Investor · Baltimore, MD · Member since 2016 · 36 posts · 8 votes
Hello,
I'm in a tough situation and need your suggestions: I purchased a property (Loft) in Downtown San Diego 2016 and recently got transferred overseas for work--I'm scheduled to return to San Diego in 2020. Since purchased, the property has appreciated $110K not taking account of the post purchase remodel of the kitchen and bathrooms. Considering how much I pay in mortgage, HOA, insurance, tax, and how much it may rent it for, I'm looking at an $800 negative cash flow per month (while rented). The property is beautiful and in a very desirable location--a block away from Petco Park and a few from the Convention Center. With rising interest rates, I'm not sure I'd get the same deal in the future.
STRs is not an options due to recently passed laws.
Can I afford the negative cash flow? Yes, but its still $800 a month.
I'm a very optimistic guy and I sometimes tend to focus on the upside on things such as the continual uptrend in home value and rent prices. Want to get your honest opinion and wisdom on this. I've read previous posts but they're not as unique as my case. Here is a link in case your interested in taking a look: LOFT
Rental Property Investor · Member since 2018 · 41 posts · 46 votes
8y
If that's your dream house, then spending $800 a month for 4 years is nothing. What's $38,400 among friends? If it's not, then I would sell. Sure you won't find the same interest rate, the same house, the same deal later, but what could you do with $38,400 and the profit from your house? And you will find a similar deal. You may be able to find a syndication deal to put your profits into and buy a multifamily. When you get back, you'll be cashflowing from that and ready to buy your next dream house.
Rental Property Investor · Fallon, NV · Member since 2018 · 16 posts · 11 votes
8y
@Ben Payano if you work for the government, look at Yuma as a place to come back to there are gov jobs there. It's takes a couple of hours to drive to San Diego. Still not San Diego thou.
If that's your dream house, then spending $800 a month for 4 years is nothing. What's $38,400 among friends? If it's not, then I would sell. Sure you won't find the same interest rate, the same house, the same deal later, but what could you do with $38,400 and the profit from your house? And you will find a similar deal. You may be able to find a syndication deal to put your profits into and buy a multifamily. When you get back, you'll be cashflowing from that and ready to buy your next dream house.
It'll cost around 38,400 to sell anyway. Just keep it if you're going to come back and live in the place after 4 years.
Investor · Dublin, CA · Member since 2016 · 344 posts · 228 votes
8y
@Ben Payano if you already have some appreciation then sell it using 1031 and buy a small duplex or four plex for same amoumt of money. Not only you will get positive cash flow but you will also have more doors paying your mortgage.
Here is my 'test' when I'm considering selling: If I were drugged, and woke up one day to find out I sold the property and the cash was now in my bank, would I try to use that cash to buy the property back?
Meaning, if you DIDN'T own the property and had whatever cash you would have in the bank if you sold, would you go out and try to buy this property? Not likely. So sell it.
+1 on this all day. -$800 is a hole in the bucket, not an investment IMO. Better opportunities to use the funds elsewhere!
Flipper/Rehabber · San Diego, CA · Member since 2016 · 17 posts · 4 votes
8y
Ben,
Since you purchased the property 2 years ago and can show that you have lived in it during that time, the $110K appreciation is tax free. From what i'm hearing from real estate agents in the San Diego area, things are going to slow down next year and 2020. If I were you, I would sell it and take the gain, then when you get back into town evaluate if you still want to live downtown. It could be overrun by bikes, scooters, and homeless by the time you return! For those of you who live in San Diego, you know what I mean. That's $19,200 over a 2yr period you will have to shell out if you decide to keep it. Throw the money into Rich Uncles or Realty Shares and decide what you want to do when you return.
Lindenhurst, NY · Member since 2017 · 75 posts · 35 votes
8y
I think if you ever plan to move back then keep it. THe housing market there is crazy and coming back into it may be unreasonably exorbitant. If you have a network, take the HELOC on it and invest in a cash flowing property to offset. Even if there's a bubble somewhere along the line, long term still works out usually. You could even take the low interest HELOC to help you cover the margin while you're gone. I like the idea about HR covering part of it. Good luck.
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
8y
Let's see now.
$800 x 12 = $9,600/year. Assume at least $400/year in added expenses/rehab (minimal) = $10k/yr
Hold the property for 5 years = $50k of lost income (ultimately that's where the money to pay for this is coming from...right) plus the loss of what you were using that money for originally (see, many don't think about the domino effect)...that's another $50k.
Total loss for 10 years = $100k in hard money.
Now the fun part.
What if you had used that money to invest with, instead of spending it twice for someone else to live in the negative CF house?
...and, since the profit from the investment could be liquid, and reinvested, you have also lost the compounding impact of those lost funds.
Let's run some conservative numbers here:
1 - $10,000 lost per year (I'm allowing the doubling to slide by) 2 - 5% return per year (I would hope you could average better than that, but I'm being conservative) 3 - Total loss from this measly $800/month loss compounded/invested over the next 10 years at 5% return = over $132k 4 - ...over the next 5 years it would be = over $58k
Rental Property Investor · Tampa, FL · Member since 2014 · 55 posts · 12 votes
8y
@Ben Payano I‘m new at calculating cashflow. Do we include the monthly increase of equity into the calculation? If the equity increase is $1,000 per month, but cash flow is negative $800, that’s a net increase of $200 per month?
@Ben Payano I‘m new at calculating cashflow. Do we include the monthly increase of equity into the calculation? If the equity increase is $1,000 per month, but cash flow is negative $800, that’s a net increase of $200 per month?
For investor YOY ROE investment accounting purposes, equity gains are in the similar column as gross cash flow even if negative cash flow. So ROE includes the equity gains YOY minus taxes, sales cost and expenses as if you were going to sell, then add or deduct the YOY cash flow for total returns ( on paper) we can understand.
Rental Property Investor · Edison, NJ · Member since 2016 · 753 posts · 565 votes
8y
@Ben Payano. I would sell it ASAP. That is a lot to cash flow flow until 2020 and I assume that does not include any vacancies or repairs so it could actually be more. Also something could happen in 2020 with your job or your personal life which would keep you from moving back to the house when you are planning to now.
Investor · Coppell, TX · Member since 2008 · 2k+ posts · 646 votes
8y
Hello Ben! I agree with Melissa. If you only own 1 SFH rental property you are proving the trouble that might and will probably lose money in a long term investment. If that is a single family rental unit with a HOA involved is not a good idea and not reading or ignoring their requirements and restrictions is another mistake. Why did you buy this in the first place?
I would recommend that you learn the legal ways to raise money and how to form Partnerships and buy an apartment complex that can still have a positive cash flow after hiring a Property Management Company that takes care of the property daily operations. I have heard that you need an apartment complex that has a minimum of 32 units.
Never hope that anything is going to happen in the future when investing. Base your decision on actual income and expenses, not on a pro forma that is usually just a dream. Do not make any assumptions when investing.
Specialist · Little Rock, AR · Member since 2015 · 95 posts · 149 votes
8y
One thing you didn't discuss was the balance and term left on your mortgage. are you on the downside of the amortization or close to flipping to more principal pay down? If so then another option you might consider is selling the negative cash flow to an investor for part of the equity. Calculate the 800 per month compared to equity pay down and how long to pay off the property. If may be more beneficial to you to keep it and find that person that will give you the 800 per month in exchange for a good return. Or maybe some return and all the depreciation if you don't need the depreciation.