How do we approach a cost-benefit analysis of rental property?

I retired recently & need help assessing whether to continue renting our duplex or sell. We still carry a mortgage but have about 2/3 its value in equity. We renovated in 2013 and have only been renting 1 side for 15 months, the other side part of the year. We own our unfinished retirement home outright.

Asked by Molly

2 Answers

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Answered by Kim Miller, CFP®PRO+ in Redmond, WA
Hi - I can't tell what you are really asking - why not continue to rent the duplex - with a rental property you have O.P.M. (Other People's Money) working for you. If you need funds to finish your home, you could refinance the duplex and use the additional cash to finish your home - and your renters will pay for it! You could of course sell the duplex and use the proceeds to finish your home, but then the Golden Goose Duplex (I assume it has positive cash flow and is profitable) will be gone. Good luck! | 09.26.14 @ 21:16
Comment 1  
Molly — Thanks for the response, Kim. The duplex does generate positive cash flow, and although rents cover more than the mortgage, they do not fully cover other expenses (such as property tax, insurances, income tax). We are accelerating mortgage payments but still have 8 years left on the 10 year loan (2.5% rate). We cannot get a HELOC to finance retirement house completion because we have less than 2 years of rental history, which excludes rent income from our total income and bumps up the debt:income ratio. Right now it feels more like an albatross than a golden goose! | 09.27.14 @ 01:15
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$commenter.renderDisplayableName() — {comment} | 12.09.16 @ 15:40
Answered by Dave Bradley, Investment Manager (Financial Advisor) in North Charleston, SC
A CBA. Just use your Cash flow statement.
You can also do a NPV.
Some folks also use WACC- This one is more difficult due to the estimated discount rate, etc.

Send me a message to discuss. No obligation.

It's not what you make. It's what you keep that determines your lifestyle.




| 03.26.16 @ 00:30
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$commenter.renderDisplayableName() — {comment} | 12.09.16 @ 15:40
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Answered by

Kim Miller
Kim Miller, CFP®PRO+ in Redmond, WA

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