Hi, im in San Diego California I have 2 properties one property that rents for $280 less than my mortgage and the other that rents for $800 less than my mortgage. Both have a pmi i could wash away probably in a year. I see in california the equity each year is a good amount PROPERTY 1 gained $23k in equity and property 2 gained about $30k all in 1 year so my question is is it a smart thing to hold and pay the little differences in rent vs. mortgage and bank on the equity 15 years down the road? Or should i wipe my hands clean with them and take a loss of about $30k in closing cost from purchasing about a year ago and get $70k net cash after all is said and done . My family member has become sick and we have to relocate to help them and this is kind of the situation im stuck any experience, recommendation or opinion is greatly appreciated thank you so much.
If your rent is that much less than your mortgage, by the time you factor in all the other expenses on these properties you are paying a lot of money for the increase in equity. You could justify holding if you were going to hold them for a decade or two, but if you aren't willing to put that kind of money into them for that long, you might do yourself a favor by cutting them loose quickly.
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
6y
If your rent is not covering your mortgage payment (I assume PITI), you are very cash negative. You need to including vacancy, maintenance/cap ex, Property Management (PM), miscellaneous into your cash flow projections.
What is less clear is how are you so cash negative? Were these purchased with real high LTV (>95%)? Maybe shorter than 30 year loan? No running of the numbers prior to purchase? The answer to some of these questions may pose different suggestions. For example if you have a 15 year loan, the cash flow would improve significantly with a 30 year loan. If the loan is real high LTV then a little worse cash flow is to be expected (it would explain some of this huge negative cash flow).
You have gained $53K in equity appreciation plus any equity paydown in the first year. I believe even subtracting off realistic negative cash flow projections, the property made money. In addition, historically over the long term it will make money. Rent increases will help the projected cash flow so that in a few years the cash flow is likely to be much improved. As you have experienced San Diego historically has outstanding appreciation.
The issue I have in suggesting you keep it is that I suspect you could do better (achieve a better return for your investment). I suspect you purchased these properties without sufficiently calculating the expected return. In addition, managing OOS properties (when you move) is more challenging (especially when things go wrong - For us it was getting hit by 2 hurricanes about a year apart in Gulf Shores Alabama) and will likely necessitate the use of professional PM.
I believe if you continued to hold the properties you will do fine over a long hold period. However, if you sold and invested your $70K cash wisely, you could do better. Part of this is that I suspect you did not do the due diligence to vet the current investments' returns. Many RE investments in San Diego it would be much easier for me to say keep them and over the long term you are likely to do better than most other investments. Most RE that is purchased by investors are not as cash negative as these properties.
@Dan H. hi dan thank you fo ryour input i see your in poway would it be possible to have a consult with you? i purchased the properties as a home for my family not investment so paid retail. My first was shot up from a person strressed about covid my second home we are moving due to my family memebr needing 24/7 care, luck of the trade im stuck with i crunch numbers all day but unforseen stuff has forced me inn this corner