Homeowner · Sterling, VA · Member since 2011 · 39 posts · 1 vote
I am a newbie to this forum and eager to learn real estate investment. I am wondering if any experienced investors can share your input about our case.
We bought a split level single house in Vienna, VA at $439K several years ago and the monthly rent is $2,300 now; however, the PITI will be at least $2,525 even though we are refinancing now. The location is within two miles from Vienna Metro, and a new metro station in Tysons Corner is to be built now. We see this property with a prime location for rent, but hate to see the negative cash flow. We've also considered selling this property and find other investment properties to bring in more positive cash flow; however, we figured we won't be able to get much cash back after selling it with the current assessment value, $490K.
I will appreciate if anyone is willing to share your wisdom with us. Thanks a lot!
Real Estate Investor · Cincinnati, OH · Member since 2011 · 119 posts · 59 votes
15y
This is the true definition of an "Alligator" property, you should sell it and move on. Even if you raise the rate to $3000 or even $3500 a month, you would still need to feed that alligator, it will continue to take money from your other sources of income, this property is like a thief stealing your money earned from your other jobs, how can you allow it to happen? There's no upside that I can see, properties are not going to appreciate that much, you won't have enough money to be worth a 1031 and you don't want to mess around with depreciation recapture tax if you don't sell soon.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
15y
There is indeed more than one way to make money with real estate. But I stand by the statement that as a rental, a property that's worth $500K and rents for $2500 is cash flow negative. A $2 million property that rents for $1500 is far, far, far worse. But that in no way means its an overall money loser.
But its not really a rental at all! Its a speculation play that just happens to generate a tiny sliver of rental income.
Cheryl, you keep talking about "properties that meet the 50% rule". Perhaps that's not what you're thinking, and I'm just confused by the way you're saying it. Time and time again, any real data (not a handful of properties for a few years, which can vary widely) has shown this rule of thumb applies very broadly. The proper way to say what you're thinking is that properties in many areas will not be cash flow positive as rentals if all expenses are accounted for. Not to say they can be cash flow positive for a bit, since many of the major costs are very lumpy (new roof, major tenant damage). Nor that you can't make money in other ways, including appreciation.
Anyway, back to Grace's question.
Have you considered moving back into this house, Grace? Like Robert suggests? Our answers have focused on this house in isolation, but you should consider your larger financial and living situation as a whole.
Investor · Reston, VA · Member since 2011 · 683 posts · 191 votes
15y
I wouldn't sell the Fair Oaks home. They seem happy and settled. I'd jettison the Vienna house and buy some cheaper places that cash-flow. Believe it or not, there is some strong demand around here for homes in the 500-600K range. The Vienna location is good.
It's my take that they both work full-time and have a young kid. Hard, not impossible, to move...but all things being equal they should dump the rental.
Homeowner · Sterling, VA · Member since 2011 · 39 posts · 1 vote
15y
I can tell that you all are working hard to come up with a good suggestion for us and I really appreciate your efforts. In fact, we've also thought about moving back to Vienna because Vienna certainly has better schools than Fair Lakes does. This is also one of the reasons we don't sell this property yet. I also thought about selling Fair Lakes to realize the gain if we can sell it at low 600s. However, this Fair Lakes property was built in 2004, so it may have more potentials to appreciate comparing with Vienna property which is 55 years old. Now you probably know what my dilimma is. Fortunately, I believe these two properties are both in good locations, so this is why I try to figure which one we should keep. Probably we just sell both and find a smaller town home and spread the remaining to some lower value rental properties? Our current home is approximately 3,300 sq ft which we may not use all of the space but pay more utility costs. However, we probably need to pay the same price for a smaller townhome in our area since Washington DC housing price is going up again. There is really no easy solution for us, isn't it?
Commercial Real Estate Broker · St. Petersburg, FL · Member since 2009 · 47 posts · 23 votes
15y
Grace, I believe the one thing that you have going for you is that you sound very open to doing what needs to be done, whatever it is. And objectivity is often the key. Your willingness to look at the facts and do what needs to be done will, and not paralyze you, will serve you well whatever you decide.
To you all who helped to answer my question seven years ago, I moved back to Vienna and sold Fair Lakes home in 2015. I didn't expect this happen, but we just did it. Now we are thinking to tear down the alligator. :-)