Sell a “good” rental?

Question

I have a long distance SFH that cashflows about 500-600/mo on paper and have owned it for 3 years. This thing should be a machine but the PM always seems have something come up that causes me to not cashflow. I’ve been negative for the past 6 months.

- Previous tenet skipped out on last months rent- There was a turnover but that only took a month. - New tenet fees

- Small toilet leak (should’ve barely changed things)

After those bullet points, no explanation for low cashflow.
This was originally meant to be a flip but decided to keep it before looking into PMs and there aren’t many options. When is it time to call it a day and sell a property that should be killing it, but just isn’t?
I'll still come out with a good profit, but to sell a, sometimes, high cash flowing SFH with a 3.75% rate also seems crazy.
TIA!

Alecia Loveless · Answer

@Nick Wehrley I’d see if you can find a good handyman and self manage. That person can possibly help with some of the boots on the ground things and will charge an hourly fee that is much less than the percentage based fee of the property manager.

For a SFH this makes much more sense to me than to sell a property that is supposed to be cash flowing $500-600/month.

My contractor can take care of a leaky toilet for around $75 and can be trusted to help show and fill a vacancy for between $30-40 per hour. You can do most of the screening process and background check part from afar and get a new tenant set. It’s really pretty easy.

I’d love if ANY of my units cash flowed at $600/month.

Rick Albert · Answer

I have been struggling with PMs as well. I would consider looking for a new property manager to see if you can lower your costs and explain what your problems are.

From my experience, most property managers charge the following:

-6%-10% of the gross rents

-Cost of turnover

-Mark up on all repairs

-Costs to renew leases

Could you self manage? Even though many PMs charge 10% of the gross rents, it really comes out to about 15%-18%.

In terms of selling, it really comes down to what will you do with the cash from the sale.

1. Is there a better property to reinvest in? Maybe multifamily makes more sense to spread out the risks. Having a vacancy in a house is 100% empty versus a vacancy in a fourplex is 25% vacancy.

2. Keep the money, get taxed on it, and do whatever you want. Not ideal but everyone has a different story.

Shawn Parsh · Answer

Nick,

I agree with those that said to self manage, and by that I don't mean you do all of the work. I would find a handyman to do the needed repairs as needed and someone that can show the property when needed. You can screen tenants, collect rent, and scheduled repairs from anywhere and it takes very little time. I have hired a lot of people over the years to manage my properties and I have never paid them an additional fee to re-rent the property. From my perspective if the property is empty they are not going to be rewarded for that they should work to find and keep good tenants.

Michael Smythe · Answer

@Nick Wehrley time to have a chat with your PMC!

Find out if they are properly licensed and insured.

You shouldn't have to ask for your monthly draw payment.

Definitely look high & low for other PMCs.Curious what they did with the tenant's security deposit?

Kimberly Abeln · Answer

I know you said that you don’t want to self manage because you’re not living there. I took over our rentals’ management from Germany bc our PM was so poor. It was the best thing we’ve done for our portfolio. Tenant screening is super important, but not difficult. Everything else just comes down to having people and processes in place. I’m happy to jump on a call if you change your mind about trying it. I’d give it a shot in lieu of selling.

Preston Dean · Answer

@Nick Wehrley man a 3.75% is hard to let go!

If you haven't tried calling your local RE brokerages and asking for some solid PM recommendations I would do that. Also, I am curious what appreciation you have had over the last 3 years?

Remind yourself that RE is a long waiting game and not a get rich quick game. Also, with negatives on paper that probably helps you alot when it comes time for taxes and depreciation & write offs. If you sell then all of that is gone

Caleb Brown · Answer

Hmm. Any chance to self manage? Being in a small town that kinda stinks but there might be another PM close enough. Hard to beat that cashflow and rate

Sell a “good” rental?

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