First Tenant..Operating at a loss.

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First Tenant..Operating at a loss.

Bruno Mauro
Member since 2020 · 15 posts · 6 votes

Hey all,

I bought my first property a 2BR/2BA In April of last year (before I found BP or how to calculate cash-flowing properties), been living in it until about  a month and a half ago. I'm moving out of the country at the end of the year to study abroad, and found a property management company to take care of things.

Got a tenant in place already, here's the breakdown:

Rental Property Cost Breakdown

Mortgage/Insurance/Taxes/Escrow: 1215.35

Property Management: 137.5

HOA Fees: 366.56

Total Cost: 1719.41

Rental Income: 1650

Loss:69.41

This isn't even calculating maintenance costs...

In the second year, if my tenant renews I get a 35% discount on my management fees.

What is my best course of action at this point?

I know I can deduct passive rental property losses form my active income (I make less than 100k)

Some other info:

-I have about $15k in reserves

-Next year I won't be working in the States, or for an American company, but I will be receiving a W-2, but can offset those taxes due to the following:

  • "The Foreign Earned Income Exclusion, which allows you to exclude $105,900 from your foreign earned income on your 2019 US taxes and $107,600 on your 2020 US taxes
  • The Foreign Tax Credit allows you to offset, dollar-for-dollar, the taxes you paid in your host country with your US taxes
  • A Foreign Housing Exclusion which allows an additional exclusion from income on US taxes for certain amounts paid for household expenses that occur as a consequence of living abroad"

-I'm a single guy with no family, so my lifestyle is pretty flexible.

If you need any more info, please just ask! 

Thanks.

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Colleen F.Pro Member
Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
6y

What would it sell for?  After costs I expect you lose money too?  You will still be at a loss next year or perhaps break even but no capex.  The thing that might make it worth keeping is if it is appreciating and rents are increasing or if you will you return to this area in a few years and live there. 

The only way to make more money is decrease cost or increase income. I don't think you can decrease mortgage by refinancing cheaper because you now have an owner occupied loan. I don't see you being able to increase rent by airbnb in an HOA even if it is suitable location so your option is to raise rent at renewal.


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  • Jonathan R McLaughlin
    Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
    6y

    @Bruno Mauro given that if you are confident in the property I would not factor in the time abroad in your decision.

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  • Bonnie LowPro Member
    Lender · Asheville, NC · Member since 2016 · 1k+ posts · 1k+ votes
    6y

    Have you looked into getting creative with your tenant options? Since your HOA costs are fixed, do you really need to pay a property management company? Even when you're abroad, you may be able to manage it yourself - you can collect rents virtually then just hire out the maintenance piece if needed. If you have someone local who can keep an eye on it for you you may be able to pay them considerably less than the PM. Try renting it out as a furnished rental and marketing it to traveling nurses. That has been really popular and lucrative lately. Or try getting two 1/1 tenants in there - you might be able to collect just enough extra with two renters paying for the space, at least enough to cover your fairly small loss at this time. But if you can stand the loss, it sounds like it's worth it in the long run and real estate is a long game.

    [email protected]
    1Reply
  • Fred Cannon
    Rental Property Investor · St Augustine, FL · Member since 2019 · 264 posts · 279 votes
    5y

    @Bruno Mauro it may not be as bad as you describe. My guess is that you are getting some mortgage pay down. Although that is not direct income it is like stashing money into the bank. Also you are getting appreciation, usually around 3% per year, plus property depreciation on your taxes. I would stay the course. Must be a condo with the high HOA fees. I invest in condos and don't have any issues with HOA fees because they really cut down on the maintenance cost of ownership. My only issue with condos is the high rate turn over with tenants. Eventually you will get one that will stay a few years. I have a couple of SFH's as well. A lot more maintenance and big ticket repairs, and lawn Service. Enjoy your tax deductions and mortgage pay down. In a couple of years it will be a great investment with positive cash flow.

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  • Dustin L. Jones
    Flipper/Rehabber · Pittsburgh, PA · Member since 2020 · 13 posts · 5 votes
    5y

    @Bruno Mauro

    I think you made the right decision to keep it. Take the little bit of a loss, use it as a learning experience. Focus on yourself and your studies abroad and when you come back into the country reevaluate. 

    Good luck to you.

    1Reply
  • Nate Sanow
    I​nvestor & Agent · Tulsa, OK · Member since 2016 · 1k+ posts · 1k+ votes
    5y

    @Bruno Mauro

    It’s not a loss if you can afford that - $ each month it doesn’t sound bad, I’m sure you learned a lot and it will pay off over the long haul. Don’t sell just to get rid of it.

    On the flip side of this, if you were making $200 in cash flow would that really change your life that much and be a massive success?

    Either way the experience is more valuable then anything give yourself some grace, sounds like you are on a great path.

    0Reply
  • Kenny Smith
    New to Real Estate · Kalispell, MT · Member since 2020 · 6 posts · 3 votes
    5y

    @Bruno Mauro. I think you made the right choice. The cost of getting rid of the property would likely equal several years of monthly "losses" and you'd lose the equity pay down as well.

    Keep building your savings while you're out of country to reduce some Capex risk and look at potential higher dollar per month rental situations to get further into the black. Caveat: I'm a newbie. Take this with a grain of salt.

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  • Justin V.
    Rental Property Investor · Minneapolis, MN · Member since 2016 · 214 posts · 132 votes
    5y

    @Bruno Mauro

    Ditch it. HOAs suck.

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