conversation: User (MCtonihausen): "I have been renting out a house that I moved out of almost 3 years ago. I have been renting to a friend since then. I understand the 3-year point (since I have owned it over 5 years now) is when I can still sell it without paying capital gains. So I suddenly have a decision to make ... keep it or sell?\n\nHere are the stats:\nLoan:\n-30yr @4.85%\n-Total mortgage payment: $1008\n-No PMI\n-Owe 140k, will be paid off in 2039 (I’ll be just into retirement by then, or dead!)\n\nHouse:\nBought in 2004 originally for 142k \nCurrent value is 175k\nVery old neighborhood, mediocre schools but stable trendy area\nRepairs needed in next 5 yrs:\n-new roof ($4k)\n-new bathroom tile floor ($1k?)\n-basement dampness/water seepage issue ($1-10k)\n-1940’s plumbing and wiring. Maintain as needed\n-heat pump ($10k) when oil heat expires (or $5k oil heat and window units)\n\nRent:\n-Currently $1000\n-Want to hire property manager (10% cost) and raise rent to $1100-1150 which is realistic price\n\nOther considerations:\n-I have another rental that produces enough cash flow to help support this one. It would cover probably half of the major expenses listed above.\n\nI keep wavering on this one. It will cost me to own it in the short term and doesn’t produce any cash … but it’s mine already with no PMI and is a nice rentable house in a nice area. I've changed my mind several times about what to do with this one. Help! "
  Self: "I'm assuming you have a 30 year loan and purchased the house in 2009?  What I've noticed when playing with my silly real estate models is that you make a poor return in the first couple years and maximize your return around year 15. Sell it if you'd like but if it's a good investment you'd be foolish to do so. "
  User (MCtonihausen): "Thanks. This is indeed my dilemma. It needs some expensive attention over the next few years but then becomes profitable 10-ish years down the road.  The neighborhood is great and should stay that way. If it is a money pit for a few years and eventually turns the corner is that still a good investment in your opinion? "
  Self: "It's possible, my scenarios always included a 10K, 20K, 30K addition on the loan that would be used for major fixes (since it's included in the loan my fixes are levered).   The real benefit comes when your tenants pay your principle, your house is depreciated, and your interest is expensed pretax; the turning point is when your principle payments out weights your interest payments. \n\nI don't want to give you a yes or no because it's entirely dependent upon the details. If your rent is high, loan cheap, and property in a good location then it could very well still be a good investment. \n\nProject out the next 30 years and find the IRR; that should tell you if it's worth it or not. "
  User (MCtonihausen): "Great thanks.  I just looked up irr and will get cracking on figuring it out in Excel.  I like the idea of quantitatively assessing it but feel like I need a benchmark for  comparison. Should I compare it with another investment of the 15k cash I'd get for it? I was thinking of using the rent for retirement income one day. If you have a recommendation (since you sound smarter than me on the topic) I'd appreciate it! "
  Voerendaalse (Voerendaalse): "If you compare it, also don't forget to take into account the extra money you would put in the house and the mortgage over the next couple of years. Compare that situation to putting extra money towards other investments over the years. "
  User (MCtonihausen): "Thanks i will"
  