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Living on a Budget, Saving Money/Should I sell a portion of my property to a builder if it means losing a rental income?


My total property is valued at $375K. My house and a rental cottage are on the property. I rent the cottage for $1,200/mo. My mortgage is $340K. If I subdivide and sell the rear portion of my property to a builder, I will be able to keep my house, but will lose the rental cottage and subsequent income. The builder has offered to pay me $200K. Is it wiser to keep the property as is and continue to collect the rent, or take the $200K and use it to pay down on my existing mortgage?

Hi Lisa,

  Thank you for posting your question. You will need to provide more information to determine a pure dollar and cents answer to your question, and there are also some other questions that you will have to answer objectively.  First, the questions for you:

1) Roughly speaking, what is the pro-rated mortgage, pro-rated taxes, and expenses (to you)
  on your cottage, on a monthly basis?
2) What part of the country do you live in?  What is the real estate market like there?
  What is the prognosis for the real estate market in your area in the future?
3) What is the rental market like in your area?  Can you safely assume that you can continue to
  collect $1,200/month in the future?  Maybe 10 or 11 months occupancy is more realistic?

Here's a guide in determining which is the most cost effective option for you:

1) Add up your estimated expenses for the cottage as suggested above (mortgage, taxes,
  expenses). Multiply this amount by 12 to annualize.  Next, take that amount and subtract
  it from $13,200 (I'm assuming 11 months of occupancy & rental fees).  If you think that
  you can absolutely rent out for all 12 months without a hitch, then assume $14,400.  That
  difference is your positive cash flow on the unit per year.  Additionally, you can add
  back any depreciation that you are taking on the cottage on a given year, to your positive
  cash flow amount, and you can deduct any federal/state taxes that you will be paying on
  your cash flow profit per year. This final amount is what you are Netting per year, roughly

2) Next, determine how much interest you will be able to save by paying down your mortgage
  from this $200K amount.  As a rough estimate, multiply the interest rate on your mortgage
  times $200K, to provide you with a "rough" interest savings (on an annual basis) from this
  pay-down.  Then, deduct the aggregate tax savings that you would forgo on your taxes from
  forfeiting the deductibility of that interest on your federal/state taxes.  Also, you can
  add back any savings on RE taxes that you will recoup annually, from selling the cottage,
  and not having to pay these any more. You will come up with a Final amount of Netting per
  year this way.  Again, this is a rough estimate.

3) Compare # 1 vs. # 2.  Which is greater ?  This may clearly give you a choice as to the
  better option.  If the #'s of close, then move to next question.

4) Another intangible is to determine how much you might expect real estate to increase in
  your area over time, and how much you may be forfeiting over time, by subdividing and
  selling the cottage.  That is an intangible and an unknown, but may make one option
  above better than the other.

I hope this gets you on the right track, and makes you think about the dollars and cents


Doug Hayman

Living on a Budget, Saving Money

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Douglas Hayman


I will gladly answer any and all questions relating to family, home, or household budgeting. I consider myself a pioneer and expert in the area of disciplined budgeting.


I routinely manage my home budget using my home-grown system. Additionally, in corporate America, I managed a multi-million dollar budget for a technical Fortune 100 Financial Services company for many years.

(1) "Reduce Your Monthly Budget By 20% Using Simple Budgeting Strategies" (2012) ISBN # 978-0-9081613-1-1 (2) "How to Maximize Traffic to Your Website" (2007) - ISBN # 978-0-9801613-0-4

B.A., Economics, Stony Brook University, Stony Brook, NY M.S., Computer Science, Stony Brook University, Stony Brook, NY

Awards and Honors
B.A. with Honors, Economics, Stony Brook University, Stony Brook, NY

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