Decision Point, sell or keep my negative cash flow property

10 Replies

Well, after re-analyzing my rental property in AZ, I am debating selling. I purchased it with a VA loan (I put very little down) as I was planning on living in it for a long time. Anyway, my life situation took me from it.

I am losing about $250/month once considering CapEx/repairs/vacancy savings, prop manager. i have renters in there and house is in good shape but as we all know, something could go down at any time.

loan is at 2.75%, so, I would lose that....which amatorizes quick.

Anyone interested in rationalizing keeping or selling? Should I hold onto and suck up a loss??? If I sold it today, I would not make much equity at all after realtor commissions...maybe a couple grand, so is it worth it, or hold onto it and suck up the losses???


Anything helps.

How much is that sweet mortgage getting paid down each month?  If you lose $250 cash per month, but pay off $2K in mortgage principal, that's a good deal for you overall, as long as you can handle the cash outflow out of pocket long term.

Jeremy, if the lost is more than the upside I would seriously consider selling it.  And if you are an active investor I would sell it because you will have other properties come your way if you are an active investor.  Just my humble opinion.

I wish you the best.

@Jeremy Dube . Consider all the factors. Do you need a VA loan to buy something else? What are the tax benefits? What is a monthly loan pay off? Do 3, 5 & 10 year projections. Think of what you can do to increase rents / reduce expanses. Are tenants paying for utilities? Are rents under market? Can you add a bedroom? Consider posting your analysis here. Good luck.

@John Woodington , looks like about $470 per month. So minus $250 (we are able to suck it up for now) still positive $220, just don't see it until we sell it, I suppose.

@David Wright , I am trying to become one...which is why I am trying to determine if that best course of action at this time is to sell. We aren't overly burdened or anything, just wondering if others have done this (lost monthly) but over all succeeded.

@Dan Bryskin , yes, freeing up the VA Loan will help me get into a multi fam in San Diego, which is normally very hard to do (20% of $700k traditional vs 0% down for the same with VA Loan). That is the goal/reasoning I suppose.

A negative cash flow property is not a investment unless you are in a market with above average appreciation. Also keep in mind that any debt pay down, as you pont out, is not positive or income until you sell and there are zero guarantees that you will ever see that money. Markets shift and equity today can easily be gone tomorrow. 

Bottom line is you have negative cash flow with no real hope of turning that around.

It is not a positive investment and I would be selling now encase markets do shift and the value drops. Breaking even is far better than losing.

I will assume your cash flow projections are good and include cap ex, maintenance, vacancies, PM fees, miscellaneous, etc.

Selling gets you virtually $0 so in effect you have $0 invested.  I would invest $250/month all day if it increased my net worth $470/month.  That is an instantaneous 88% return on your investment.  

But ...

>freeing up the VA Loan will help me get into a multi fam in San Diego, which is normally very hard to do (20% of $700k traditional vs 0% down for the same with VA Loan). That is the goal/reasoning I suppose.

You are limited in your VA loans. So is the current property the best use of the VA loan? I think the answer is obvious.

Sell the place not because the return is not adequate but sell it to better leverage the VA loan.

Good luck.

Originally posted by @Jeremy Dube :

Well, after re-analyzing my rental property in AZ, I am debating selling. I purchased it with a VA loan (I put very little down) as I was planning on living in it for a long time. Anyway, my life situation took me from it.

I am losing about $250/month once considering CapEx/repairs/vacancy savings, prop manager. i have renters in there and house is in good shape but as we all know, something could go down at any time.

loan is at 2.75%, so, I would lose that....which amatorizes quick.

Anyone interested in rationalizing keeping or selling? Should I hold onto and suck up a loss??? If I sold it today, I would not make much equity at all after realtor commissions...maybe a couple grand, so is it worth it, or hold onto it and suck up the losses???


Anything helps.

 I'm normally a "What?  Why even CONSIDER keeping a cash flow negative property!".   But honestly, in this case I might.   You're not down much.  And depending on your payment, you might be adding that much of debt reduction each month.  Not to mention you have a crazy low loan.

So unless this is a cheap (sub ~$150k?) house or you need to 'free up' that VA loan slot for something different, or if that $250 negative is keeping you from something else, I'd keep it.

Can you raise the rents on your current tenants? 

How much is your PM charging you?

I notice you are in San Diego but the property you mentioned is in Arizona....I assume this means that you are no loner stationed in Az. If that's the case,. why not refi out of the VA loan and put it into a conventional loan....and then house hack a duplex in San Diego using the VA Loan again.....oh...and did I mention raise the rents on your current tenants?

Here's another novel thought...this one you MAY NOT be comfortable with, but here goes....see what Section 8 pays for rental units in the area the duplex is in....If it is MORE than what you are getting from the current tenant....if it is, raise their rent....if they don't like it when you tell them you are raising the rent....get them out of there...and put section 8 tenants in there.

I have 8 units between Cleveland and the Sn Francisco Bay Area....half are section 8 tenants....half not....guess which ones give me the least amount of problems?  The Section 8 tenants. 

@Brian Garlington , the PM is doing a good job, not worried about that. It's everything else, as should be considered.

Correct, I am no longer in AZ. The attempt when there was to stay in that home for a while, that is why it was not bought as an investment, or I would not be even considering having it.

That is exactly what I am thinking, to re-fi out of the VA loan there. I just started renting it out in May, so not really in a place yet to up the rent (had family in there for a while).

I have a few plans up my sleeve after reading all the recommendations. I will post what I do, when the decision is made.