Hey. I have a upside down rental that was my first house. Bought it on the high side right before the housing bust. I refinanced it once to get the payment lower because my family was growing and we needed a bigger home. My only option was to rent it out because I couldn’t sell it.

I’ve had a tenant in there for two years now and she just signed another two year lease. The payment is $691 and I’m charging $850 for rent. It’s a 2 bed 2 bath townhome. I currently owe 91k and it’s worth 70k. I want to unload it as quickly as possible. Is my best bet to keep doing what I’m doing and pray the market comes back?

Since you sigend her again, I'm assuming she's a good tenant. It'll take a while for you to be in a situation where you can sell it and break even, but that's better than selling now and pay $20k+. I would keep it. Just know that $159 cash-flow before repair expense is not a lot (it's not a lot, even after repair expense), so have a lot of extra money put aside, so that you have money to fix big ticket items (driveway, roof and HVAC) or cover vacancy in the future.

Yea she’s a great tenant and the neighborhood loves her. Yea I replaced the A/C unit and water heater before moving out. The roof is something I’m planning for. 

Over time it is obviously going to be a money pit. No way you will be able to maintain it without putting in more than you are taking out. If the value does not go up all you have done is increased your loss. Do you really think it will go up enough in value to recoup your $20K plus your additional expenses over the next two years. Probably not likely so in the end you are avoiding the inevitable. It really comes down to how much you are prepared to spend to not commit to the loss of your 20K. The smart move would be to unload it now and take a $20K loss compared to possibly $20K +. (20K + roof = ???)

Better hope the markets do not turn in the next two years.

@Roland Park I suggest that you hold on to the property and keep the tenant in it, the debt pay down/increase in equity is worth it. The longer that you hold on to the property the more it makes sense keep the cashflow and let the tenants pay the property off for you or at least hold it until the tenants help you make up your inequity position  

"the debt pay down/increase in equity is worth it."

This is smoke and mirrors. With negative cash flow this balances out to him paying down his own mortgage. Likley negative net gain on equity.

the roof actually isn’t that bad cost wise. I guess I forgot to mention that the home is 1100 sq ft attached townhome.

What area is this in and is there much chance of appreciation? I guess I'm a little surprised if there are still areas that haven't recovered since the housing crash.  Back around 2010 there were a lot of people in your situation.

Central Georgia 

Stats indicate appreciation rates over the past 10 years for Georgia average less than 1% per year. Unless there is a major improvement your losses will only increase over time.

With positive cash flow this would be a different scenario, unfortunately your cash flow is negative and will likely remain that way going forward. This is really only a question of how long you are willing to pay to carry this property before you decide enough is enough and stop the blead.

Don't forget the depreciation recapture you'll have to pay upon sale, on top of the negative equity. You've been taking advantage of depreciation on your taxes for the last ten or so years. You lost the owner occupied exemption if you've been honest on your taxes so, if you sell it, not only will you have to pay the difference between value and debt, you'll pay the depreciation back. Ask me how I know!!!!

I'm really confused.  Seems to me, from the OP, that there is $159/month positive cash flow.  Why does everyone keep talking about negative cash flow?  I'd much rather collect $159/month, 1% appreciation, depreciation tax benefit, and mortgage pay-down via renting the property out, than write a check for $20k+ when selling it.

Originally posted by @Eric James :

What area is this in and is there much chance of appreciation? I guess I'm a little surprised if there are still areas that haven't recovered since the housing crash.  Back around 2010 there were a lot of people in your situation.

 I'm still upside down in my rental in a Cleveland suburb.  But my tenant pays my mortgage, property manager and a little extra so.... 

My vote would be to keep it with the information provided because just like stock you don't actually lose money until you sell. Now, if you don't see the area recovering by the time your depreciation write off expires (I am assuming 2032ish?) then it may be better to cut your losses now. But that's 14.5 years left to pay down the mortgage and it would have to be a pretty bad area to not appreciate ANY in that time. 

But you said you just want to unload it quickly so maybe you can find another investor that is willing to take that bet if you are not. You could "give it" to another investor subject to the existing financing. You wouldn't make any money but you wouldn't have to pay 20k either. You would have to find someone willing to take the risk that the property won't appreciate and risk the due on sale clause being triggered in your loan. If you do that you need a contract that is rock solid in your favor in case the investor defaults. I am also unsure of how depreciation recapture would affect you in this scenario which is why I defer to my original comment of keeping it with a good tenant and a 2 year lease. Type "sell my house fast in ..." into google and call every website on the first 10 pages of google. There are plenty of investors out there who are experienced in creative deal structure who may be able to help extricate you from this situation with minimal losses. Good luck. 

I’m going to assume central Georgia is Macon? There are a few things that are unclear, unless I missed a comment. Have you ever raised the rent? I usually will rent for no more than 2 years at a time and then I charge 10% at lease renewal. Obviously the market has to be able to stand this. If you aren’t even asking though I think you are selling yourself short. Rents are going through the roof right now. I’m in atlanta so I know that this is not your market. However properties are appreciating at a fast rate in most markets. A bubble? Maybe but we have a way to go. There lenders aren’t doing any crazy stuff like back in the day. I would keep the property as long as you can. Raise the rent if possible. If you have to jump ship see if Tenant wants to buy it. Also since folks are going to be calling you for repairs, make sure you let them know that repairs less than 75 dollars are on them. Or whatever amount they will agree to. This way they aren’t calling you for a stoped up toilet.

When the economy tanked I had a rental property that I almost lost due to tenants vacating without notice. I almost lost that home. I paid 165k for it. I lived in it for 4 years and moved. I have had it as a rental now for 11 years. I owe 80k and it’s worth 250k. So hold on if you can.

Yeah, why is everyone saying negative cash flow? Just because of the repairs? 

The value of a property absolutely does not matter if you aren't buying or selling (or refinancing). So just because it's only worth $70k right now means nothing as long as you don't try to sell it. I agree with @Vaughn Smith on this one. The longer you hold it, the more you stand to gain assuming the rents don't decrease. Especially if you hold it until it's paid off...that's massive gain in your pocket. Plus you should be writing all those expenses off. And a good tenant is the best gift possible to a rental property owner. 

I'm not sure why everyone says to offload it. That would be guaranteed loss. Why not take the chances if you have a small amount of positive each month?

"I'm really confused. Seems to me, from the OP, that there is $159/month positive cash flow."

@George Pauley @Ali Boone

Do you know how to calculate cash flow. Do you understand what the ongoing expences are on a rental property and that those expences are deducted from income before assessing cash flow. $159 after mortggae payment, no way in h*ll this property could ever show positive cash flow. Most SFH have expenses in the range of 50%. If we assume this is a miracle property that has expenses in the 30% range that is $255/month.

No way this property could ever have positive cash flow. 

Not answering the original question but... I agree with everyone saying there is no cash flow here. It's alarming that more than one person on here is saying that like $150 after the mortgage pmnt is cash flow lol.

While cash flow is very thin, if you can go 12 months without any major repairs and you are self managing that could get you ~ 2k as a cushion. In year 2 with a 25 dollar increase that will get you another ~ 2300.

If you have good tenants who take care of your place  this is entirely possible. Roof is your biggest consumable item and hopefully you have at least 10 years or more left on it?

Another thing you can do to help yourself out is make the tenant responsible for the firs 100.00 of repairs. This will take care of the small nuisance items that may arise and allow you to bank more of that positive cash flow.

If you are close to the property and comfortable self managing I would keep doing what you are doing rather than realize a 20k loss.

Chris