Losing money on condo - sell or rent/hold

21 Replies

Hi All,

Definite newbie question here as I'm just starting out my RE journey and taking a lose on my first purchased property.

I purchase my condo in San Diego about 1 year ago and I just rented it out starting this September for a 1 year lease so I can move back home with my parents and save up for a flip or a BRRR.

I purchased the condo for 310K and my monthly mortgage/HOA/expense total is $2,269 and my tenant pays $1,850 a month along with utilities. So I'm losing $419 a month. Basically, I'm about to refinance which would save ~$100 dollars per month off my mortgage, but I would still be losing ~$300 dollars a month on it while I'm back living with my parents and saving.

So my two options are to either hold onto the place and take the 400 dollar a month loss and sell it immediately next August or continue with the refinance, save $100 a month on it, and hold onto the place for at least 3 years so the refinance would be financially viable.

Either way I'm taking a loss with my first stumble into real estate, and this condo definitely feels like a huge obstacle in terms of how much I can save.

Thanks all for any input or advice

When it comes to investing, there’s only 1 rule ... “don’t lose money”.

Do whatever it takes to abide. 

First off, how did you end up in this debacle? Secondly, Marci is right....never lose money! But on a serious note....my thought is to kick that tenant out immediately and either raise rent to at least break even or Airbnb it and most likely cash flow positive. Where is the condo located in SD? 

Hm yeah all really good points.

Ha and yeah it is quite the debacle. I was so excited about buying my first place with having no prior real estate knowledge and receiving so so advice.

Ultimately, its my fault for not researching and planning, but its in Mission Valley in SD. 

I'm going to look into selling it while tenant occupied if possible. I really don't want to eat that cost each month.

Thanks again for all the input

First, your long term negative cash flow is significantly higher than you calculated because you do not have a vacancy, maintenance or cap expense estimates. Your rent to value ratio is 0.6% which is going to be cash negative in virtually all markets.

Second, does the condo association allow Short term rentals (STR)? If it does, after the current lease is up that could be an option to help with the cash flow assuming the condo is in a desirable area. I will state that STRs are a lot more effort than Long Term Rentals (LTRs) so you will either need to hire a PM or take on the extra work.

The last year San Diego experienced minimal appreciation. Selling it you may need to bring money to the selling to pay for selling cost depending on your initial loan to value percentage. Are you prepared to do that?

I think you did not purchase an investment RE and trying to convert it to one is going to cost you in the short term.

Hopefully the STR option is allowed and provides a means to not lose a lot on this purchase.

Good luck

Hi Dan

Yes, that's right I was going to live here for a while, but I wanted to take advantage of being able to go back home and save while I could. 

I may have to eat the cost and then consider the STR option once the tenant's lease is up to minimize loss.

Thanks for the advice... this will be definitely be a costly lesson learned.

Your mortgage is STELLAR for a condo. The exception will be in SFO city.  $419x36 months loss is astronomically expensive assuming you receive rent continuously with no missing payment or job loss... I start hearing global recession discussion at least several times almost daily. I will not hesitate to discuss with your tenant that you will sell the property see if he will vacate or sell with him inside.

Look at the bright side this is a write off. Not all RE are good investment. 
Good luck,

Sam Shueh

Most HOA forbids short term rentals. Some will not even allow any members to lease out. Get it in writing from HOA president.

@Zack D'Aiello maybe I’m just an *******, but you can creativity get that tenant to move out before the lease is up. No way in hell would I be losing $400/month. Make them move out, Airbnb the place for double your mortgage in Mission valley at probably 75% occupancy. Think outside the box here, last thing I would do is sell.

@Zack D'Aiello You bought it for you to live in, not for a rental meaning the numbers may not work for a rental. There are a few ways to look at it. Your tenant is paying most of your costs, so for a year you can rent it out and they will pay down some of your mortgage while you are saving. Yes you are 'losing' $400 per month, but you are also 'saving' $1870 by your tenant paying the HOA/mortgage/taxes. Yes there will be some other expenses, but I'd say rent it to them for the year; then sell it.

Originally posted by @Zack D'Aiello :

Hi All,

Definite newbie question here as I'm just starting out my RE journey and taking a lose on my first purchased property.

I purchase my condo in San Diego about 1 year ago and I just rented it out starting this September for a 1 year lease so I can move back home with my parents and save up for a flip or a BRRR.

I purchased the condo for 310K and my monthly mortgage/HOA/expense total is $2,269 and my tenant pays $1,850 a month along with utilities. So I'm losing $419 a month. Basically, I'm about to refinance which would save ~$100 dollars per month off my mortgage, but I would still be losing ~$300 dollars a month on it while I'm back living with my parents and saving.

So my two options are to either hold onto the place and take the 400 dollar a month loss and sell it immediately next August or continue with the refinance, save $100 a month on it, and hold onto the place for at least 3 years so the refinance would be financially viable.

Either way I'm taking a loss with my first stumble into real estate, and this condo definitely feels like a huge obstacle in terms of how much I can save.

Thanks all for any input or advice

If that condo wasn't yours, and you saw it for sale, with that renter, would you buy it?  I'm guessing you wouldn't buy it.  For that same reason, you should sell it.  

Hi All - thanks for more input.

Some definite good points @Cody L. and @Theresa Harris

I'm going to wait for this current lease to be up and then raise the rent to break even or hopefully make a profit on it soon.

I'll offer it to the current tenants, but if they would like to pass it up I will list it on zillow and see how much more I can get. 

Hopefully, after the next year I can make a monthly profit on it and will hold onto it for the next couple years until I can sell it for a guaranteed profit.

"I'm going to wait for this current lease to be up and then raise the rent to break even or hopefully make a profit on it soon...I will list it on zillow and see how much more I can get."  That's negative $2269 per month of vacancy while you test those waters.

"Hopefully, after the next year I can make a monthly profit on it and will hold onto it for the next couple years until I can sell it for a guaranteed profit."  Hoping for appreciation is certainly not a guaranteed profit.  

I am in basically the exact same situation as you with my moms house which I manage for her.  She bought it to live in, her health took a nose dive so she is in an assisted living facility now.  I am trying to stop the money hemorrhage by renting it out but it is still cash flow negative, coincidentally at $400/mo.  She has the reserves to take the loss while hoping for appreciation but it is definitely a gamble not a guarantee.

Originally posted by @Brant Richardson :

"I'm going to wait for this current lease to be up and then raise the rent to break even or hopefully make a profit on it soon...I will list it on zillow and see how much more I can get."  That's negative $2269 per month of vacancy while you test those waters.

"Hopefully, after the next year I can make a monthly profit on it and will hold onto it for the next couple years until I can sell it for a guaranteed profit."  Hoping for appreciation is certainly not a guaranteed profit.  

I am in basically the exact same situation as you with my moms house which I manage for her.  She bought it to live in, her health took a nose dive so she is in an assisted living facility now.  I am trying to stop the money hemorrhage by renting it out but it is still cash flow negative, coincidentally at $400/mo.  She has the reserves to take the loss while hoping for appreciation but it is definitely a gamble not a guarantee.

Why not sell it? 

@Zack D'Aiello

Get rid of it.

Tell tenant you’re planning on selling. Hopefully they start looking for a new place. Talk to a broker asap and get an analysis done.

Once you’re ready come at the tenant with some viable options. Figure you have 400 bucks x 3 months to play with.

@Zack D'Aiello The goal is to make money. My suggestion is that you turn your rental into an Airbnb rental. You will have people checking in and out, you will produce more in a short period of time. Plus you won’t have to worry about forcing a tenant out in the future. Refinance the house, give the tenant a reasonable time to move and Airbnb.

@Zack D'Aiello

Initial thoughts

1) Airbnb the place If you can

2) rent out the rooms separately ($700-$1200 each depending on where it is?)

3) rent out the place furnished (for at least the amount of your mortgage, if not a few hundred higher.

Best of luck!

@Zack D'Aiello Sorry to hear you are losing on this property. 

Now, there are a couple of options here

  1. Stop the bleeding: If you sell today, are you able to walk away without bringing any more of your money to closing? If so, I'd suggest keeping it simple and sell! (stop the bleeding). On the flip side, if you do have to bring additional capital to close, find out what that amount is and see if that amount more (or less) than you if you held on till next August.
  2. Determine the over the water timeline: If you keep REFi-ing as you said to cut $100 off the mortgage every year, when is that going to stop and are you able to support that extra CapEx of 300-400 every month?
  3. BONUS IDEA: If this a 2 BEDROOM condo, then maybe if this lease is up, get 2 roommates instead and see if you can stretch the monthly rent to meet the $2,269 threshold from next year. 

At the end of the day, the reality is if this isn't an investment play, you should try to stop yourself from trying to make it one. You will be further along your REI journey by cutting your losses quickly and moving onto to the next deal. Good luck!

    @Zack D'Aiello ,  and @Brant Richardson ,
    Your Condo/Home is a long way from being a debacle, and is not likely to become one -unless a dramatic decline occurs in RE as @Sam Shueh indicates might be possible.

    You do not know whether this condo is a good investment until you run all the numbers -including especially your projected sales price and sales costs at the time you intend to dispose of the property.   I highly suggest you sign up for BP's pro or Plus membership for one month and run the rental property calculator (and/or AirBnB calculator) several times using different probable assumptions for expenses, income, final sales date and price.  (Click on "Tools" in the header on any BP page, then click on "Rental Property or AirBnB Calculator) 

    Notably absent in the discussion so far is estimated appreciation. 
    @Dan Heuschele , mentioned that San Diego as a whole had minimal appreciation last year, that may or may not apply to the area your properties are in, and may or may not apply specifically to your type of condo or home.  You will need to make your best educated assumption or use historical appreciation tempered by the current trendline (whether historic appreciation is accelerating or decelerating).  You should also compare a variety of sale dates in order to determine whether your investment is positive or negative. Each calculation should have a reasonable estimated amount for appreciation (or depreciation), should include the principal paydown that is being made by the tenant, and should include the tax benefits (or costs) of holding your property until the chosen sale date.

    For example even a modest 2% appreciation on a $310,000 property = $516 per month increase in the value of your property.  That means that even with a negative monthly cash flow of $419 (though that amount is not correct as also noted by Dan Heuschule), holding on to the property would yield a $97/mo profit.  Add in the real gain to you of a few hundred $ per month from principal paydown, and add in a hundred or two $ per month in tax deductions and suddenly holding the property can look quite good.  So run the numbers. 

    If holding the property for 5 years costs $400 per month ($24,000 over 5 years) but results in an increase in your net worth of $100,000 from selling it in 5 years, -that is a remarkable return on investment. 

    Thanks all for your insight this will definitely be a huge learning experience.

    @Davido Davido much appreciated for the more detailed and positive response. I had similar thoughts about the appreciation even though its not guaranteed and will run the numbers further. 

    Based off my zillow estimate (which I know isn't the most accurate) its up 4K from last year. 

    So I think the best bet at the moment is to hold onto the condo for now and eat the $300 dollar a month loss (plus expenses/repairs/etc)  until this current lease is up next summer then attempt to raise the rent and break even while hoping it further appreciates. 

    I think it would be hard to sell it unless the tenant is super nice and agrees to move out without a big pay off.  I'd say you are stuck with the tenant and will be hard to sell with that tenant. I thus think you should stop stressing, hope nothing breaks this year, hope values appreciate, get some tax benefits, and re-evaluate in one year.  It's not the end of the world.