Sell or keep rental Property?
Sell the house, in the scenario you describe he is using the property as an investment with a $250 per month buy-in. This investment doesn't make a return right now and when you add in the cost of dealing with the tenant (even if he doesn't have those cost now, he will when they move out)he is out of more than $250 a month and he has no direct knowledge that the value will definitely increase. He would be better spent selling the house and putting the funds into an investment, even a risky investment. It will have less maintenance cost associated with the risky investment than the rental property.  Besides sitting on the property for 10-15 years would cost him 30-45k plus the cost of re-renting the house when empty.Not to mention the inevitable increases in taxes over that time which will either increase his deficit or eat up the rent increase he is able to charge. Don't take the loss on the sale, just short sale it and take the money and invest! One last thought... An alternative is to creatively finance a sale (take payments from a buyer until they can buy outright) that will cover the FULL mortgage and get him the price he needs. You can look up owner financing to find out more on how to do this. Hope this helps! How is the current mortgage payment broken out? I have a mortgage on a rental property with a payment of $775, but $600 is principal. If I were at breakeven on a sale or a bit underwater, I'd be better off just holding still, the tenant paying the loan down over $7000/year.  You question is a good one, but a good answer would require more details. A bank may not agree to a short sale on an investment property, especially since there's a second property to go after. I'm not making a judgement, just saying, it's not a slam-dunk to just short sell it. And he has to pay for it every home repair and every month the property sets empty.  His loss each month is not $250, but probably closer to $500.  In generally you need to clear at least $200 ABOVE PTI (principle, taxes and interest) to cover repair and the like to property. From your post, it sounds like your dad was forced into the land-lord business by the recession.  Unless he plans to hold the property until its rental value has increased by $500 a month, he should consider selling it and writing-off the loss.  Losing money bit by bit on a house isn't a tax write-off event.  Selling a property for less than you bought it for generally is. FYI, I got the $500/month loss by assuming that repairs/emptiness/etc will cost you about $200 a month, and added $50 for your dad's time managing the property.
You will find Joe.E, that rents have increased considerably over the last 4 to 5 years in Australia. You can probably achieve rental yields of above 5% more than 20km from major Cities, however closer to cities you might get closer to 5% or under. In Western Sydney, we have been able to achieve rental yields close to 7%. We bought mainly in 2007 and 2008 when no one was buying and we were getting properties for 15% to 20% below market rates. As we bought cheap and rents were on the increase we were able to achieve higher rental yields. An example of one particular deal where we bought for $225K and rented for $300/wk giving us a yield of 6.9%. The rent is now $350/wk giving us a current yield of 8%, and with our interest rate at 6.3% and possibly heading down further, this property is positively geared and pays for itself plus provides us with some additional income. All our properties are yielding between 7.5% to 8.5% and are all positively geared. The capital gains might not be as high as with properties closer to the city, but even if we stopped working we wouldn't have to sell as they all provide us income after paying all expenses on associated with the properties. So in answer to your question I would be aiming for a property with a yield above 5% and preferably above 6%, as this will enable your property/ies to be positively geared at least after a couple of years if not straight away. "I think you may have a significant misunderstanding here.  You have been renting your property out for two years, now.  There is no special ""roommate"" clause in the tax code; roommates are renters, and the rent they pay is rental income.  (If they were roommates in a property you both rented from a third party, that would be different.) See publication 527, chapter 4 for more details on the subject (search on ""Renting Part of Property"").  You should be: You may also consider ""Not renting for profit"" section, which may be closer to what you're actually thinking - of changing from ""Renting not for profit"" to ""Renting for profit"".  Not rented for profit means you can report on your 1040 as opposed to filing Schedule E, but it does mean you have to actually not make a profit (and remember, some of the money that goes to paying the mortgage is not deductible on this side of things since it's your property and you'll get that money back, presumably, when you sell it). If that is what you're asking about, it sounds like it's just a matter of money.  Are you going to start making money?  Or, are you going to start making enough significant upgrades/etc. to justify the tax deduction?  You should consider the actual, specific numbers carefully, probably with the help of a CPA who is familiar with this sort of situation, and then make the decision that gives you the best outcome (keeping in mind that there may be long-term impacts of switching from not-for-profit to for-profit rental treatment)." 10-15% of the bat you want to keep liquid in a savings account with interest at 1.5% that best at the moment. In case of a real emergency.  Look in to dividend stocks they can bring in 10-15% on your investment and fairly liquid as well.  There's also rental properties but 40k isn't much room to move around with in that area. "Because the returns are not good. One of the big drivers in Australia is ""negative gearing"": if your investment loses money you can offset losses against your tax on other income. Institutional investors and corporations are in the business of making money: not losing it. Housing market investors are betting that these year to year revenue losses will ultimately be made up in a big capital gain: for which individuals get a huge tax break that is also not available to corporations. Capital gains are not guaranteed. Australia has benefited from 25+ years of economic, employment and wages growth: a result of good government planning, strong corporate governance and a fair slice of luck. If this were to end housing prices would plateau at best and crash at worst. A person who has negative cash flow investments has to sell them urgently if they lose their job. A glut of mortgagee sales and property prices could easily come off 20-30%. Rental yields on residential property in Sydney are about 4% with a capital gain of currently 10% but this has been flat or negative within the last 5 years and no doubt will be again within the next 5. Rental yields for residential property are constrained by mortgage rates: if it significantly cheaper to buy then to rent, why would anyone rent? In contrast, industrial and commercial property gets a yield of about 7% and gets exactly the same capital gain. This is because land is land and if the  price of industrial land doesn't grow at the same rate as the residential land next door eventually one will be converted into the other. Retail rentals are even higher. In addition commercial tenants are responsible for more outgoings and have fewer legal rights than residential tenants. Further, individual residential properties are horribly illiquid and have large transaction costs. While it is possible to bundle them up into property trusts so that units can be sold on the stock exchange it is far more common to do this with office and retail buildings. This is what companies like Westfield and AMP Capital do. Notwithstanding, heavily geared property trusts can get into deep water because of the illiquid nature of property as the failure of Centro  illustrates. That said, there are plenty of companies that develop residential houses and units for sale to owner occupiers or investors because that's where the money is." I'd recommend you use an online tax calculator to see the effect it will have. To your comment with @littleadv, there's FMV, agreed, but there's also a rate below that. One that's a bit lower than FMV, but it's a discount for a tenant who will handle certain things on their own. I had an arm's length tenant, who was below FMV, I literally never met him. But, our agreement through a realtor, was that for any repairs, I was not required to arrange or meet repairmen. FMV is not a fixed number, but a bit of a range.  If this is your first rental, you need to be aware of the requirement to take depreciation. Simply put, you separate your cost into land and house. The house value gets depreciated by 1/27.5 (i.e. you divide the value by 27.5 and that's taken as depreciation each year. You may break even on cash flow, the rent paying the mortgage, property tax, etc, but the depreciation might still produce a loss. This isn't optional. It flows to your tax return, and is limited to $25K/yr. Further, if your adjusted gross income  is over $100K, the allowed loss is phased out over the next $50K of income. i.e. each $1000 of AGI reduces the allowed loss by $500. The losses you can't take are carried forward, until you use them to offset profit each year, or sell the property.  If you offer numbers, you'll get a more detailed answer, but this is the general overview. In general, if you are paying tax, you are doing well, running a profit even after depreciation. "The perceived risk depends on the entire situation, but often it is considered more risk, especially if you want to occupy yourself. Things you need to consider: It can be very difficult to show a property with tenants occupying it. There are many reasons for this and most homes show / sell better empty. I have found many tenants make it difficult on the seller. Leaving their areas a mess, being unaccommodating and especially in markets that are flooded with options, a lot of buyers just won't bother with the difficulty of scheduling a showing in occupied properties. I've tried to purchase many properties where the renter insists on being there during a showing, but won't open the door and there's no recourse for the landlord because his lease or laws in the area don't allow you to enter without permission. Also, it can be difficult to look past a lot of clutter and other people's decorating and aroma ""preferences"" to be kind. :) Is the property currently under lease and what is the period of that lease? It could be that the lease is month to month, or it could be years remaining on the lease period. It is likely a legal requirement in most areas that you honor the existing lease. I would never buy a property that has multiple years remaining. While some amateur landlords will allow 2 or even 5 year leases, this is a very bad idea for many reasons! What are laws like in your area for evicting tenants? You should know this regardless of whether or not you intend to occupy or keep it a rental. It can be a very difficult process evicting tenants and this process is vastly different from country to country and state to state here in the USA. Look into the security deposit - assuming there is one. How much is the deposit? Will it cover damage that may not exist yet? Don't think that just because you plan on evicting them soon, it isn't important. People can trash a place on the way out and an expensive lawsuit could be your only recourse. It is far easier to take a deposit than sue. I would absolutely demand that the deposit transfer to you upon sale. View the current renters with a fresh eye. Especially if you are considering leave it a rental, look into all of the typical requirements: Their monthly income, their credit history, their criminal record, their payment history, their references. Are they likely to be good or terrible renters? If you're interested in the property, consider an offer which requires the current landlord to evict within the time-frame of the buy/sell agreement. This isn't an uncommon requirement. I think the first thing to do is go look at the property and see if you can determine for yourself why it hasn't sold yet. Properties all have different reasons for not selling in a reasonable time to the local market. Having renters alone in most markets shouldn't be that big of a factor. I would suspect bad smells, nasty renters, or an unfavorable lease agreement exists." You say that one property is 65% of the value of the two properties and the other is 35%.  But how much of that do the two of you actually own?  If you have co-signed mortgages on both properties, then your equity is going to be lower.  If you sold both properties, then your take away would be just half of that equity.  And while the 35% property may be less valuable, if you bought it first, it may actually have more equity.   It's the equity that matters here, not the value of the property.  With a mortgage, the bank is more of an owner than you are until you've paid down most of the loan.   You may find that the bank won't agree to a single-owner refinance.  A co-signed mortgage is a lot easier for them to collect, as they can hold either of you responsible for the entire loan.   If you sell the 65% property, then you can pay off any mortgage on that property and use the equity payout from that to buy out your relative on the 35% property.  If you currently have no mortgage, you'd even have cash back.  This is your fewest strings option.   Let's say that you have no mortgage now.  So this mortgage would be the only mortgage on the property.  It's not so much, as 15:65 is 3:13 or 18.75% of the value of the property.  That's more of a home equity loan than a mortgage.  You should be able to get a good rate.  It might reduce your short term profit, but it should be survivable if you have other income.   If you don't have other income, then seriously consider selling the 65% property and diversifying the payout into something else.  E.g. stocks and bonds.   Perhaps your relative would be willing to float you the loan.  That would save you bank fees and closing costs.  Write up a contract and agree to take assignment of the title at payoff.  You'll need to pay a lawyer to write up the contract (paying a modest amount now to cover the various future possibilities), but that should still be cheaper.   There's a certain amount of trust required on both sides, but this gives you some separation.  And of course it takes your relative out of the day-to-day management entirely.  Perhaps the steady flow of cash would provide what they need.   If your relative is willing to remain that involved, that can work.  Note that they may not want to do this, so don't get too attached to the idea.  Be prepared for a no.  This would be a great option for you, as you pretty much get everything you have now.  They get back the time meeting with you to make decisions, but they also give up control over those decisions.  Some people would not like that tradeoff.   The one time I was involved with a professional managing a property for me, the fee was around 7% of the rent.  If that fits your area, you might reasonably charge 5%.  That gives a discount for family and not being a professional.   There's a relatively easy way to find out what fits your area.  Look around and see what companies offer multiple listings.  Call until you find a couple that will do management for you.  Get quotes for managing your properties.  Now you'll know the amounts.   The big failing though is that this may not describe the issue that your relative has.  If the real problem is that the two of you have different approaches to property management, then making you the only decision maker may be the wrong direction.  This is certainly financially feasible, but it still may not be the right solution for your relationship.   If you get a no on this, I'd recommend moving on to other solutions immediately.  This may simply be too favorable to you. Get rid of the lease and buy a used car. A good buy is an Audi because they are popular, high-quality cars. A 2007 Audi A4 costs about $7000. You will save a lot of money by dumping the lease and owning. Go for quality. Stay away from fad cars and SUVs which are overpriced for their value. Full sized sedans are the safest cars. The maintenance on a high-quality old car is way cheaper than the costs of a newer car. Sell the overseas property. It is a strong real estate market now, good time to sell. It is never good to have property far away from where you are. You need to have a timeline to plan investments. Are you going to medical school in one year, three years, five years? You need to make a plan. Every investment is a BUY and a SELL and you should plan for both. If your business is software, look for a revenue-generating asset in that area. An example of a revenue-generating asset is a license. For example, some software like ANSYS has license costs in the region of $30,000 annually. If you broker the license, or buy and re-sell the license you can make a good profit. This is just one example. Use your expertise to find the right vehicle. Make sure it is a REVENUE-GENERATING ASSET.