New Owner, Advice needed!

[Tom Powers]

Hi BP Community, 

My wife and I bought our first rental property, and it seems to be moving against us. We're hoping this community can give us some advice. Here are the Spark Notes...

Last October, we purchased a second home in the uptown section of New Orleans. At the time of the purchase, our plan was to move to New Orleans and keep and rent out our Colorado home. The move was for a mixture of personal and health reasons. 

The house we purchased had a carriage house attached to it, and our plan was to renovate the carriage house, rent it out, live in the main house, and rent our Colorado house. If that plan succeeded, we would have had $1.4M worth of real estate, and the rental income would have offset our mortgage, such that our financial obligation would have been only $3,000/mo, which is easily coverable with our combined incomes. 

A series of events has upended this plan and moved against us in almost every way.

First,  we needed to put almost $20,000 into inspection repairs. This included a complete re-plumbing of the house for $16,000.

Second, the house had a very large cypress tree in the front yard, which we decided to remove. The tree was embedded in power lines, which presented a safety concern, and we wanted to make the area where the tree was a parking space, as parking is very limited, and both of our neighbors park on their property in front of their houses. We were told that, besides being a convenience, it would greatly increase property value and tenant attractiveness. This cost $15,000

Third, we had budgeted $50,000 for the carriage house renovation but were subsequently told it would cost $85,000. Further complicating matters, the market commanded $4/sq ft for rental space, which amounted to $1,200 to at best $1,500 rental income. This meant if we did the reno, it would take almost 7 years to recoup our initial investment. We decided not to move forward with the carriage house. We also learned our desire for a parking space was against zoning laws and not viable.

Outside of the rental, I was hoping that with 15 years of experience, a master's degree, and three industry-specific certifications, I would be an attractive employee prospect. However, the market in New Orleans seems incredibly slow. After an aggressive four months of searching and connecting, only four opportunities presented themself and no offers were extended.

With all of the above, we decided to put things on pause, list the house for rent, and reassess our overall plan. Unfortunately, our realtor relayed that even though the house is in a very desirable location, at best, the market would command $4,500 rent. We pushed hard and, with some additions, managed to get the house rented in 3 days at $4,700 with a property manager costing us $470/mo. Unfortunately, our mortgage is $6,300/mo at 6.3% interest, so we are losing $2,070/mo.

We don't know what to do now...Should we sell the house (likely at a loss) and walk away? Should we wait 12-24 months and see if we can refi to get our payments down (we think we would need a 4 or 5% rate to be viable)? Should we aggressively pay down the principal and refi? 

Any info or advice would be appreciated. Thank you!!