Need Advice on Appreciating Unit with Negative Cash Flow

11 Replies

Greetings BPers,

I have another post outlining my decision to sell my 2/2 condo. A majority of BPers said sell and get another property (in short it was not cash flowing as much as I expected and a few water leaks last few months led to $1500 in damage.)

We put unit on market last week and have an offer for $93k. I purchased for $83k in July of '17. My dilemma is that I will be losing about $2600-$3000 overall after paying closing cost. I put $20060 in closing and down payment when I purchased and will net apprx. $17,393 after selling and paying off note. Standing offer of $93k is the high end of comps, buyer's first offer was $86,500.

I plan to do a 1031 exchange,so losing more money than I invested is really a set back.

I ran my numbers again renting it out -I didn't run numbers right when I purchased it...I didn't know about BP yet;)- and here is what things look like if I keep it:

- negative $60/mth cashflow (factoring in vacancy, repairs and cap expenses)

However, since July of '17 this property has appreciated $10k (apprx. $5k/yr.) Sadly, as of now all this current appreciation will be eaten by closing cost plus some.

So,Im looking for any thoughts,advice,input,creative ideas from some more seasoned buy and hold investors. Should I keep the negative cashflow and hope unit keeps appreciating (it is a B class condo in San Antonio) or sell it, take the loss and get back in the game elsewhere?

I do see the plus sides of the property tax deductions and interest deductions,but I was wanting this to cash flow much better. Learning as I grow;)

I have thought about asking my realtor to lower her commission since I would buy my next prop through her. 

Thanks in advance!

Patrick

That is very common. Take the loss keep the money in the bank for now. Unless it is in very desirable location and city, I doubt homes will appreciate like before. Heard 3X today what to do with the global recession hits US.

I have hard time understanding where tbe 1031 exchange comes in as if your not making any money what are you going to exchange.  If,you put 20k in cash to purchase and walking with 17k I dont think you be taxed on that.  I would sell and take lose as a learning experience.  Also, I would not ask realtor to lower rate.  If they offer I would take it, but they are doing a service for me and expect them to be paid.  My realtors get drug all over the area, sent into all kinds of nasty places to get there input.  They deserve every penny they get as I expect them to find me deals.  I pay for that by offering on houses at a point that makes sense for me and the seller so they can pay the commissions.  There should be enough to go around for everyone.  Just my 2 cents.

Sell.  If you were breaking even you could maybe hold it.  But negative cash flow is rarely (if ever) good.  

@Patrick Perez , I don't think you'll need a 1031 on this one. Unless you've owned it for a while and depreciation is a factor. Feel free to reach out if you want to run some hand grenade math calculators. But I'm sensing that on this one you take the loss. Feel happy about it when tax time comes around. And start again fresh.

$60 monthly negative cash flow is not a lot when factored in soaking wet (it seems you have factored in all of the relevant intangibles such as vacancies and cap ex).  I do not know the San Antonio market but it seems to me getting a rent raise of $60 in the near future should not be too hard.  Do you have a superior alternative investment earmarked?  if not, I would hold tight and try to improve the numbers unless the tax loss if going to help you this year.  .

Thank you all for the input!! Really helps. I chewed on this all night and did decide to move forward with selling. This is a great learning lesson for me since this is the first property I purchased outside my hometown. I expected to see the same kind of returns as my other property, but my best intentions and optimism don't count against effective calculations and market rates:)

@Darius Ogloza So the $60 reflects my current HIKED rent rate... I am already pushing it to the limit. The norms for this area are about $200 less than I am renting now. A unit just listed for rent in the same condo complex as mine for way, way lower than what I would need to even maintain a -$60 cashflow.  @Dave Foster I am hoping so...from what I was reading I would have to pay capital gains on what my condo sells at vs. what I lost. It is a bit more confusing to me since I am technically profiting $10k in equity ,but will losing $3000k or so since the closing cost are basically the entire equity I had built up. I plan to use these funds for another property and it would only make sense that I could enjoy the tax deductions on the loss I acquired. @Craig Jeppesen I did counter offer; they countered with my full asking price if I covered the $2500 in closing or asked that I lower the asking cost $2500.  @Chris Svendsen Yeah, that seems to make the most since as I am taking a loss. appreciate the input! And ,yeah,  the 3% is hard earned on her end. She is my boots on the ground since I don't live in the city my rental is. I'll bite the bullet on this one and press on:) @Sam Shueh   Thanks for the input:)

@Patrick Perez is it losing money when you take the rent minus the PITI? If not I'd probably keep it.

Also since you are losing money on this sale and don’t have any gains, you don’t need a 1031 exchange. There’s no gain to tax.

This is not tax advice, seek advice from a CPA

@Patrick Perez you’re not actually getting 10k in equity. Your taxes are based on your net proceeds. You put in 20k, you get back 17. That’s a loss of 3k. You don’t pay taxes on that loss. Your actual loss is probably more if you lose 60 bucks a month plus your repair work. That all goes into your taxes and will likely all add up to some sort of loss, which can be used to offset some of your other sources of income.

Long story short you won’t pay any taxes on this. Good luck on your sale!!

*not tax advice

Originally posted by @Caleb Heimsoth :

@Patrick Perez you’re not actually getting 10k in equity. Your taxes are based on your net proceeds. You put in 20k, you get back 17. That’s a loss of 3k. You don’t pay taxes on that loss. Your actual loss is probably more if you lose 60 bucks a month plus your repair work. That all goes into your taxes and will likely all add up to some sort of loss, which can be used to offset some of your other sources of income.

Long story short you won’t pay any taxes on this. Good luck on your sale!!

*not tax advice

I Agree . Sell it and take it as a learning lesson in real estate . Only buy cash flowing properties !