not longer.

Even just putting the money in a CD at 5% over the next 5 years will far outperform what residential real estate is going to do. The game is over for now in this asset class. There are tax benefits obviously to that loss, but on a cash on cash basis you are way better off being clear of it. Best of luck with your situation.

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.

Good luck my friend.

This IS EXACTLY how the “race to the bottom” gets started.

I certainly wouldnt put it in your 401K or the market in general, thats a rigged game too, Lots of very smart people are expecting some SERIOUS declines by year end…I mean real serious declines. CD’s if anything.

Did it ever occur to you during the last refi or even during the original purchase, that its WAY over valued ?

I sold everything I owned in SD real Estate in 2003, I happily rent now. In my book and at my age, ANYTHING that seems too good to be true…..Usually IS.

At 2006 prospective PE of 16.5x, it can’t be considered cheap. Reason for the runup is Alan Greenspan who pushed rates way down after the tech bubble bursts. Now rates have come back up and the economy’s slowing down. And the market’s rebounded strongly since 03. One begs the question, how much more can it go ?

I’m holding on to funds I bought since 1995. But I’m not really adding to any US equities position.

the market’s P/E is a reasonable starting point for valuation but you also have to consider profit margins. after all, as a guy i once worked for used to say, “it’s only got a low P/E until the “E” goes away.”

after-tax corporate profit margins are running at 7.2% here in the u.s., which is in the 90th percentile of profitability performance over the last 80 years – the average over the period is 4.9%. the reason is principally because consumers have levered themselves and over-spent relative to their incomes. consequently, as all companies have some degree of operating leverage, this incremental spending bolsters corporate america’s bottom line disproportionately.

aggregate profitability in corporate america is THE single most consistently mean-reverting time series in finance. which makes sense – after all, if profits don’t mean revert, then capitalism is broke.

thus, even if the market’s P/E stays at 16x-17x, mean reverting profitability alone could easily hit stocks for 20%-30% over the next few years. just something to keep in mind.