Losing Money Fast. Sell Property or Refinance/Cash Out?

[Monique Peterson]

My husband and I rented out our first home a few years ago to a very good tenant thinking it would be good to have as passive income after we retire. Great schools and good neighborhood in Irmo SC. The original loan was $92k. It now has a balance of $64k. The home value is around $130k (Zestimate, so it's little off). We were about to start paying off the house quickly within 2 years so that we can see more cash flow. After reading various pieces of material, I realize that may not be the best way to go to see a better return on investment. If I'm serious about making money in rental properties, than I have to be honest with myself. I'm losing money big time with this one and need a solution. We are renting for $1075 with $929 going to mortgage, taxes, and insurance. Last year, the amount was $821. Monthly tax estimate for escrow is up $100 from 2019. The taxes are high and the interest rate is 5.75%. The cash flow (so I thought) would be $146 for 2020; however, I did not take into consideration other expenses such as vacancy rate, repairs/maintenance and cap ex. I can't seem to wrap my head around the numbers to figure out which way I should go with this property so I'm here seeking advice from successful, experienced investors. Option 1: Sell property and purchase new properties with 20% down payment from equity. The lease is not up until December. Option 2: Keep property. Refinance for lower interest rate (credit is so much better now) and use the cash out option to put 20% down payment on new properties. Option 3: Am I missing an opportunity? How would you handle? By the way, I'm so confused as to how anyone can maintain cash flow with the high property tax increases.

[Kaiser J.]

@Monique Peterson

There is no single right answer here but I live in Charlotte and am familiar with Irmo because I recently considered buying a medical office building there.  I think that's a solid area to have a rental.  Some people on this site are more focused on near-term cash flow, but my personal objective is long-term equity accumulation and what my portfolio will generate 10-20 years from now.  With that said, I would personally (1) hold onto this house given that your loan balance is pretty small at this point, (2) consider asking the existing lender to re-amortize the remaining balance if you have made additional principal payments in the past, and/or (3) refinance into a lower rate / shorter term mortgage.  

As you probably know, the property taxes are much higher in Columbia when it's a rental property instead of primary residence.  That should be a cost increase that you are able to pass through to your tenants over time, since all other competing landlords are in the same boat.

@Monique Peterson