I have a rental property in which I am currently netting about a $-200/per month negative cash flow. Back story is that I got a job overseas and had to rent out my condo ASAP so that I am not stuck with a mortgage payment and a rent payment at my new location, so I essentially became an accidental landlord if you will.
It’s been about 2 yrs now and I want to really seriously start looking into R/E investment, so I figured my first baby step will be to take care of this current condo and ensure that I am at least in a positive cash flow situation.
My question is, I have about 20K cash in bonus from my day job and I am wondering whether I should put it down towards the mortgage on my current condo that way I can reduce my monthly mortgage payment, or use that money as a down payment on a new rental property.
Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
7y
Sell it if you think the anticipated annual appreciation rate is less than 5%. Wait til you do not get rent you lose even more. Why bother to hang on to it?
Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes
7y
Putting that money towards the mortgage would reduce your principal balance but shouldn’t change your monthly payment, so you’d be better off saving that money for the down payment on your next property.
Thank you so much for the replies, the property is in the greater NYC area, so I was thinking that long term wise it would be a good investment to have a property in the area. The value has appreciated significantly in the 6 years in total since I have owned it.
If you can refinance it and it will positively cash flow, hang on to it otherwise I would sell it. Doesn’t make any sense to keep a property that cost you money. Investments need to positively cash flow.
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
7y
NOOOOOOO! Sell it ASAP. Adding more money to the mortgage doesn't reduce the mortgage payment. All you would be doing as making the negative CF even larger.
Get rid of this dog and put your money into a REI that is positive CF...ASAP.
Thank you so much for the replies, the property is in the greater NYC area, so I was thinking that long term wise it would be a good investment to have a property in the area. The value has appreciated significantly in the 6 years in total since I have owned it.
...and before that long term exit takes place, how much accumulated negative CF will you be building up? Can you count on any increase in the future? Is it guaranteed? What specifically would it be...for sure? How much money are you losing in addition to the negative CF, because you are spending that money on a negative CF property...which amounts to the same thing as flushing it down the porcelain bus.
If you invested that extra money in a positive cf property, how much are you losing? What the heck, how much are you losing by not being able to invest ALL of the negative CF (plus that extra payment) in a positive CF property?
You are not making any profit until you recover all of the out of pocket cost from you. The longer you continue to add up negative cf, the more money you have to recover before you start making a profit...and the less money you have to work with to gain that lost money back.
Putting that money towards the mortgage would reduce your principal balance but shouldn’t change your monthly payment, so you’d be better off saving that money for the down payment on your next property.
Kyle, if the OP does a Recast it will change his monthly payment; generally, $50/$10k. Fee is about $500. However, I'd sell the asset and reinvest.
Rental Property Investor · Cleveland, MN · Member since 2017 · 518 posts · 354 votes
7y
Sell it. Then take your profit, along with your savings, and use it for the down payment on something else that does cash flow. Maybe a duplex or multi.
Investor · Shawnee Mission, KS · Member since 2015 · 423 posts · 114 votes
7y
Hold on, you are building equity at least, in NY area negative $100 is not too bad :) raise the rent and you will be even with growing equity. As I remember, during the last crash NY area did not look bad at all (correct me if I am wrong), only CA, FL & AR experienced 3 times fold. Some areas were not so bad. If you think that you (NY) is almost on the top of the cycle and you want to fix your profit - go for it and invest money in better cash flowing regions (my favorite is Kansas City Metro area :) or just wait with cash for better prices in NY :) there are a lot you could do with cash (buying property at actions is one of them). It looks like you have pretty good job. You may want to explore different ways to make money in Real Estate and think, what could work better within your life style. You cash may look much better at your Roth IRA accounts which will be invested in RE (leveraged with non recourse mortgage if you are up to it). You may want to think strategically before making any decisions. There are a lot of strategies in RE - from very active to mostly passive. Choose what will work better for you.
Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
7y
@Lea Mitchell All that would do is possibly get you to break even or some positive cash flow but then your CoC return will be low. Even if you could somehow pay the mortgage off entirely and have lots of cash flow, that doesn't make it a good investment. You can get much better ROI somewhere else.
Rental Property Investor · Saint Louis, MO · Member since 2012 · 115 posts · 42 votes
7y
@Lea Mitchell it sounds like it was your primary residence and you moved out 2 years ago. If it was your primary residence for 2 of the last 5 years, you would pay no taxes on the profit up to $250,000 or $500,000 if married, a strong consideration for selling.
You can evaluate your decision by analyzing it as if it were a new investment now...
1). If you were to sell, after all closing costs and paying off the mortgage, how much cash would that free up for you? Let’s say $100,000 for this example.
2). If you were to keep it, how much would it appreciate per year? Subtract the negative cash flow from that. For example, let’s say it’s worth $500,000, you expect it to appreciate it 4% per year. 4% per year is $20,000. Less the $200 per month ($2,400 per year), netting $17,600 per year, which would be a 17.6% return based on the “investment” of $100,000. You can get more detailed and analyze principal pay down per year, taxes saved because of depreciation write off and add to the above scenario.
Typically cash flow is king and the advice would be to dump a negative cash flowing property. Based on your commission amount, you might be one of the examples where you can weather the negative cash flow if the overall return is better than what you could do if you cashed out and put that cash flow towards the next investment. Good Luck!