Fort Myers, FL · Member since 2008 · 59 posts · 0 votes
I currently live in a condo that costs $800/mo for PITI and HOAs. The rental comps are $750 on the low side, $850 on the high side. It's break-even at best, but being realistic, it's not really going to make me money if I rent it out.
I'm looking to buy another place soon. If I got a place that was, for example, $550/mo to carry (I'm looking at small SFHs, a good DP and no HOAs), I'd be looking at $1350/mo.
If I rented out the condo for $750, I'd be losing $50/mo on that end, but would have reduced my monthly expenses by $200. Overall, I think the situation would be better that where I am now, but am I lying to myself in a way? I mean, losing $50 is losing $50.
Is this really just a dumb question because I might be able to make more renting out the house? I do NOT, right now, know what rents are for SFHs in the area I'm looking into.
Real Estate Investor · Katy, TX · Member since 2008 · 430 posts · 22 votes
18y
You also need to consider all other things besides PITI and HOA. Such as a certain percentage for fixups that you will need, vacancy, and error. Remember that PITI and HOA are not the only costs associated. So with the other costs, you might actually be more like $200 negative cash flow on this one.
Ft. Worth, TX · Member since 2008 · 97 posts · 16 votes
18y
What would be your motivation to keep a money-losing property?
Don't get me wrong... there are valid reasons... but if you don't know why you'd hang on to a money-losing property, then your best bet is probably to get rid of it.
Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
18y
Throughout the United States, operating expenses run 45% to 50% of the gross rent. Operating expenses include taxes, insurance, management, maintenance, vacancy, advertising, entity maintenance, legal expenses, evictions, setouts, damage done by the tenants (in excess of the security deposit), office supplies, lawsuits, utilities (at least during vacancies), capital expenses (not technically an operating expense), etc, etc, etc. (I could go on and on).
So, over time, you have a MUCH bigger loss than $50 per month. I would get rid of that property and not buy another until you understand cash flow, operating expenses, and the other issues associated with rental properties.
Fort Myers, FL · Member since 2008 · 59 posts · 0 votes
18y
Originally posted by "NogginBoink":
What would be your motivation to keep a money-losing property?
This is my only place, and it's where I live. I have no roommate or anything, so the only cashflow is the mortgage I pay (I have no other properties at the moment). Is that 'losing' money? I mean, it does go to the bank, but when I sell the place, I get it back. Is it 'just' an opportunity cost?
And Mike - you're right, I don't fully understand cashflow yet, which is why I'm asking the stuff that I'll probably laugh at down the road. But I'd rather do it this way than by just buying something and finding out that I screwed up real bad.
I've been reading on here for some time now, and the thing that opened up my eyes the most was just how much it 'costs' to rent. Seeing how the expenses pile up was like a smack in the head - I NEVER thought that you'd be able to get a place for a price low enough to provide positive cash flow after expenses. And I guess that's one of the tricks to making this work.
Ft. Worth, TX · Member since 2008 · 97 posts · 16 votes
18y
Originally posted by "FtMyersMike":
Originally posted by "NogginBoink":
What would be your motivation to keep a money-losing property?
This is my only place, and it's where I live. I have no roommate or anything, so the only cashflow is the mortgage I pay (I have no other properties at the moment). Is that 'losing' money? I mean, it does go to the bank, but when I sell the place, I get it back. Is it 'just' an opportunity cost?
And Mike - you're right, I don't fully understand cashflow yet, which is why I'm asking the stuff that I'll probably laugh at down the road. But I'd rather do it this way than by just buying something and finding out that I screwed up real bad.
I've been reading on here for some time now, and the thing that opened up my eyes the most was just how much it 'costs' to rent. Seeing how the expenses pile up was like a smack in the head - I NEVER thought that you'd be able to get a place for a price low enough to provide positive cash flow after expenses. And I guess that's one of the tricks to making this work.
OK, you're trying to treat your primary residence as an investment property in this thread. It's not! We all need a place to live, and we all expect 'negative cash flow' to pay for our primary residence.
You can't use investment property metrics on your primary residence! :)
Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
18y
For rental properties, cash flow is the money you have left after paying all the operating expenses and the mortgage. So, for your personal residence, cash flow doesn't really apply because it's not being used for business purposes.
I certainly don't consider paying the mortgage to be "losing" money, because it's not a business venture. I would consider your home to be nothing more than a large purchase.
You will never get it back, unless you sell your current residence and live under a bridge. You still will need to have a place to live, so the money from selling one house will just go to another one.
Fort Myers, FL · Member since 2008 · 59 posts · 0 votes
18y
That why I like your replies, Mike - they're very much 'right-to-the-point'!
BTW - I was reading some of your posts in the renters forum and sheesh...there's some crazy stuff you're dealing with! I got nothing but respect for you!
Real Estate Investor · Myrtle creek , OR · Member since 2008 · 343 posts · 13 votes
18y
FtMyersMike, Why not sell your condo and purchase a multi-family property? You can live in one unit and rent out the rest. I don't know your rental market but you should be able to live there free and possibly even cash flow.
Banker · MD · Member since 2008 · 30 posts · 1 vote
18y
Originally posted by "NogginBoink":
Originally posted by "FtMyersMike":
Originally posted by "NogginBoink":
What would be your motivation to keep a money-losing property?
This is my only place, and it's where I live. I have no roommate or anything, so the only cashflow is the mortgage I pay (I have no other properties at the moment). Is that 'losing' money? I mean, it does go to the bank, but when I sell the place, I get it back. Is it 'just' an opportunity cost?
And Mike - you're right, I don't fully understand cashflow yet, which is why I'm asking the stuff that I'll probably laugh at down the road. But I'd rather do it this way than by just buying something and finding out that I screwed up real bad.
I've been reading on here for some time now, and the thing that opened up my eyes the most was just how much it 'costs' to rent. Seeing how the expenses pile up was like a smack in the head - I NEVER thought that you'd be able to get a place for a price low enough to provide positive cash flow after expenses. And I guess that's one of the tricks to making this work.
OK, you're trying to treat your primary residence as an investment property in this thread. It's not! We all need a place to live, and we all expect 'negative cash flow' to pay for our primary residence.
You can't use investment property metrics on your primary residence! :)
True, but you CAN use them when BUYING a primary residence, at least using equity metrics instead of rental cashflow. In fact I advocate it.