Correcting my own mistake

6 Replies

Hello BP!

I fell into land lording a few years ago when I moved out of a duplex I purchased due to job relocation.  I now own a duplex out of state and have recently purchased my primary residence.

Basically I purchased a duplex with little to no money down with a VA loan. I purchased it in 2008 for $154k, it is now valued at around $135K which is roughly the exact amount remaining on the principal. The rents total $1,500 a month with an escrowed mortgage of $1,350. However - due to my inexperience I have been paying the water for the tenants and have not raised the rents in several years. Additionally I have been relying on family to do the property management which I would ideally like to avoid. Essentially the property is cash flowing negative as property management, water and capital fund are only covered by $150/month.

Due to my now feverish appetite to get into buy and hold properties (thank you BP podcasts and books) I would like to get my act together and be a move active landlord.

Last year i purchased my primary home for $290k and have a conventional loan with capital invested in the down payment.

So that being said I see a few different options and was hoping for some advice. 

1.  Start charging the tenants for water

2.  Raise the rents incrementally annually 

3. Refinance my VA loan to restart the amortization schedule and reduce my monthly payment. I would think this would at least make the property neutral or start to cash flow. With incremental rents it could eventually work...

4. Sell the rental home to free up my VA loan - and refinance out of the traditional loan on my primary residence into a VA loan. I'm not sure if this is a viable option and if so - if i were able to pull out any of my capital.

REALLY appreciate anyone's assistance and I want to get going in the right direction on multifamily deals that positively cash flow.

-Wes

Well, the first (and most important) question is: how do the rents charged compare to fair market value? If you're grossly undercharging, it doesn't much matter that the property is a wash at this point if it can generate significant cash flow. If, however, it's already rented at/near market, then it appears to be an obvious loser, in which case your most prudent move is probably to hit the reset button and sell. 

One thing that's very difficult for investors/would-be investors is not letting the psychology of past decisions govern future decisions. It's why people who end up $200 down at the roulette table end up blowing 2 grand. If the money is lost, it's lost, and if the prospects for recovering it are very low, it's usually smarter to play to the future than continue to try milking funds from a dry cow. 

Thank you very much. I do agree I’m trying to make something work by the narrowest of margins. I’m a capex item away from a much larger financial burden. Time to list!

Time to sell, take a loss if necessary and reboot.

You can polish a turd all day long but all you are going to end up with is a polished turd.

It might be hard to sell break even if there is deferred maintenance on the house.

However, I'd still try while the market is so hot. It's definitely going to be difficult when a correction hit :(

Good luck!

Definitely look at market rents. If you are still charging 2008 rents, there's a good chance you are under the market. It may be that you have a great property that can cashflow. If you can't raise the income at all...then I agree with the others; this may be a property you need to let go. 

Wow thank you everyone for your advice I really appreciate it.  After some thought and discussing with others I completely agree that it is time to cut bait.  

One more question for you all.  Currently both of my tenants are on month to month leases and I know the condition of one of the units is not the best.  Would definitely benefit from a coat of paint and new carpet.   Prior to selling would you suggest getting this tenant out and making those improvements or is the juice not worth the squeeze?

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.