Huntsville rental/investment property. Time to sell or keep?

16 Replies

Hello BP family, I'm looking for some advice here in my SFH rental in Huntsville 35810 built in 1950. It's a 3/1 rented for $800/month. I cash flowed about $300 each month. With the hype of today's market, I'm wondering if I should sell for a 40% profit or keep it for rental still. My property manager kept telling me to not increase my rent to keep my tenant blah blah but I'm seeing inventory shortage everywhere which should either increases my rent or values of my property. Any suggestions?

@Mora Clark

Your buy sell decision is about what's best for you. With the market the way it is, selling a property just to buy another is probably an expensive option, especially in Huntsville which seems to have suppressed returns right now (I've only analyzed a handful of deals from there though). I have serious doubts about your property manager's advice. Unless your property is below average, or already rented above market, raising rents to keep up with the market shouldn't result in a vacancy.

@Mora Clark

Hi Mora,   If you are in this for the long haul and your rental has appreciated ten you have a property with cash flow in a good rental area.  Try an REFI while rates are still down.  Perhaps the rate is much lower than your current rate and you can get cash out and still have nearly the same mortgage payment and hence cash flow.  Then use your cash out to get a second unit that will cash flow.  You should be mainly concerned with cash flow and increasing income streams of cash flowing properties. As they appreciate repeat the above process.   As far as rent increase for your current tenant.  Your PM has a good point. a good tenant is a real plus for you. So keep a long term tenant happy and keep there rent well below market to show your appreciation.  Remember a Change will cost you at least a months rent or more that 10%. that said increase some and don't let the rent gap become vary large.  With today's inflation a 5% increase, if you are 15 -20% below market, is certainly reasonable IMHO.

Promotion
PPR Note Company
Note Investing
Diversify your portfolio and get completely passive cashflow.
All without tenants, repairs, or vacancies - in a real-estate-backed investment fund.
Here's how.

@Todd Rasmussen that’s my concern when selling, if I’m able to get the same property or not. I’m thinking of switching my PM now just because I talked to a few PMs in the area and they all told my my rent is below market rent . 

@Buddy Holmes I really like your strategy. However, my loan amount is very low, less than $50k so I’m not sure if it’s worth refinancing or if there are and lenders who can offer that. I’m at 5.8% rate at the moment. Now, I’m debating if I should buy another single family home in AL with 20% down or get a primary resident here in Denver and do Airbnb and turn to long term rental after with 5% down with the same of cost of capital of about $25k. 

$800 a month for a 3/1 home in that zip code is way too low.  If you loose the tenant there is no shortage of great tenants in that area.  I have a waitng list. It sounds like you made a good investment weather you go up on the rent and keep the home or sell while prices are so high. If you sell and want to buy a rental home in county areas near Huntsville where the price has not inflated so rapidly, those area rent very well. Let me know if I can help.    

@Mora Clark

I don't know all the input for the calculation but say your place in H'ville is worth $100k today.

And  I assume your mortgage at 5.8% is about $325/mo and you are cash flowing.  Current investment rate are 3.6%.

So a 80% l/v loan of$80k would be $360 or about $35/mo more.  So financing all your closing costs ($5K max) you net

80-50-5=$25K for your project in Denver and still have you rental income and higher value SFR in H'ville. Sounds like there is a real possibility that you can even increase your rental income and cash flow! This looks like a win-win to me.

Good luck.

@Mora Clark

Offer your tenants an option to buy in 1 year. Get an up front non-refundable option consideration. Offer Seller Finance, agree on terms and condition, and collect a monthly mortgage payment, you will still technically control the property without a property management, and taxes, insurance, toilets will be the responsibility of the tenant/Buyer. Play with a mortgage amortization schedule and you’ll find out you will most likely make more money in the long run.

Or

Cash out now and do a 1031 exchange and keep the money moving forward.

Best of luck!

Congratulations @Mora Clark ! On your success!

If you have another bigger and better investment (like a large MF deal etc) and are low on cash then cashing out makes sense.
Huntsville has at least 5 years of solid growth ahead so I would definitely recommend to keep holdin 'em!

See if you can make your rental 3/2, that would also help get a higher rent as well. Oh yeah and you should definitely fire your PM! ;) I have couple of  good referrals as well.

Rent should be $1100.  Your property manager may be encouraging you to keep the tenant if the make-ready will be costly.    You may want to have a contractor take a look and quote the basics. 

@Mora Clark

I'm biased as I work in Denver, but I do always believe in buying where you live. If you don't own the place you reside, that's the first step in my book. And I think you can cash flow way more and get the better appreciation that Denver is likely to have. (Sorry Huntsville.)

Find a home with a basement apartment or carriage house and Airbnb the heck out of it. (You don't even need a full kitchen for Airbnb, as these Denver house-hacking clients of mine show.) Most anywhere in the Denver metro, you can make $2,000/mo even on a basement. More, if it's in a desirable area or is a really charming basement. That's going to cover most if not all of your mortgage. 

If you instead rented in Denver and invested in Huntsville, let's assume you pay the average Denver rent of $1,825. So you pay $1,825 here and get $300 from the Alabama rental. That's a net $1,525 negative. If you cover all your mortgage here with an Airbnb in the basement, then you're netting $1,525/mo. Plus you're getting better appreciation. (Actually, I don't know this. Someone check me on Huntsville v. Denver.)

Whatever you decide, I wish you luck!

Promotion
NestEgg
Smarter rental management
Outperform your peers by 71%
NestEgg landlords save $6,960/yr in fees & 20 hrs/mo*. Self-manage for free or go hands-off for $29.
Start now, get $500

@Mora Clark

I focus on a different area code but would increase the rent to market value. Does the property need any improvement? If your property manager is not willing to increase your rents willingly, that tells me they are lazy. I would find another property management company with all three interests (tenant, owner, company). 

Bottom line, if I could not increase rents, I would sell for a profit and turn over into another investment. Just my opinion...

Sincerely,

Your property manager telling you to not increase the rent is poor advice. This is a business. In today's market, investors are raising rents 5-8% and the tenant agrees or a new tenant is found within 10 days. Your property manager just doesn't want to do the extra paperwork.

@Mora Clark   I think it's interesting that everyone is telling you to raise rent without knowing more details on your specific property.

I am not clear on how well you know Huntsville, but 35810 is an incredibly variable area code;  it includes everything from B to D class neighborhoods, although the majority are typically C class for the 1950s to 1970s built houses.  

If your house is a 1950s with minimal updates in a C/D area, $800/month is not unreasonable given the 1 bathroom and lack of updates.  On the other hand, if the house is in a solid C area with recent updates/appliances, you could get up to $1100 as @Dena Puliatti quoted, although the one bathroom will probably make $1000/month more likely.  As @Gorden Lopes mentioned, making it a 3/2 can get you into the $1100-1200 range depending on the location in 35810.

We did a BRRRR in 35810 last year in a solid C neighborhood with a big yard and away from the main roads. New kitchen, paint, and bathrooms outside of the bathtub. 3/2, 1300 sq feet. Rented for $1150/month.

Finally, I have no idea who your property manager is - but if they placed a good tenant who pays regularly, and you've had minimal repair calls, why would you get rid of them?  They did their job - you determine the rent amount, not them;  they can advise you, but you make the final decision on rent amount.