VA loan, 0 down, worth the loan — sell?

Question

Bought a home in 2023 in Peyton CO to live in, and we recently moved away. We are renting and managing the property ourselves which is going fine. Our interest rate was 6.25% so not very interesting for assuming. We put zero down so no equity. Lots of other new builds are popping up in Peyton and will be for several years, so not really banking on appreciation ~5 years or so. -812$/mos negative cash flow monthly, that does NOT include vacancies or broken stuff, repairs, general maintenance. Home built in 2017, not old but not new. It's beautiful, has a finished backyard. Walking distance to schools, huge park. We liked this house and we liked living in it. Monthly "water" bill (kind of like an HOA wrapped up in water bill) is $220/mos - renter pays but will hurt for vacancy. Current cost is basically what we owe plus or minus 20K depending on the season.

I’m a long time BP listener and student. I’m interested in getting smarter and expanding our portfolio to smarter, more profitable buys (out of state). I’m stuck between two philosophies: 1) we can pay for it, it’s annoying but it will pay off in the long run OR 2) sunk cost, it was not a good idea and now my time and money should be spent into investing out of state (rather than in homes we lived in).

Sometimes I can come to the opposite conclusion in the same week.

I’m a long time BP listener and student. I’m interested in getting smarter and expanding our portfolio to smarter, more profitable buys (out of state). I’m stuck between two philosophies: 1) we can pay for it, it’s annoying but it will pay off in the long run OR 2) sunk cost, it was not a good idea and now my time and money should be spent into investing out of state (rather than in homes we lived in).

Sometimes I can come to the opposite conclusion in the same week.

G. Brian Davis · Answer

Sometimes the best move is redeploying capital and mental energy into stronger opportunities instead of hoping appreciation eventually bails out the numbers.

Kevin Sobilo · Answer

@Camaren Ly, a few thoughts:

1. The ONLY thing you listed as a positive about this property is that you already own it with a low/no down payment fixed rate loan.

2. A simple test to see if you should sell is asking yourself "Would I buy this house as an investment?".

Choosing to keep a property is similar to buying it all over in terms of the reasoning.

3. Yes, #2 is an over simplification because sometimes selling comes with taxes and certainly closing costs etc.

4. When you factor in your hard $812/month losses PLUS the losses you will incur from Cap ex, maintenance, and vacancy you could SAVE a down payment for another rental property pretty quick! One that you choose because it makes you POSITIVE cash-flow.

5. Did you intend for this to be a house-hack when you bought it? If so, that sounds like an error.

When you house-hack, you are planning to SACRIFICE and buy something NOT because its your ideal home but because it will make a good rental when you move out! Its a way of building a portfolio with low down payments and good loan options but you do need to sacrifice living in homes that aren't your forever home as you do it.

6. Over/under 7 years! If you are buying a home to live in, NOT as an investment you really want to look at a 7 year time horizon.

If home values stay FLAT, it will take you about 7 years to pay down a 30 year mortgage enough to recoup your down payment and "break even" with a sale when factoring in commissions, transfer taxes, and other closing costs.

So, if you are only planning to live in a home a few years years, you may well be better off renting than buying.

7. Interesting side note to #6. I believe the average time someone owns a house before re-selling it is around 7 years!

Yes, most of them come out ahead because real estate does appreciate on average but when you plan life you plan conservatively because if you need to move and you happen to be underwater in your loan life can get hairy fast!

Drew Sygit · Answer

Common mistake - buying something for personal use, THEN trying to make it an investment.

Learn from this, and understand that if you truly want to maximize your RE investments, sacrifices will have to be made. - You'll want to buy properties that will be great investments and scale back your personal preferences.

For this property, recommend exploring EXACTLY how much it will cost to sell it.- Conservative sales price- Sales taxes- Sales commissions- Title insurance, recording fees, etc.

Let's call that number $X.

Where will you get $X from? - Savings?

What property could you acquire with $X that might positive cashflow to offset your monthly loss of $812+?

If you divide $X by $812, how many months will that be and what might REALISTICALLY improve?- Value?- Negative cashflow?

Understand, that NOBODY has a crystal ball, so ALL advice is "educated guessing" at best or what may work for someone else.

So, you'll have to assess all your options and "place a bet" on what you think is best.

VA loan, 0 down, worth the loan — sell?

Most Popular Reply