What to do with a rental property that has negative cash flow?

6 Replies

Am not sure if I can get advice as my property is in a non-US country but I guess the principles remain somewhat the same. I'll convert the amounts to dollars for easier comparison.

Few years back, I bought a condominium unit in Manila, Philippines (where I'm a local but I'm living in a different country) and it's within the central business district. 

In USD it amounts to $70,000 (unit price + closing cost + interior design & furniture).

To cut the long story short, my total cash outlay amounted to $29,922 (which is 42% of the total unit value). (The interior design + furniture was quite expensive which I had to pay in cash and after the unit was turned over. Then it was vacant for quite some time because of admin issues with the leasing department. So I had to shell out cash for the monthly amortization and assoc. fees during this vacant period).

Currently, it's been available for leasing for about 3 months after everything was settled. The leasing department told me that there were a couple of potential tenants who wanted to stay for at least a year. However, the going monthly rate for my unit is only about $336. My mistake for overestimating how much I can charge for the unit when I bought it. Anyway, this amount would give me a negative cash flow as per below:

Cash Flow: $366 (income) - $466 (expenses) = -$100

At most, I can increase it a bit to breakeven.

One solution I could think of would be to use AirBnB (short-stay) rental instead to increase my monthly income from the unit.

Roughly, let's say occupancy rate is 50%, if I can rent it for $40 / day (which is quite possible from what I see in the AirBnB listings in that area), then that's about $7,320 a year. Divide it by 12 then that's a monthly income of $610.

Cash Flow: $610 (income) - $466 (expenses) = $144

Cash on Cash would be: $1,728 / $29,922  = 5.70% 

It's not outstanding but at least, it's not negative.

Another option is just to sell it and start over (now at least, am better equipped with this experience and not make the same mistake).

Any other advice for me? I would really appreciate. Thank you.

Hello, lah! Even with the AirBnB option that sounds like a pretty tough road ahead. If you sell it can you recover all - or at least most - of the money you have invested? Seems like bailing out now and reinvesting elsewhere would be better than slowly bleeding to death. I guess for me it would depend on how much I would lose in quick sale now. 

Originally posted by @Ryan Murdock :

Hello, lah! Even with the AirBnB option that sounds like a pretty tough road ahead. If you sell it can you recover all - or at least most - of the money you have invested? Seems like bailing out now and reinvesting elsewhere would be better than slowly bleeding to death. I guess for me it would depend on how much I would lose in quick sale now. 

Tough road ahead as in it's not worth the effort for a measly return?

Originally posted by @Ava G. :
Originally posted by @Ryan Murdock:

Hello, lah! Even with the AirBnB option that sounds like a pretty tough road ahead. If you sell it can you recover all - or at least most - of the money you have invested? Seems like bailing out now and reinvesting elsewhere would be better than slowly bleeding to death. I guess for me it would depend on how much I would lose in quick sale now. 

Tough road ahead as in it's not worth the effort for a measly return?

Exactly. 

Any other possible solutions instead of selling? I mean, if there are other benefits to hold into this property that I can look into, even for the meantime, I can consider too.

Just an update on this. I was able to rent it out for the meantime for a measly $382 (I was off by more than 50% of how much I originally intended). I'm still bleeding by holding on to this property. However, it seems to have appreciated in value but still waiting for the property management to tell me by how much.

Anyway, has anyone experienced investing in a condominium in the Philippines that actually cash flows? I can't seem to find any that would rent for 1-2% of the purchase price. If I buy landed property, I may get a better yield but I am not sure how easy it is to rent out. The traffic there is horrible and more and more people are finding residency within the CBD areas and that means condos.

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