Keep or Sell my House that i dont plan to live in.

Buying & Selling Real Estate
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Keep or Sell my House that i dont plan to live in.

Bobby Maleki
Austin, TX · Member since 2016 · 4 posts · 0 votes
I bought a house in Balcones Woods. Right in the middle of Domain & the Arboretum. The house is in a really good location. Its a 3 bedroom 2 bathroom with a huge backyard. I bought it for 385k in dec 2014. I lived in it a few months and then decided for me since i am only 1 person it is too much house and it being in a family area not the right fit for me. Everyone is selling me to keep the house and rent it out. It has negative cash flow if i rent it out now about $400-$500 a month estimation. The domain is expanding and becoming the second downtown austin slowly. Is it better if i rent it out. With negative cash flow or sell it and move on. I have been emotionally attached to the house since i am a first time home buyer at 4% interest rate. If i sell it right now ill probablt get 430k minus the realtor commission. I am not sure if i should keep the house. I can afford the negative cash flow and i dont mind managing the tenants. I dont see myself living in the house anytime soon since i am single with no wife and no kids. I would appreciate anyone with experience to give me their feedback. If i sell the house i would put it in an investment that yields about 10% per year return but on 50k. But the house is 430k and continues to appreciate. Please help me im seriously confused. I dont want to regret my decision. Thank you in advance.
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  • Account Closed
    Investor · Scottsdale, AZ · Member since 2016 · 1k+ posts · 885 votes
    9y

    @Bobby Maleki Hi Bobby, be careful of taxes. The IRS says you need to live in the house for 2 of the last 5 years to avoid capital gains which is substantial. Otherwise, the market in Austin is hot right now, so I would put it on craigslist and try to sell it my self without a real estate agent. (yes, you will hear agents Scream but that's just their commission singing to you ;-) 

    I wouldn't try to make it cash flow in Austin right now. The numbers just don't work.

    My partner in Austin and I would sell the property and take the $50k and buy two houses in Round Rock or Cedar Park on "Subject To" and cash flow them. That's what I would do. "Never get emotionally attached to a house, things change and life moves on."

    If it truly is a concern of yours, send me an email and I can give you more detail. Regards, Ken

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  • Brandon Battle
    Real Estate Agent · Buena Park, CA · Member since 2016 · 743 posts · 424 votes
    9y
    Negative cash flow is garbage.If you can't fix up the property and raise the rents to get it at least somewhat positive,sell it.Use the profit to buy better cash flowing rentals in another market like Toledo or Indianapolis.
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  • Dan BurstainBusiness Member
    Real Estate Agent · Austin, TX · Member since 2014 · 360 posts · 331 votes
    9y

    Hi Bobby,

    I actually live in Balcones Woods as well.  Small world.  A few things that both Ken and Brandon make note of are important.  First, Balcones Woods is a great neighborhood and probably one of the best in Austin for appreciation to continue with its proximity to the Domain, Tech Corridor, etc.  but for that reason, when you see very predictable appreciation you also see negative cash flow.  Our rents in the neighborhood won't cover the expenses unless you bought some 15+ years ago.  My suggestion would be, if you are looking at this from a monetary point of view, to sell the property using a 1031 exchange (since you have not lived in the house 2 years) to avoid the tax hit and buy either a home you wouldn't mind moving into or a duplex or another single family home in another area that would get you a lot more cash flow at the same expense or lower than you currently have.  Message me anytime to discuss in detail as I have bought and sold numerous homes in Balcones Woods for clients as well as myself.

    [email protected]512-588-3260
    Dan Burstain, Investment Realtor51 Review
    WebsiteView Page
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  • Kyle McCorkel
    Rental Property Investor · Hummelstown, PA · Member since 2015 · 638 posts · 653 votes
    9y
    Bobby Maleki definitely sell it you don't want negative cash flow. Most people's primary houses don't make sense to rent after you move out, unless you specifically bought it for that purpose in the beginning.
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  • Bobby Maleki
    OP
    Austin, TX · Member since 2016 · 4 posts · 0 votes
    9y

    thank you so much for all the informative reply to my question. I really appreciate it. I think it would be a better bet if I kept the house and rented it out at $500 negative cash flow per month. that is 6k a year. lets say its worth 420k at the moment, with a 5 percent rate of appreciation my house will appreciate 21k per year. in addition i am getting 15K in the interest expense deducted from my taxes. so a 5 year spread will be 21k x 5 = 105k - 6k per year loss = 30k.  this leaves me with 75k. plus the 15k interest expense per year x 5 = 75k.  so total in 5 years i will be ahead 150K at the minimum if i keep the house and rent it out at $500 negative cash flow per month.  i think it is a better idea to keep it and rent out the house. also the area balcones woods right by the domain is still in expansion, in 5 years from now a house by the domain with .34 land will be worth much more than the 5% appreciation per year, at the worst case i will be up 100K. i dont understand why everyone has suggested i sell the house.  i am more interested in the appreciation than the cash flow, the cash flow doesnt help me much. 

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  • Marian Smith
    Real Estate Investor · Williamson County, TX · Member since 2011 · 1k+ posts · 961 votes
    9y
    You are absolutely insane to think that the Austin market will not "revert to the mean" as statisticians call it. We have the highest appreciation in the nation counting from the last RE market height....70%...that cannot continue forever. Yes you have a great location but it is all supply and demand and because of the demand the supply people are building like crazy...makin' hay while the sun shines as they say. They always overbuild, that is the business cycle. Your risk is much higher than your $500 month cashflow. You could end up in foreclosure losing your downpayment and credit. How? lose your job and your tenants. When? No one knows and it may be years but it may not. Get roommates you like and live there so you can keep an eye on your investment. Or sell and rent from your would be evential competitors on the rental market...huge commercial RE companies with deeeep pockets like AMLI who build apartmnets in all major cities and hire researchers/forcasters to time the market and can lose a ton of money or even default without the pain or loss of credit that little guys do. You are gambling in an arena with a hefty anti. It will be very stressful when the market cycles down. In 2010 your house after foreclosure and 3 years of tenants would have been listed for 230k (check the MLS). Those days will never return, but I remember when I said "OMG, there isn't a house in Round Rock under 100k!, even a dog!" and a few years later I picked up a 3-2-2 in a west RR masterplanned neighborhood for 67k. Can you afford to lose 10% of 400k?...in distress more like 20%? I have lost more on stock but my position was no where near 400k. Good luck and be sane.
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  • Marian Smith
    Real Estate Investor · Williamson County, TX · Member since 2011 · 1k+ posts · 961 votes
    9y
    Also, creekview? realty has a flat fee listing service for the MLS and they overnight a sign and an electronic lockbox. about 1k You provide facts snd photos. You have to pay the buyer's agent but you are free to try 2.5%...banks do and agents show.
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  • Oliver Carlin
    Investor · Virginia Beach, VA · Member since 2017 · 2 posts · 0 votes
    9y

    Do you have the zip code you house is in?  I will look it up on the charts and see what it looks like.

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  • Linda S.
    Investor · Richmond, VA · Member since 2016 · 1k+ posts · 2k+ votes
    9y

    Could you try renting out the rooms individually to professionals?  

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  • William Hull
    Wholesaler · Indianapolis, IN · Member since 2014 · 137 posts · 40 votes
    9y

    Don't go with a negative cash flow. If you cant rise the rental price then sell it and try to invest on a profitable area. 

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  • Chris Sweeney
    Real Estate Investor · Austin, TX · Member since 2011 · 271 posts · 106 votes
    9y
    Don't lose sleep over capital gains as even if you pay one side you are still looking at 4-5% closing costs and so your net is little. Kick the emotional attachment to the curb as this market can correct and your 6k negative (if that factors in repairs, vacancy, etc) will be nothing if the market softens and the you are stuck. Let it go and move on.
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