Rental House: keep or sell?

Question

Hi folks,

I own 4 rental properties in Memphis, and have been investing for 16 months. I am looking for advice on this situation:

The first house I purchased cost 115k and it rents for $1,200. For those of you that know the Memphis market, you will know that this is a horrible return. My other 3 properties have far better COC returns. My lack of experience coupled with a desire to buy my first one, led to this mistake. My question is this:

Should I sell the property and use the cash to invest in a different property with better returns, or hang on to it? it is cash-flow positive (barely); I only purchased this house 14 months ago. After closing costs etc I would anticipate a loss of around 5-8K on my original investment. I have around 33% equity in the property.

Thanks in advance for your insight.

Melodee Lucido · Answer

Hi @Lewis C.

Don't beat yourself up about the buying fast and making a bit of a hasty judgement; I know it happens to far more than are willing to admit it here.

If it was me would hold it and let it pay for itself. As far as wanting to buy other properties there are creative ways to do that without having much cash. Brandon Turner's book on buying with little or NO money down is a great read full of ideas.

You can market to owners of free and clear properties to find those low dn properties. Or you can partner with others and do some jv wholesaling to build up some reserves. This is just my idea of how to make lemonade ;-)

Prosperous New Year 2015!

Dean Letfus · Answer

The answer to your question depends on the likely performance and appreciation on what you own so we need to know where it is.

A theoretical answer is you paid way too much so get out of it if you can. But if it's in Germantown or Collierville or Cordova proper then it might be worth keeping because of appreciation.

Dean Letfus · Answer

Still need to know where it is to give you any advice. Selling without losing any money may not be an option. What street is it?

Lewis C. · Answer

@Dean Letfus

I wouldn't have posted this if selling wasn't an option.

Dean Letfus · Answer

Need an address Lewis. If you brought from a turnkey at inflated prices selling won't be an option.