If you're in Fountain, and your loan will allow it, rent it. Or get a roommate. If you can weather the doldrums, you're much better off. The market is totally saturated with properties for sale but properties to rent are hard to find. The troops that are coming to Colorado via the Army's Ft. Carson expansion are not inclined to buy. They've been deployed too many times, there is smaller chance than before that families are traveling with soldiers and if they did own a home before, it's near Ft. Hood... Harker Heights is the fancy zip code there, and a nice home costs $150,000. They just don't have the money to buy here so they're not.

That market will turn around in 12 to 24 months in which case the home will be far more liquid. Your loan balance and Zillow value are not that far apart. That doesn't give you much wiggle room in a market as flat as this. I include Zestimates with my CMA's because I think it's important for sellers to see all pricing trends, months of inventory, rate of sale, probability of sale, seasonal buying patterns, price reduction patterns, closing cost patterns, etc. A Zestimate is part of that. In Fountain, due to heavy conformity of properties and fairly regular lots and views, it tends to be pretty accurate. But remember that accuracy is based on a buyer's participation. There is a 7 month supply of housing from $175,000 to $200,000 right now and the average price in F/V is $174,000. So paying $1260 a month for seven months on a vacant house... doesn't sound like much of a treat.

An FHA loan is not intended as an investment property vehicle so that handcuffs you to a degree. If there is anyway you can pay that principal down over the next two years, you should do it.

My weblink has market data for the entire city. It will be updated in a week when PPAR releases data through June.

James
I was reading your profile and it seems to me that you must have a pretty good idea of your options, so I am not sure what we can tell you that you do not already know.
My two cents is:
1. I am wondering why it it not rented now? I also don't know the market in this particular area. My understanding is that there is a lot of buidling going on in this area, so when supply goes UP, prices go down.
2. Do you and your brother have any kind of agreement, written or otherwise, regarding what will happen when one of you wants out? You do not say why he wants out, but selling and buying real estate is not cheap. The transaction costs are relatively high, so my thinking is just because he wants out, and let us say that they market has shifted so if you sell you may lose money, his desire to get out does not in itself make the sale of the property a wise decision.
3. Given the transaction costs my option would be to rent it out, then figure out how do deal with your brother. You note that you can add three more rooms to increase equity. If that were to make sense in that market then I be be tempted to follow that line of reasoning, particularly if you were intending to retain it for the long haul (which would be my recommendation).

So I would tell your brother that you'd like to accommodate him, but the market conditions are such that you might lose money, so YOUR choice is retain the property, add the rooms, and when sufficient equity exists, buy him out.

To get a true market value of your home you would need a professional market analysis done. Zillow is not always accurate. If your home is now vacant and you would like to know what a fair price is for rent a property manager can give you information on that. It is hard to say what would be best for you and your brother since it might effect your relationship with him. I would recommend getting the market analysis and then sit down with an agent and see what would work best for you both financially long term. I do offer a free market analysis and can help you determine a fair rental price. I would be willing to take a look at your property and assist you and your brother in making the right decision. You can call or email me to set up a time.
Pamela Weatherford
719.661.8672
719.749.2738
PamelasHomes@dishmail.net

You could sell the home and split the proceeds. You could give him whatever amount of money he is willing to accept and file a Quit Claim Deed. If he agrees to deferred payment, you could possibly "rent out" the home and give him monthly payments until the agreed upon amount has been paid and then file a Quit Claim Deed.
Although Zillow is a wonderful resource for general interest questions, a local realtor could provide you with a true estimate of the home's fair market value and perhaps offer suggestions for a solution to your dilemma.