Accidental Rental Property

6 Replies

Hello everyone,

I have a rental property in Bentonville, AR.  This home is a A property in an A neighborhood and was my personal residence prior to moving from Bentonville 4 years ago.  I rented the property to a mid-level executive at WalMart headquarters 4 years ago and they have paid like clockwork every month.  The home is about 8 years old, so the up keep is low and a hail storm just allowed me to put a brand new roof on it at no cost.  

Currently I rent the house out for $1,800 per month.  With a 15 year mortgage on the home, I am still able to get about $150 of cash flow per month out of this house.  The renters are paying off the mortgage roughly $8K per year for me based on a 4 year run rate.  The house is worth roughly $240K and I owe roughly $135K on the property.

While this has been a good rental property for me to learn on and it has shown me the value of a class A property, I am not sure this type of property would be one I would purchase today to add to my portfolio.  So, the question is, would you keep this house or sell it and get the equity out to go get more cash flow properties?

Is there anyone out there that has made this area of the market their niche and could discuss with me a plan for keeping this property and potentially getting more like it.

All thoughts welcome.

Derrick

I'm not an expert, but I just thought I would share what i would do if I was in your situation. This is also dependent on your risk tolerance. 

If I was in your situation I would sell the property, take the $80,000-$90,000 that you get from the sale (rough estimate after fees and closing costs.) Then reinvest that money into four other rentals in an area that you know well and feel comfortable investing in. 

I would put 20% down on four conventional mortgages, and have four properties being paid off, as well as having much more cash flow if you find the right deals. 

If it was me I would target distressed properties and fix them up so I get the best bang for my buck. That's just me though, it depends on weather you would like to get a slightly better deal and have to put some money into it before getting it rent ready, or if you would rather pay a little more and get a turn key property that's ready to rent, or maybe even already has a tenant in place. 

Best of Luck! 

@Derrick Carpenter

 Hey Derrick, congrats on being a successful accidental landlord. I am not an expert but this is what I would do. I would keep the property and refinance it taking out the equity and buy your next house with cash (not sure what the market is like where you live). We can buy homes in B/C class neighborhoods around Dallas for $90K-$100K. You may buy at auction with cash or a foreclosure.  Then get a mortgage on the property to get your cash back and then purchase another with cash (repeat). Once your reach your desired number of properties then work on paying them all off by flipping or using cash flow on all properties going toward smallest mortgage and when its paid off roll all funds into next smallest mortgage in a snowball manner. Good luck! You have so many options... 

@Igor Kajpust

@Rhondalette W.

Thanks for the feedback.  @Rhondalette W. In your suggestion, I am assuming that when buying for cash, the theory is that I should purchase a home at greater than 20% below market value, so then when you get a loan you have enough equity still in the home that the bank gives a loan?  Assuming yes, I would then be able to get all of my money out of it and purchase the next house and do the same thing again.

thanks.

Derrick

Wanted to ask this question one more time to get some more thoughts. Thanks.

Hello everyone,

I have a rental property in Bentonville, AR. This home is a A property in an A neighborhood and was my personal residence prior to moving from Bentonville 4 years ago. I rented the property to a mid-level executive at WalMart headquarters 4 years ago and they have paid like clockwork every month. The home is about 8 years old, so the up keep is low and a hail storm just allowed me to put a brand new roof on it at no cost.

Currently I rent the house out for $1,800 per month. With a 15 year mortgage on the home, I am still able to get about $150 of cash flow per month out of this house. The renters are paying off the mortgage roughly $8K per year for me based on a 4 year run rate. The house is worth roughly $240K and I owe roughly $135K on the property.

While this has been a good rental property for me to learn on and it has shown me the value of a class A property, I am not sure this type of property would be one I would purchase today to add to my portfolio. So, the question is, would you keep this house or sell it and get the equity out to go get more cash flow properties?

Is there anyone out there that has made this area of the market their niche and could discuss with me a plan for keeping this property and potentially getting more like it.

All thoughts welcome.

Derrick

Your rent is way too low compared to the value of the home. In the near future you will go into negative cash  flow as the property begins to age and require more upkeep. So far you have been lucky and that is no way to operate a business. You luck is running out with time.

If it were me I would have sold at the time you moved because it is a very poor rental property.

Sell, sell, sell. now.

If you like being a landlord and want a bigger bang for your buck, sell and get a multunit closer to home. Be prepared as your new tenants won't be executives.

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