Failing property on 15-year mortgage

Member since 2022 · 42 posts · 24 votes

Good morning everyone. So I’ll start by saying that I messed up!! I live in Nashville, TN but I bought my first rental property in Memphis, TN a year and some months ago.

My mortgage loan officer recommended a 15-year loan. Being new to this, it sounded good at the time. Estimated rent at the time had me breaking even on the property each month, and I make fairly decent money so I didn’t need the cash flow. The way my MLO pitched it was “put this on a 15 year, since you don’t need the cash flow. That way you’ll have 100% equity in 15 years and you can then bring in 100% cash flow versus just a few hundred dollars.”

Well, now rent at this property has somehow dropped drastically (from $1,350 a month to now $1,095 per month). The kicker is that my original tenant is out, and now my property management company still cannot get this thing rented… so I’ve paid my mortgage of $1,350 for the past 3 months. But even if it does get rented out at $1,095… I don’t know if it’s worth it.

So my question is- do I sell this property (valued at $170k and I owe $120k on it), and 1031 exchange it into a new property on a 30-year? Or do I just eat the $300/month once it’s rented and hope that rent goes back up in a year or so?

If you need any other details I’m happy to give them

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Mohammed Rahman

Real Estate Broker · New York, NY · Member since 2020 · 2k+ posts · 1k+ votes

Hey @Cody Thayer - I don't think you messed up at all. You earned a solid amount of cashflow for the years it was rented well, and made a big dent to the amount of equity you were able to gain from this. This is a win, and just like anything else in life random things happen and you have to deal with them.

I'm a bit concerned about the unit not being able to rent for the same amount as before, did something happen in the market to cause this? One thing to also consider is that you're not necessarily eating $300/month in cashflow. The tenant is still paying for a big chunk of your mortgage, while building equity in the home, and the property appreciating - there's more than one way to look at the scenario.

In terms of selling and getting into another 30-year... what's the gameplan here? Why not just refinance into a 30yr on the same property - unless you absolutely hate it and want to get something bigger.

My $0.02 there's more than one way to peel this onion, don't narrow yourself into just an option of selling and buying another house that you'll be in the same position with (numbers wise) in a short while.

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Jacob St. MartinPro Member
Investor · Charlottesville Virginia · Member since 2021 · 348 posts · 346 votes
3y
Hello Cody! FIrst, I am sorry that your loan officer gave you this bad advice! You should definitely sell this property and 1031 into a better asset. It is not worth it to be losing money every month and just hoping that it will get better when you could park that money in a different city where you will experience better cash flow and likely better appreciation and rent growth. I would also stick to the 30 year mortgage. For your next investment it would probably be better to speak with a property manager in the area or to have a partner who knows the market well and should be able to give you accurate rent estimates.
7 Reply
Mohammed Rahman
Real Estate Broker · New York, NY · Member since 2020 · 2k+ posts · 1k+ votes
3y
Hey @Cody Thayer - I don't think you messed up at all. You earned a solid amount of cashflow for the years it was rented well, and made a big dent to the amount of equity you were able to gain from this. This is a win, and just like anything else in life random things happen and you have to deal with them.
I'm a bit concerned about the unit not being able to rent for the same amount as before, did something happen in the market to cause this? One thing to also consider is that you're not necessarily eating $300/month in cashflow. The tenant is still paying for a big chunk of your mortgage, while building equity in the home, and the property appreciating - there's more than one way to look at the scenario.
In terms of selling and getting into another 30-year... what's the gameplan here? Why not just refinance into a 30yr on the same property - unless you absolutely hate it and want to get something bigger.
My $0.02 there's more than one way to peel this onion, don't narrow yourself into just an option of selling and buying another house that you'll be in the same position with (numbers wise) in a short while.
13 Reply
Cody Thayer
OP
Member since 2022 · 42 posts · 24 votes
3y
Quote from @Jacob St. Martin:

Hello Cody! FIrst, I am sorry that your loan officer gave you this bad advice! You should definitely sell this property and 1031 into a better asset. It is not worth it to be losing money every month and just hoping that it will get better when you could park that money in a different city where you will experience better cash flow and likely better appreciation and rent growth. I would also stick to the 30 year mortgage. For your next investment it would probably be better to speak with a property manager in the area or to have a partner who knows the market well and should be able to give you accurate rent estimates.
Thank you Jacob! I appreciate the help sir, this is my first time posting and I am very glad that I did!! Huge help!
0 Reply
Cody Thayer
OP
Member since 2022 · 42 posts · 24 votes
3y
Quote from @Mohammed Rahman:

Hey @Cody Thayer - I don't think you messed up at all. You earned a solid amount of cashflow for the years it was rented well, and made a big dent to the amount of equity you were able to gain from this. This is a win, and just like anything else in life random things happen and you have to deal with them.
I'm a bit concerned about the unit not being able to rent for the same amount as before, did something happen in the market to cause this? One thing to also consider is that you're not necessarily eating $300/month in cashflow. The tenant is still paying for a big chunk of your mortgage, while building equity in the home, and the property appreciating - there's more than one way to look at the scenario.
In terms of selling and getting into another 30-year... what's the gameplan here? Why not just refinance into a 30yr on the same property - unless you absolutely hate it and want to get something bigger.
My $0.02 there's more than one way to peel this onion, don't narrow yourself into just an option of selling and buying another house that you'll be in the same position with (numbers wise) in a short while.
Hey Mohammed!

I am fully onboard with everything, except I cannot get a clear answer on what happened to make rent drop so low. I recently got a new/more responsive property manager, and he has had the same struggle my last prop manager had. It rented out within a week last year, so I’m not sure what’s happening. I do agree with the fact that I shouldn’t look at this as a loss, because for the year that the tenant was there, I got a lot of principal paid versus interest so that’s a really good point. I do have a bunch of options to consider, so it’s good to get the view points from people who do this! Versus my mortgage loan officer or Edward Jones advisor haha.
1 Reply
Stephanie P.Pro Member
Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
3y
Quote from @Cody Thayer:

Good morning everyone. So I’ll start by saying that I messed up!! I live in Nashville, TN but I bought my first rental property in Memphis, TN a year and some months ago.

My mortgage loan officer recommended a 15-year loan. Being new to this, it sounded good at the time. Estimated rent at the time had me breaking even on the property each month, and I make fairly decent money so I didn’t need the cash flow. The way my MLO pitched it was “put this on a 15 year, since you don’t need the cash flow. That way you’ll have 100% equity in 15 years and you can then bring in 100% cash flow versus just a few hundred dollars.”

Well, now rent at this property has somehow dropped drastically (from $1,350 a month to now $1,095 per month). The kicker is that my original tenant is out, and now my property management company still cannot get this thing rented… so I’ve paid my mortgage of $1,350 for the past 3 months. But even if it does get rented out at $1,095… I don’t know if it’s worth it.

So my question is- do I sell this property (valued at $170k and I owe $120k on it), and 1031 exchange it into a new property on a 30-year? Or do I just eat the $300/month once it’s rented and hope that rent goes back up in a year or so?

If you need any other details I’m happy to give them

Absolutely sell and sell now. Next year (she says as she pulls out her crystal ball), we'll have a correction in the market of around 20% from today's values and you'll have an underperforming building that's worth 146K instead of 170K. If you owe 120K and pay a Realtor 6%, you'll barely break even. Unfortunately, you bought at just about the height of the market.
1 Reply
Cody Thayer
OP
Member since 2022 · 42 posts · 24 votes
3y
Quote from @Stephanie P.:

Quote from @Cody Thayer:

Good morning everyone. So I’ll start by saying that I messed up!! I live in Nashville, TN but I bought my first rental property in Memphis, TN a year and some months ago.

My mortgage loan officer recommended a 15-year loan. Being new to this, it sounded good at the time. Estimated rent at the time had me breaking even on the property each month, and I make fairly decent money so I didn’t need the cash flow. The way my MLO pitched it was “put this on a 15 year, since you don’t need the cash flow. That way you’ll have 100% equity in 15 years and you can then bring in 100% cash flow versus just a few hundred dollars.”

Well, now rent at this property has somehow dropped drastically (from $1,350 a month to now $1,095 per month). The kicker is that my original tenant is out, and now my property management company still cannot get this thing rented… so I’ve paid my mortgage of $1,350 for the past 3 months. But even if it does get rented out at $1,095… I don’t know if it’s worth it.

So my question is- do I sell this property (valued at $170k and I owe $120k on it), and 1031 exchange it into a new property on a 30-year? Or do I just eat the $300/month once it’s rented and hope that rent goes back up in a year or so?

If you need any other details I’m happy to give them

Absolutely sell and sell now. Next year (she says as she pulls out her crystal ball), we'll have a correction in the market of around 20% from today's values and you'll have an underperforming building that's worth 146K instead of 170K. If you owe 120K and pay a Realtor 6%, you'll barely break even. Unfortunately, you bought at just about the height of the market.
Fair enough! I am very thankful for your transparency and honesty Stephanie! I am talking with my realtor to see what her thoughts are on what I can officially get, some maybe the real estate gods will shed some light down on me and I’ll luck out at a high selling price haha (probably not)
1 Reply
Reid Chauvin
Lender · Nashville TN - Licensed in AL AR DC FL GA LA MD TN, TX and VA · Member since 2021 · 583 posts · 338 votes
3y
@Cody Thayer - this is a tough time of year to rent out vacant properties - It may not be that there's something wrong with your property. I'd encourage you to evaluate refinancing the property to a 30-year, just as an alternative to selling right now. This is a bit less of a seller's market than last year and what many expect next year and beyond to be. Happy to answer any additional questions you have!
2 Reply
Cody Thayer
OP
Member since 2022 · 42 posts · 24 votes
3y
Quote from @Reid Chauvin:

@Cody Thayer - this is a tough time of year to rent out vacant properties - It may not be that there's something wrong with your property. I'd encourage you to evaluate refinancing the property to a 30-year, just as an alternative to selling right now. This is a bit less of a seller's market than last year and what many expect next year and beyond to be. Happy to answer any additional questions you have!

Hey Reid! Yes, you have a similar response to Mohammed, and I am interested in that. that is definitely going to be an option I look into. I’ll be contacting my MLO to see what it costs and how much my interest rate would change on a refi. One thing I forgot to mention is that my internet rate on this house is 2.9%.
0 Reply
Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
3y
3 months to find a tenant is unacceptable. 3 weeks is a long time, especially since you are dealing with winter weather in Tennessee. Try another PM? At least sl them what’s wrong? Rents have gone up since last year, they certainly aren’t down 20%. Any chance this was a “turnkey” property with an overpaying renter to sell you on the property or did your pm find this renter after you owned it?

there’s probably no reason to do a 1031, hour gain after selling costs will be minimal or need to be rushed.

But…I probably wouldn’t sell. You’ll probably find a 30 year loan at today’s rates will have payments just as high as you’re going to make for 14 more years but triple the interest expense.
5 Reply
Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
3y
Quote from @Cody Thayer:

Good morning everyone. So I’ll start by saying that I messed up!! I live in Nashville, TN but I bought my first rental property in Memphis, TN a year and some months ago.

My mortgage loan officer recommended a 15-year loan. Being new to this, it sounded good at the time. Estimated rent at the time had me breaking even on the property each month, and I make fairly decent money so I didn’t need the cash flow. The way my MLO pitched it was “put this on a 15 year, since you don’t need the cash flow. That way you’ll have 100% equity in 15 years and you can then bring in 100% cash flow versus just a few hundred dollars.”

Well, now rent at this property has somehow dropped drastically (from $1,350 a month to now $1,095 per month). The kicker is that my original tenant is out, and now my property management company still cannot get this thing rented… so I’ve paid my mortgage of $1,350 for the past 3 months. But even if it does get rented out at $1,095… I don’t know if it’s worth it.

So my question is- do I sell this property (valued at $170k and I owe $120k on it), and 1031 exchange it into a new property on a 30-year? Or do I just eat the $300/month once it’s rented and hope that rent goes back up in a year or so?

If you need any other details I’m happy to give them

Your mortgage is $1350 with a rent of $1350 that is now having difficulty finding a tenant at $1095???

First let us address the cash flow. Even when rented at $1350, this property has large negative cash flow. There are many expenses other than the $1350 mortgage. This includes cap ex/maintenance, Vacancy, PM, etc.

Now to address the 15 year mortgage. When interest rates are as low as they were just over a year ago, the 30 year loan is an hedge against inflation. Because the 30 year rates were so low, the rate discount for 15 years was far less than historical. Final item is that 30 year mortgage in all cases allow a greater leverage opportunity than a 15 year mortgage. You issue now is that with the rate increase, to refinance into the 30 year mortgage is unlikely to result in significant payment reduction.

The unit rent reduction from $1350 to $1095 I am having issues. Did you inherit the tenant that was paying $1350? Something seems very strange. In addition, if the unit has not rented at $1095 for 3 months, I would argue that the market rent is less than $1095. In my market, if rent was set at market rate the unit would be rented in a week. Assuming market rent is less than $1095, the cash flow situation gets worst. The negative cash flow on this when properly allocating for all expenses could approach $1k/month.

Selling is one option. but are there other options? Are STRs allowed? If they are allowed, maybe STR will provide better cash flow. If the STR rental, maybe you can consider a mid term rental (30+ days) to improve your cash flow. Another option is to rent by the room.
Good luck
5 Reply
Joseph BeilkeBusiness Member
Real Estate Agent · Palm Coast, FL · Member since 2018 · 364 posts · 244 votes
3y
@Cody Thayer

What class of neighborhood is the property in?

What is condition of property and Beds and Baths?

Do you allow large dogs or cats?

How much is the PM Charging you to place a tenant and what is the monthly after that?

Why did the tenant paying $1350 leave?

Have you thought about section 8 or getting it listed with Military Base housing office if you are near base or fort?

Answering this question might help us help you better. Also tell anything about the property that might help form a better picture of what you're working with.

240-676-4927
Enkore Real Estate & Property Management4.836 Reviews
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1 Reply
Cody Thayer
OP
Member since 2022 · 42 posts · 24 votes
3y
Quote from @Bill B.:

3 months to find a tenant is unacceptable. 3 weeks is a long time, especially since you are dealing with winter weather in Tennessee. Try another PM? At least sl them what’s wrong? Rents have gone up since last year, they certainly aren’t down 20%. Any chance this was a “turnkey” property with an overpaying renter to sell you on the property or did your pm find this renter after you owned it?

there’s probably no reason to do a 1031, hour gain after selling costs will be minimal or need to be rushed.

But…I probably wouldn’t sell. You’ll probably find a 30 year loan at today’s rates will have payments just as high as you’re going to make for 14 more years but triple the interest expense.
Yeah that’s what has been at the back of my mind as far as 1031 exchange, is the higher interest rates right now. But I did buy the house with no tenants, and the tenants were found by my property management company. This is the second one I’ve used trying to get this house rented, and no luck. They do not know what’s going on, and I’ve tried to call a couple other PMs but nobody is answering.

You are right though, in I need to talk to my MLO to see what a new house note would be if I did an exchange. My two worries are this:
1) if I keep house, then I continue to pay $300/month out of pocket. Then I get to a point in the next 3-5 years where I need to sell and the pricing has corrected. So I’ve ended up paying more for a house that’s worth less.
and 2) if I do an exchange and I end up in the same boat, then now I’m paying higher interest over 30 years. Like you mentioned.
That’s what I’ve struggling with for sure. I’ll continue calling other PMs around memphis in the meantime though, that couldn’t hurt at all. Thank you Bill!
0 Reply
Cody Thayer
OP
Member since 2022 · 42 posts · 24 votes
3y
Quote from @Dan H.:

Quote from @Cody Thayer:

Good morning everyone. So I’ll start by saying that I messed up!! I live in Nashville, TN but I bought my first rental property in Memphis, TN a year and some months ago.

My mortgage loan officer recommended a 15-year loan. Being new to this, it sounded good at the time. Estimated rent at the time had me breaking even on the property each month, and I make fairly decent money so I didn’t need the cash flow. The way my MLO pitched it was “put this on a 15 year, since you don’t need the cash flow. That way you’ll have 100% equity in 15 years and you can then bring in 100% cash flow versus just a few hundred dollars.”

Well, now rent at this property has somehow dropped drastically (from $1,350 a month to now $1,095 per month). The kicker is that my original tenant is out, and now my property management company still cannot get this thing rented… so I’ve paid my mortgage of $1,350 for the past 3 months. But even if it does get rented out at $1,095… I don’t know if it’s worth it.

So my question is- do I sell this property (valued at $170k and I owe $120k on it), and 1031 exchange it into a new property on a 30-year? Or do I just eat the $300/month once it’s rented and hope that rent goes back up in a year or so?

If you need any other details I’m happy to give them

Your mortgage is $1350 with a rent of $1350 that is now having difficulty finding a tenant at $1095???

First let us address the cash flow. Even when rented at $1350, this property has large negative cash flow. There are many expenses other than the $1350 mortgage. This includes cap ex/maintenance, Vacancy, PM, etc.

Now to address the 15 year mortgage. When interest rates are as low as they were just over a year ago, the 30 year loan is an hedge against inflation. Because the 30 year rates were so low, the rate discount for 15 years was far less than historical. Final item is that 30 year mortgage in all cases allow a greater leverage opportunity than a 15 year mortgage. You issue now is that with the rate increase, to refinance into the 30 year mortgage is unlikely to result in significant payment reduction.

The unit rent reduction from $1350 to $1095 I am having issues. Did you inherit the tenant that was paying $1350? Something seems very strange. In addition, if the unit has not rented at $1095 for 3 months, I would argue that the market rent is less than $1095. In my market, if rent was set at market rate the unit would be rented in a week. Assuming market rent is less than $1095, the cash flow situation gets worst. The negative cash flow on this when properly allocating for all expenses could approach $1k/month.

Selling is one option. but are there other options? Are STRs allowed? If they are allowed, maybe STR will provide better cash flow. If the STR rental, maybe you can consider a mid term rental (30+ days) to improve your cash flow. Another option is to rent by the room.
Good luck
Thank you Dan! I actually spoke with a STR and they said that area wouldn’t do too well. He said the amount I’d have to pay for furnishing and getting it up to STR quality would set me back even farther, and then the extra expenses I’d pay each month would offset it and I’d be in the same boat.

There is always the traveling nurse programs as well, but I didn’t look into that once the STR discouraged me with the furnishing side of things. You are right, I do need to exhaust all options and make sure I’m not missing something. My hopes for the 1031 exchange would be that I find a new house in another area that can STR and makeup for the higher interest rates. I’m not sure though, I’ve definitely felt at a loss. Thank you Dan for making me think outside the box, this is oddly enough what I love about real estate- it keeps me thinking and trying to come up with solutions!!
0 Reply
Cody Thayer
OP
Member since 2022 · 42 posts · 24 votes
3y
Quote from @Joseph Beilke:

@Cody Thayer

What class of neighborhood is the property in?

What is condition of property and Beds and Baths?

Do you allow large dogs or cats?

How much is the PM Charging you to place a tenant and what is the monthly after that?

Why did the tenant paying $1350 leave?

Have you thought about section 8 or getting it listed with Military Base housing office if you are near base or fort?

Answering this question might help us help you better. Also tell anything about the property that might help form a better picture of what you're working with.

Middle class neighborhood. 1/2 mile from the University of Memphis campus. 2 beds, full baths (very odd I know). 1100 sq ft. I haven’t really thought about section 8 due to the neighborhood being more college students. However, the military housing might work!! I’ll look into this. Is there a site, similar to the Traveling Nurse programs that are out there?
1 Reply
Jaron WallingPro Member
Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
3y
@Cody Thayer Looks like you really threw yourself into the deep huh?! Who cares if you bought at the height of the market. Who cares if you choose a 15yr loan over a 30. The way I see it is you have stable 9-5 income, a growing investor mindset, and you took action. It's really encouraging to see you reading, replying, and taking everyone's advice.

As an investor you still have options and options = money. It's a challenge to adjust your rental strategy, learn to run the numbers accurately, and solve this problem. REI is all about solving problems. In my opinion I'm bias on your market. I'm willing to bet you'll command $1200 or so in the spring if you hold. There's going to be more demand. You could rent to military like others mentioned for same or more. There are options to explore before selling and starting over.
4 Reply
Cody Thayer
OP
Member since 2022 · 42 posts · 24 votes
3y
Quote from @Jaron Walling:

@Cody Thayer Looks like you really threw yourself into the deep huh?! Who cares if you bought at the height of the market. Who cares if you choose a 15yr loan over a 30. The way I see it is you have stable 9-5 income, a growing investor mindset, and you took action. It's really encouraging to see you reading, replying, and taking everyone's advice.

As an investor you still have options and options = money. It's a challenge to adjust your rental strategy, learn to run the numbers accurately, and solve this problem. REI is all about solving problems. In my opinion I'm bias on your market. I'm willing to bet you'll command $1200 or so in the spring if you hold. There's going to be more demand. You could rent to military like others mentioned for same or more. There are options to explore before selling and starting over.

Jaron I appreciate that response, as I’m definitely doing what I can to be proactive and successful in the real estate world. So that sheds some light in my direction on making me feel like I haven’t failed as long as I keep trying.
Two people who messaged me on here, from the Memphis market, offered to run some rent evaluations on my property to give me a straight up answer. If it comes back higher than what my PM is telling me, then I will for sure be switching PM companies regardless. I will be looking into the military options this weekend and seeing what all is out there, as if I can find a way to make the rental make sense- then I’d love to keep it!

Thank you again for this response Jaron! The community here has been welcoming and very helpful!
1 Reply
Jon A.
Investor · Brooklyn, NY · Member since 2022 · 158 posts · 118 votes
3y

@Cody Thayer Two easy solutions to your problem. 1) Refi into a 30 yr mortgage to lower your monthly overhead. 2) Self manage. I'm shocked by the number of posts here about people losing money and searching for solutions while paying a third party between 5% and 10% of gross rent. According to Google, you're 3 and some hours from your property. Self management seems doable. Get a realtor to find you a tenant and a handyman to act as a super.... Also, how in the world did rent decrease by some 30%? Rent stagnates but generally doesn't go down.
1 Reply
Luka Milicevic
Real Estate Agent · Nashville, TN · Member since 2015 · 2k+ posts · 2k+ votes
3y
There's nothing wrong with the advice your lender gave you. I would have given you the exact same advice.
70% of my properties are on 15 year notes. I get them as close to zero cash flow as I can because like your lender said....I don't need the cash flow.
Selling is short term thinking...every deal you do is going to go through different patches. Good times and bad times. If you sold every property anytime you came into a road block you would be selling constantly.
Time of year is bad to rent properties, but the fact that you can't get it rented for 3 months now seems excessive. Perhaps it's in really bad shape? I don't know what the story is here but rent should not have dropped that much.
I would not sell or refinance this property if it was mine. I would just look into possibly making some improvements and changing prop managers.
3 Reply
Cody Thayer
OP
Member since 2022 · 42 posts · 24 votes
3y
Quote from @Jon A.:

@Cody Thayer Two easy solutions to your problem. 1) Refi into a 30 yr mortgage to lower your monthly overhead. 2) Self manage. I'm shocked by the number of posts here about people losing money and searching for solutions while paying a third party between 5% and 10% of gross rent. According to Google, you're 3 and some hours from your property. Self management seems doable. Get a realtor to find you a tenant and a handyman to act as a super.... Also, how in the world did rent decrease by some 30%? Rent stagnates but generally doesn't go down.

I like your idea of self management. I do have a 9-5 job, but in the grand scheme- maintenance/handy man is probably 99% of the reason anyone needs to visit the property. So that does seem doable. I have a couple people from here running some evaluations on rent and if it’s where my PM is saying that it is.

I need to talk with my MLO on the Refi, but I hadn’t considered until reading through these posts. Only because my interest rate is 2.99 I thought it’d wash out. But that’s what I get for assuming. I’ll be connecting with my MLO to see what he thinks my new payment would be! Thank you Jon!!
0 Reply
Cody Thayer
OP
Member since 2022 · 42 posts · 24 votes
3y
Quote from @Luka Milicevic:

There's nothing wrong with the advice your lender gave you. I would have given you the exact same advice.
70% of my properties are on 15 year notes. I get them as close to zero cash flow as I can because like your lender said....I don't need the cash flow.
Selling is short term thinking...every deal you do is going to go through different patches. Good times and bad times. If you sold every property anytime you came into a road block you would be selling constantly.
Time of year is bad to rent properties, but the fact that you can't get it rented for 3 months now seems excessive. Perhaps it's in really bad shape? I don't know what the story is here but rent should not have dropped that much.
I would not sell or refinance this property if it was mine. I would just look into possibly making some improvements and changing prop managers.

I think what I’m going to do is give it til Christmas. I will be in that area for Christmas, and will schedule to make some updates to this property based off my agent’s thoughts. I’d love to keep renting this property, it’s just that $1,350 on top of some other expenses is starting to eat at me after 3 months. I’m also going to call some other PMs again and see if I can get them to answer! Thank you Luka for the perspective, as if I don’t have to sell then I don’t want to!
1 Reply
Eliott Elias
Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
3y
How does rent drop that much? Sell it owner finance, 10% down 10% interest.
3 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
3y
Quote from @Cody Thayer:

Quote from @Joseph Beilke:

@Cody Thayer

What class of neighborhood is the property in?

What is condition of property and Beds and Baths?

Do you allow large dogs or cats?

How much is the PM Charging you to place a tenant and what is the monthly after that?

Why did the tenant paying $1350 leave?

Have you thought about section 8 or getting it listed with Military Base housing office if you are near base or fort?

Answering this question might help us help you better. Also tell anything about the property that might help form a better picture of what you're working with.

Middle class neighborhood. 1/2 mile from the University of Memphis campus. 2 beds, full baths (very odd I know). 1100 sq ft. I haven’t really thought about section 8 due to the neighborhood being more college students. However, the military housing might work!! I’ll look into this. Is there a site, similar to the Traveling Nurse programs that are out there?

there ya have it.. if this property has historically gone to collage students they dont move but one time a year and thats July August. you miss that window and your going to have a hard time with tenants.. and sounds like collage students were paying a premium.. I had the same thing happen to me in Charleston SC.. we missed the collage start date and the property sat vacant for 6 months till we could get new kids in there then it sold right away.
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2 Reply
Cody Thayer
OP
Member since 2022 · 42 posts · 24 votes
3y
Quote from @Eliott Elias:

How does rent drop that much? Sell it owner finance, 10% down 10% interest.

I have actually been listening to “No Money Down” podcast lately, and am interested in this. I’ve thought about using it to get my next property just to try it out. But I haven’t thought about doing it myself! Guaranteed return basically. Very interesting perspective, I just texted my agent about this option!
0 Reply
Dan Garrigus
Lender · San Diego · Member since 2022 · 57 posts · 28 votes
3y
Hi @Cody Thayer I can definitely understand why you are thinking the way you are but you definitely DID NOT mess up. If you can still financially afford the monthly payment this is should not be the time to decide whether or not to 1031 this property.
The question should be, How is this property being marketed? What can be done to the property to create a desire to be rented? How can I add value to the next tenant? Etc. The problem seems to be a marketing issue behalf of the Property Management Companies that you have used, granted this time of the year can be more difficult find a tenant with all the holidays.
If the situation is more financially dire, I would consider refinancing. Yes, you will end up with a higher interest rate but you will also have an additional 17+ years to pay off the principal. When rates come back down and they will come back down you can always refinance it again to increase your cash flow. If you were to sell and 1031 you will most likely incur a higher rate than you currently have so selling to 1031 doesnt help the situation.
If I were you, I would refinance it to a 30 year and find ways to add value to the property to draw tenant interest your way. Never discount your monthly rate either, give a first month at a heavy discount or maybe even free to help your situation.
Hope this helps!
1 Reply
Cody Thayer
OP
Member since 2022 · 42 posts · 24 votes
3y
Quote from @Jay Hinrichs:

Quote from @Cody Thayer:

Quote from @Joseph Beilke:

@Cody Thayer

What class of neighborhood is the property in?

What is condition of property and Beds and Baths?

Do you allow large dogs or cats?

How much is the PM Charging you to place a tenant and what is the monthly after that?

Why did the tenant paying $1350 leave?

Have you thought about section 8 or getting it listed with Military Base housing office if you are near base or fort?

Answering this question might help us help you better. Also tell anything about the property that might help form a better picture of what you're working with.

Middle class neighborhood. 1/2 mile from the University of Memphis campus. 2 beds, full baths (very odd I know). 1100 sq ft. I haven’t really thought about section 8 due to the neighborhood being more college students. However, the military housing might work!! I’ll look into this. Is there a site, similar to the Traveling Nurse programs that are out there?

there ya have it.. if this property has historically gone to collage students they dont move but one time a year and thats July August. you miss that window and your going to have a hard time with tenants.. and sounds like collage students were paying a premium.. I had the same thing happen to me in Charleston SC.. we missed the collage start date and the property sat vacant for 6 months till we could get new kids in there then it sold right away.

Ok good to know!! It’s been frustrating because if my property management company could have said this 3 months ago then I wouldn’t feel so trapped and worried. Their only solution is to keep dropping the price, and that doesn’t seem right. That makes sense, reading your response. Thank you!!
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