Try to rent or sell for a loss?

Mary Jay

Glendale, AZ · Member since 2017 · 1k+ posts · 238 votes

11mo

I would continue to rent it. and may be refinance it into a better rate, even though u have to pay 15 k prepayment...

U bought it for 300k and now its 400k...Thats 100k equity. Its pretty good

2 Reply

Kenneth Ye
OP
Member since 2022 · 13 posts · 11 votes
11mo
@Mary Jay sorry, I should have been more clear, I bought it for 405K
1 Reply
Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
11mo
Quote from @Mary Jay:

I would continue to rent it. and may be refinance it into a better rate, even though u have to pay 15 k prepayment...
U bought it for 300k and now its 400k...Thats 100k equity. Its pretty good

They bought it for $405K. Current loan balance is $300K.
1 Reply

Denise SuppleeBusiness Member

Realtor · Willow Grove, PA · Member since 2017 · 984 posts · 643 votes

11mo

Welcome @Kenneth Ye ! One thing I wish I’d known early on is that you don’t have to do everything yourself. Real estate is as much about building relationships as it is about numbers, the right connections can save you time, money, and a lot of headaches. Keep learning, ask questions, and seek out experienced investors to learn from.

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2 Reply

Denise SuppleeBusiness Member

Realtor · Willow Grove, PA · Member since 2017 · 984 posts · 643 votes

11mo

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Mike Dymski

Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes

11mo

Calculate the expected future IRR of this property and compare it to your alternatives. It's a math exercise. Break even in the short run can be fine if principal paydown and predictable appreciation and rent increases over time will be good. Or break even can be not good without these.

3 Reply

Eric Gerakos

Investor · Costa Mesa, CA · Member since 2016 · 1k+ posts · 1k+ votes

11mo

Always do your own due diligence and NEVER take a realtors estimation of rent or tenant pool. Its almost like they're trying to sell you something.....

5 Reply

G. Brian DavisPro Member

Investor · Hatboro, PA · Member since 2016 · 3k+ posts · 866 votes

11mo

Hi @Kenneth Ye, I agree with @Mary Jay the fact that you have 100k equity is great! You could adjust rent to market rates or also maybe consider renting out rooms or storage.

1 Reply

Chris SeveneyBusiness Member

Moderator

Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes

11mo

Where is the property located? I would also consider keeping it as a rental like others mentioned

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Kenneth Ye
OP
Member since 2022 · 13 posts · 11 votes
11mo
@Chris Seveney property located in PHX 85051
1 Reply

Mark Cruse

Investor · Fort Washington, MD · Member since 2014 · 1k+ posts · 1k+ votes

11mo

I'm not exactly sure why you want to sell at a loss? How much would the loss be? You want to dump it because you are breaking even? There are so many things to consider. How is the appreciation looking? What will the rent look like in a few years from now? What asset class is it? Can you add value over time to increase equity? Unless I'm missing something, there is no way in hell Id sell a solid unit for the sole reason of getting no cashflow at this given point in time. REI is a long game approach. I had a flip where I had to deploy an exit strategy of renting. I was making very low cashflow due to several things including a super high interest rate. I could have sold at the time. I most likely would have lost everything I put into it and a little more. I chose to keep because in 5 years I can walk with possibly 80k and still collect the little bit of cashflow as a hedge.

4 Reply

Kenneth Ye
OP
Member since 2022 · 13 posts · 11 votes
11mo
@Mark Cruse I was just laying out all the possible options I can think of on the thread and I would like to see if there was something else I can do to hang on to this property until the pre payment penalty expires in 3 more years, so that I can refinance and actually have some cash flow.
1 Reply

Joshua Hardin

Investor · Chattanooga, TN · Member since 2023 · 179 posts · 109 votes

11mo

Ken, why not sub=to it? How can you turn it into something beautiful? How can it serve many within the community? Why not wrap it? The possibilities are endless as long as we ask the right questions. Your second deal? See, you have experience! Get creative! "LEAD WITH LOVE"

0 Reply

Dan H.Pro Member

Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes

11mo

Quote from @Kenneth Ye:

Hi everyone,

I’m seeking some guidance on my current situation with a rental property.

The property has a 8.25% DSCR and a 5-year prepayment penalty of $15,000, with 3 years remaining. The current loan balance is $299,000, while its value, based on Zillow, is between $415,000 and $425,000. The purchase price was $405,000, and the seller covered all the closing costs.

Unfortunately, the current tenant won't be renewing the lease, and the rental market has cooled down. Since I bought the property back in 2023, I've been breaking even on the PITI expenses with the rent. However, the interest rates were very high at the time, and my realtor overestimated the rental market. This was my second rental property, and I should have passed on this one.

Considering the commissions, closing costs, depreciation recapture, and prepayment penalty, I’m likely to sell the property at a loss.

I have two more months until the tenants move out. I’m wondering if it would be better to put the property on the market to sell or rent it for a loss.

TIA

If rent equals PITI, you have a very large negative cash flow if using sustained expenses. Those that believe rent equal to PITI means cash neutral are poor underwriters.

I suspect you are on the order of $750 negative a month. If this is fairly accurate, the $15k PP will be exceeded by the negative cash flow in less than 2 years.

Am not adverse to negative cash flow if there is sources of return that justify it. Your appreciation ver 2 years is between $10k and $20k. Using the $10k *I always use the conservative number in my calcualtions is 2.5% over the 2 years or less than 1.25% per year. This does not justify the negative cash flow.

I am often the contrarian and this is another case. I would sell this cash flow negative, low appreciating property at the type of loss that would result from a $415k sale price.

investing in a residential RE is not passive. We invest in RE to make money, not to work for free. This property has you working for free and may continue to have you working for free for years.

good luck

4 Reply

Kenneth Ye
OP
Member since 2022 · 13 posts · 11 votes
11mo
@Dan H. Got it, so are you suggesting I strongly considering paying the pre payment penalty and refinance now? This is my second rental property and thankfully I have some cash flow in my first rental to help offset some of this cost. Thank you for your detailed response btw.
1 Reply
Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
11mo
Quote from @Kenneth Ye:

@Dan H. Got it, so are you suggesting I strongly considering paying the pre payment penalty and refinance now? This is my second rental property and thankfully I have some cash flow in my first rental to help offset some of this cost. Thank you for your detailed response btw.

You can save ~$500/month converting to low 6% DSCR but 1) getting that rate will cost points 2) it likely comes with a new PP. it would put you back to wanting to wait out the PP.
You would still have negative cash flow with my underwriting. This negative cash flow would be on a property that has appreciated less than 1.25%/year over your holding time.
If you like to work for free or peanuts I can employ you.
To me RE investing (REI) 1) has to project to far better return than passive options to be worth it. I do good/great with my passive options so I require RE to project great returns 2) is done to make a life change opportunity. Virtually everyone including me started with REi being a side hustle. I had a prestigious and well compensated w2 job that required a lot of time. To take on a 2nd job, it had to project life impacting return. I "retired" a handful of years ago from my w2 job and have the resources to hire anything/everything out but still chose to spend a lot of time on RE.
Do you see this property meeting either of my REI requirements? What do you expect FAANG to increase this year? Its growth will slow at some point, but I do not expect it to under perform the market over the next 12 months (do your own research). My full cycle LP on syndications has produced over 30%/year return (but I have 2 holdings now that may reduce that number when they are full cycle).
There are a lot of opportunities. I would look into other opportunities rather than work for free or work for peanuts.
Let’s project the last 2 years appreciation going forward and $50 increase to cash flow annually over 3 years
Keep current loan
Cash flow: -$750*12-$700*12-$650*12=$-25,200.00
Appreciation $15k (to $430k)
Total negative $10,200 (you have worked to lose money)
Pp $15k
Refi at 6.125 with 5 year PP so 5 year protection
Cash flow: -$250*12-$200*12-$150*12-$100*12-$50*12=$-9,000.00
Appreciation: $25k

positive $16k to be asset manager or pm for 5 years ($267/month).
You have worked for very little money
RE is significantly more challenging than it was prior to q2 2022. Very few MLS purchases without value add project a return that should interest any investor. The implication is most non value add mls purchases have the purchaser working for very little or possibly paying out of pocket to work.
I would sell if you get at least $415k and pay the PP. The other choice is you have a job as asset manager or PM that will provide very little compensation likely for years.
Good luck
1 Reply

Parris Taylor

Investor · New York, NY · Member since 2025 · 92 posts · 71 votes

11mo

@Kenneth Ye Some ways to think about it.

Think in burn, not loss. If you rent it for $300 under PITI for a year, that's $3,600 out of pocket. Selling now means losing $15k on the penalty, + recapture + closing costs.... Paying time is cheaper than paying pain. Please review math.

Before you make any big decision, verify your valuation. Zillow is directionally helpful, not authoritative. Get a broker opinion or quick appraisal. You might have more (or less) equity than the Zestimate shows, and that number drives your real options.

Second, you could control the downside. Keep it alive until it stabilizes. Re-rent fast, even below market. Offer an 8 to 10 month lease (at a slightly lower rent), that gives flexibility (can re-rent / sell next spring or summer when demand is usually stronger, rather than waiting another full year on a 12-month).

Note, if rates or values improve, you could potentially refi with the same lender, some will cut or credit part of the penalty if you stay in-house.

This is a situation unique to you so at the end of the day, do what's best for you and what you can manage

1 Reply

James Hamling

Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes

11mo

@Kenneth Ye your math is wrong. And as long as your using wrong math, it will keep guiding you wrong. GIGO, Garbage In, Garbage Out.

To put it into context; Your using 3rd grade math, to sort out a 9th grade math problem.

Using just addition and subtraction to sort out an algebra problem will always leave a person confused and frustrated.

Let's start with the easiest part: Selling. When a person sells a property, you Realize a gain or a loss. That is "set in stone", it's either a + or a -, there is no changing it after the fact, it is-what-it-is.

Now here is where we move from 3rd grade math too 9th grade....

When you are operating a property for rental revenue, with use of leveraged purchase money; the + or - one has on the monthly Servicing of the property is not necessarily a gain or a loss in terms of the property/deal itself, it's an Operational gain or loss.

To explain:

Say your monthly servicing is $2k per month.

And say you only receive revenues of $1,900 per month.

This leaves a -$100 per month. But is that a $100 "loss"? Maybe, maybe not. See taxes comes into play on things and maybe there is a situation where it offsets to a net 0.

But let's say it is a $100 "loss". It's still NOT a "loss" on the property/deal, it's an operational short-fall.

What's that mean? One needs to view it NOT as a loss, but like the down payment money you put on the buy, or money spent when you do maintenance and reno. It's a $100 month additional INVESTED capitol into the deal.

So how does a person know if making additional capitol contributions is smart or dumb?

ANALYSIS. Just like doing an analysis on a property before purchase, a person needs to run a full analysis to see if your INVESTING via this additional capitol contribution, or just throwing away good money after bad.

Appreciation is a MAJOR factor in this.

Say that property has a today value of $400k. And selling now locks a realized loss.

OR, a person can surf a wave of forecasted operational loss requiring additional capitol contribution of $10k over the next 3 yrs. And the forecast shows a future market value of $500k.

That is $10k investment, for $100k return over 3yrs.

I would make that investment every time.

Do you see what I mean with all this, how your using 3rd grade math to solve a 9th grade equation? You need to step back and do the accurate analysis. If you don't know the accurate forecasts, then that's where you start, getting accurate data to input so you can have an output you can rely upon.

Winter of 2011 I had a friend who was feeling crushed over his 2008 buy, and wondering if he should lock his $45k loss on it just to get out from under it due to the minor monthly operational "loss" it had. I walked him through the analysis and the answer was clear, it was well worth the additional capitol contributions.

He later sold it, years later, for a 6-figure PROFIT. And his biggest struggle shifted to pain of selling because it was now a strong operational profit.

Don't give emotion the wheel, emotion rarely steers a person straight. Math, data, strategy.

Take a step back, run the analysis, and compare scenarios. Direction should come clear.

4 Reply

Kenneth Ye
OP
Member since 2022 · 13 posts · 11 votes
11mo
@James Hamling I really appreciate this thank you!
1 Reply

Elealeh Fulmaran

Specialist · Member since 2025 · 483 posts · 270 votes

11mo

You've got three levers to test before deciding: re‑rent, refi, or sell. First, price a re‑rent at today's true market using fresh comps and model PITI, taxes, insurance, PM, maintenance, and a vacancy buffer; if it's a small monthly loss, compare that to the certain hit from selling after commissions, closing costs, depreciation recapture, and the DSCR prepay penalty. Second, get hard quotes for a rate‑and‑term refi or portfolio ARM with no prepay to lower payment if the DSCR allows; if not, ask your lender what it takes to drop the prepay in an assumption or buyer‑paid penalty. Third, list only if net proceeds beat your projected 12‑ to 24‑month hold loss; prep for sale by turning it rent‑ready, collecting strong photos, and offering concessions toward the penalty to widen your buyer pool. Quick next step: build a simple A/B/C sheet with 12‑month net for keep, refi, and sell, then choose the least‑loss path that preserves your future options.

1 Reply

Arman AhmedPro Member

Real Estate Agent · Columbus Cleveland Dayton, OH · Member since 2024 · 2k+ posts · 939 votes

11mo

@Kenneth Ye

Tough spot, but there are a few ways to look at this. With the current numbers, holding and renting at a slight loss could make sense if you expect the market to stabilize or if you can improve cash flow through minor updates, better tenant screening, or leveraging a property manager. Selling now would lock in a loss, especially with the prepayment penalty and closing costs. Another angle is exploring Midwest markets, where similar properties often cash flow stronger and can offer higher long-term appreciation, so if relocation or out-of-state investment is an option, you could offset current losses by reinvesting in a more favorable market. Sometimes patience and strategic repositioning wins over immediate liquidation.

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1 Reply

Theresa HarrisPro Member

Member since 2019 · 15k+ posts · 11k+ votes

11mo

Assuming you didn't overpay for it at the time, hold on longer term if you can as it is just breaking even with a 8.25% interest rate. My first property I bought to live in and didn't overpay, but when I went to move, I'd have sold at a loss. If it was rented, that covered the costs (mortgage, taxes, insurance, condo fees). So I rented it out. Over time prices went up. I kept it as a rental for a long time and prices went up. I paid off my mortgage early (this was the 1990s early 2000s) and that income was a huge help. When I sold it, the price had almost tripled (yes it was~20 years that I had it).

2 Reply

Kate Sanchez

Member since 2025 · 246 posts · 100 votes

11mo

@Kenneth Ye Tough spot - many investors are facing the same with high-rate DSCR loans. If the loss is manageable, consider holding until rates drop. Selling now locks in the loss.

1 Reply

Joshua Hardin

Investor · Chattanooga, TN · Member since 2023 · 179 posts · 109 votes

11mo

@Kenneth Ye, 1.) How do we serve you? 2.) By serving you.. How are we able to serve others? 3.) How do we flip a "problem", into a creative solution? SERVICE>DEALS, "We don't build Legacy alone, we build it together"!

0 Reply

Patrick O'SullivanBusiness Member

Property Manager · Phoenix, AZ · Member since 2024 · 534 posts · 204 votes

11mo

@Kenneth Ye you’ve already gotten some great feedback here, and you’re asking the right question by weighing short-term pain against long-term potential.

At this point, it sounds like your decision really comes down to math and time horizon. Selling now likely means realizing a clear, immediate loss (commissions, prepay, recapture, etc.), while renting at a moderate deficit is a controlled, limited loss that might preserve your upside. A few ways to look at it:

Run both scenarios side by side. Model a 12 to 24 month “rent for a loss” plan versus a “sell now” plan. Include your carrying costs, vacancy, and prepayment penalty. This will show whether the monthly shortfall or the one-time penalty hits harder.
Verify your value. Zillow is fine for ballpark numbers, but get an updated CMA or broker opinion because Phoenix neighborhoods can move differently, even block to block.
Refi timing. Some DSCR lenders will credit a portion of the prepayment penalty if you refinance through them. It's worth asking; a lower rate could change your entire equation.
Market seasonality. If you decide to re-rent, you might lock in an 8 to 10-month lease at a slightly reduced rate to bring the property back to market during the next spring rental wave, which tends to have stronger demand in Phoenix.

If you can comfortably handle a small burn and still see longer-term value growth, holding may make sense. But if the property keeps you cash-strapped or stressed, sometimes redeploying the equity into a cleaner deal is the better move.

Either path can be right; what matters most is aligning the choice with your goals, risk tolerance, and bandwidth.

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Vaughn Croxton

Member since 2025 · 10 posts · 1 vote

11mo

Totally get where you’re coming from — a lot of investors who bought in 2022–2023 are running into this same situation with rates and rent adjustments.

Before making a move, I’d look closely at what the numbers really say between selling and holding. With a $15K prepay penalty and about three years left, sometimes the math works out better to hold even if you’re losing a few hundred a month, especially if you can refinance once rates ease.

If selling, factor in all the costs — agent commissions, closing, depreciation recapture, and the penalty — since that can eat a big chunk of your equity. On the flip side, if the local market’s cooling and rents are dropping further, it might make sense to take a smaller loss now instead of a bigger one later.

It really comes down to your long-term goals — whether you want to keep building toward more doors or free up capital for a better opportunity.

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Try to rent or sell for a loss?

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