Inherited Property - Financial Mess or Worth Keeping

9 Replies

Need help with this property. Here's the information. My parents decided to retire overseas. They have a property that was modified by the bank three years ago. By modification, the bank extended the term of the property to 40 years to drop the mortgage payments. If I rent the property at $1850, I'll just be breaking even on debt service (mortgage, HOA, insurance, taxes). Good news, it's fairly a new build property so there isn't much maintenance. The other positive news, I have a tenant ready for the property that will stay there a minimum of five years, he doesn't move much. He stayed at his last place for ten years and has been on his job for 20 years. He recently had a baby and looking for a bigger property. The property is valued at $395k, and has a loan of $331k. My question to everyone- what would you do with this property. Hold and rent, sell, or another creative solution I'd be open to hearing. Lastly I'll mention I have three other properties with decent to strong cashflows.

It is a major loser as a investment property. In fact it is not a investment property at all. Rent to value far too low and will end up as a negative cash flow if held.

I would dump it as fast as I could find a agent to list it for sale.

@Thomas S. Thank you for the prompt response. I've been torn on this, it will be the first property that isn't cashflowing for me. I wasn't sure if it was worth using the cashflow from another property to prop this thing up for sometime. The actual going rental in the area is $2100 to $2150. The reason I selected the $1850 rent was because that's the price the individual I know can rent it for, and thought it might be advantageous since it's unlikely he'll move anytime soon. It's either that, or rent it for $2100-$2150 with a renter that could leave after 1 or  2 years, in which case I'll spend a good amount of money to get it ready for rent again. 

A 400K property rented at 2100 is only half the rent you need to justify holding.

Why would you want to hold and supplement a tenants rent. Sell and cut your loses. It's only smart business decision in this case. 

@Brandon Malone You received good advice from @Thomas S.  

Sell the property and maybe use any profit as a down payment on something that cash flows better

@Brandon Malone   the other guys on here are 100% correct,  not a great rental sell and get the equity out (if any)  run away from this place its not a good investment.  You would need to rent it for a much higher price before it would be worth renting out.  Hopefully you can sell and have some equity left.  

@Thomas S. It seems you're thinking of the 1% rule. Which has always been a goal, but in the DC market- getting close to 1% of purchase price as rental price is near impossible. But I also see your point in possibly subsidizing for a renter to live the moment I get hit with a maintenance issue. I suppose with $60k equity, I'll have to to strongly consider selling. 

@Jeffrey Holst @Michael Noto Appreciate the feedback. The market is so crazy in the DC area and pretty much everywhere else- Whatever I'd get from selling, the time to find another property to avoid cap gains taxes will be difficult. I suppose I could get out of my comfort zone and explore properties past the DC region. 

I would sell it if it truly is a .5-.6% property at that price. I normally don't see that low of a 1% rule equivalent until you hit the 600k+ rentals and in class A/B areas. The only way I would consider keeping it is if the 40 year loan doesn't ever go back to a 30 and the house is in a part of the area where good appreciation is likely. If not, I would take the $60k equity and reinvest in another 400k worth of properties/property with better returns.

@Aaron Cavazos The property is located in Clarksburg, MD. I would classify it as a Class A/B neighborhood, probably more on the B side. As you know Clarksburg is fairly new, so this is a new townhome surrounded by single family homes valued between 550-575k. It was built in 2004 I believe. I can't speak to appreciation much with great certaintiy, but as long as they continue to build shopping centers around Clarksburg (example is the new outlets), there could be potential for even greater appreciation over time. 

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