How to calculate cash flow on this property? Hold or sell?

10 Replies

Hi there, Here is my situation. As an accidental landlord since 2010 ( couldn't sell) I am deciding between to sell or hold. I bought this townhouse for $280 with FHA loan. Outstanding balance 220k. Biweekly mortgage ( P, interest,tax) $850, association fee $200/mo. Rent 2080/mo. On an average repair 2000/year. Agent fee 1 month rent. On an average 2 year lease. Now, the question is what is my cash flow? The property is at really great location, right next to train station and suburb downtown. No problem renting. If I decide to sell, I think I may get $260-280k. And if I continue to rent, rent will increase at least 100/mo each year. I am not sure if I should sell it or hold it. What you guys think and why?

Monthly income= $2080

PIT+HOA = $1050

Repairs = $167 (2000/12)

Agent fee = $173 (2080/12)

Cash flow per month= $690

You didn't tell us how much your down payment was. If you want the Cash on Cash return = (annual cash flow)/(amount of cash spent to buy)

The question is can you do better than your current returns if you sold the place and used the cash elsewhere? Remember, selling is going to trigger sales expenses, and potentially taxes, so figure that in your decision.

Amanda. Did one of us read the OP wrong? I thought the $850 payment was bi-weekly.

You're negative $100/mo cashflow roughly. That's before any reserves for capex, vacancy, and any property management. I say sell and invest in a positive cash flow property.

Definitely sell! Try the BP rental property calculator to see how the numbers break down in addition to analyzing all future investment properties.

Thanks guys for your replies. Since it was FHA loan, I put 9k down but I paid 250/mo PMI till last Oct.

So I have $100/mo negative cash flow. But how do you take approx 1% appreciation, 2% rent increase and principle portion of payment. So even if I break even, ain't I building equity? What about tax advantages? 

In your example - "even if I'm breaking even", you are certainly building equity.  If you're looking at a buy and hold strategy you're achieving at a minimum future wealth build.  If you're looking at the cash flow strategy you're losing.  Ideally you can have both.  If you look at the $ going in you should ask yourself if the return you're getting now (equity) is as good or better (or worse?) than what that $ could be returning in another investment.  That should help drive your decision on hold or sell.  

@Pranshu Adavadkar you're right. even though you are negative cash flow, tax benefits and debt pay down will make it a net positive. The thing is, that you can find all of those things, and have positive cash flow at the same time, so why bother with a negative cash flow property?

Sell, regardless of how you manipulate the numbers this is a very poor choice as a income investment property. There is no income. Put as much polish on that tu*d as you wish and it will still never shine.

If you really want to gamble your risks would be lower at the race track. If you want to invest then sell asap.

Originally posted by @Thomas S. :

Sell, regardless of how you manipulate the numbers this is a very poor choice as a income investment property. There is no income. Put as much polish on that tu*d as you wish and it will still never shine.

If you really want to gamble your risks would be lower at the race track. If you want to invest then sell asap.

 So I am thinking about selling it. Now question is at what price it won't make sense? Assuming 10% in commissions, closing cost and minor fixes below what price point I should say no to selling. My hunch is it will sell for 260-265k. So may be I will have 10k proceeds. 

Is it then worth it? 

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