Hello quick intro/question from Connecticut

Hello quick intro/question from Connecticut

Investor · Southington, CT · Member since 2017 · 6 posts · 1 vote

Hello! Fan of the podcast, finally signed up for the forums.  Quick introduction about myself and looking for the proper forum to repost my question/situation, below. 

I live in the great real estate market of Connecticut and thus, became an accidental landlord when my primary residence (2Bd/1Ba) failed to sell. Instead of taking a big loss on the home, I decided, and was fortunate enough to turn it into a yearly rental after moving to our new, primary residence.  After the winter it will be time to assess whether to take another stab at selling the home, or continuing to rent for another year.  I have about ~40K equity in the rental and owe about $157K on the loan, but the monthly rental income only covers the mortgage payment + insurance + taxes + an additional $75 a month, which I put aside for repairs and anything that may come up.  We're essentially breaking even. We have great, low maintenance tenants, who we believe would likely sign for another year, if we don't decide to sell the property.  We also live close by, so we have the convenience factor in our favor when we do need to get over there.    

The roof, windows and furnace are all about ~10 years old, so while I'm hoping to avoid any big repairs in the near term, every year is another year closer to something that needs to be replaced.  

Since the loan will not be paid off any time soon by solely making monthly payments, does it make any sense at all to continue renting only breaking even, or should I pull the trigger on the sale and take what I can get for it, even if it means taking a big loss from my purchase price in 2010, just to be done with the house? We're leaning toward the latter, but interested in the thoughts/opinions of the community.  Again, my apologies if this is posted in the wrong forum and I will happily move it to another forum, if need be. 

Thanks!    

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Flipper/Rehabber · Montgomery, NY · Member since 2016 · 2k+ posts · 1k+ votes
9y

When you were trying to sell it previously, how did that go? Were you selling at a loss, profit, break even? I assume the house is in nice shape/comparable to other 2/1s in the area?

I wonder if there isn't an option to add a bedroom and at least shoot for the 3/1 market, which I imagine would be better than the 2/1 market. If there are any other value ads, to help a sale, I would be looking into those. Being a landlord while not making any money sounds like a non-ideal situation!

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  • Flipper/Rehabber · Montgomery, NY · Member since 2016 · 2k+ posts · 1k+ votes
    9y

    When you were trying to sell it previously, how did that go? Were you selling at a loss, profit, break even? I assume the house is in nice shape/comparable to other 2/1s in the area?

    I wonder if there isn't an option to add a bedroom and at least shoot for the 3/1 market, which I imagine would be better than the 2/1 market. If there are any other value ads, to help a sale, I would be looking into those. Being a landlord while not making any money sounds like a non-ideal situation!

  • Investor · Southington, CT · Member since 2017 · 6 posts · 1 vote
    9y
    Thanks for that feedback! During the original go round at selling, we were under contract for 25k less than what we paid in 2010, which is pretty much the norm, in this market, for CT homes without any significant improvements. The sale fell through due to unreasonable buyer demands following the inspection - first time homeowner who essentially wanted a "brand new" 70 year old home. We've been reluctant to take on any big modifications, but may need to revisit that if the numbers work. We've done some small value adds - painting, new appliances, new counters, along the way. Our idea has been to rent, while paying off some additional principal along the way, while *hoping* the market turns around eventually, where we wouldn't lose as much in a year or two from now.
  • Flipper/Rehabber · Montgomery, NY · Member since 2016 · 2k+ posts · 1k+ votes
    9y

    Is the home in Southington? I just moved to NY from Meriden, and my wife is front southington (we actually lived in Southington for a month before NY).

    Buyers can be a pain with what they ask for, and if you are already taking a hit, taking a bigger hit can be tough. Renting might make sense, but honestly, if the market gets better, maybe it works, but if the market drops, and the renters wear and tear the place, it could make things worse.

  • Rick SantasierePro Member
    Real Estate Broker · Granby, CT · Member since 2015 · 694 posts · 317 votes
    9y
    Dom Smith welcome to BP. Great question and really not that bad of a situation to be in. Taking a "loss" certainly has some nice tax benefits (especially if you have a decent W2 job), clear those with an accountant. Every time you make a mortgage payment, the equity paydown you get increases each month. This looks pretty as well if you track your net worth monthly. Ultimately it's a decision that needs to make the most sense for you? What are your short/long term goals? Will the $$ you have in equity be utilized in a better way if you sell (keep in mind today's pricing), or to kick back and let your tenant (and future ones) "pay for" the condo for you. Feel free to reach out privately if you ever need anything. We assist our clients with this very problem, often.
  • Investor · Southington, CT · Member since 2017 · 6 posts · 1 vote
    9y

    Thank you Rick, I did not realize selling a property at a loss had any tax benefits, so I definitely need to look into that further.  I might add, when I was trying to sell initially (at a loss), it was not yet converted to a rental property.  Now that it is a rental property, I thought I could only claim any lost value since the conversion. Additionally, being in the first year of the rental, I'm not sure what the hit is going to be come tax season, with the rental income received minus the property's expense write-offs and any depreciation that can be claimed, other factors that I'll need to consider going forward as well. 

    Ideally, long-term, I'd like to stay involved with real estate investing - just not sure that this property is right for a long term rental property.  As Brian mentioned, it's definitely not ideal that I'm only basically breaking even, but was curious as to what others have done / are doing, in this situation.  

  • Flipper/Rehabber · Bridgeport, CT · Member since 2016 · 33 posts · 9 votes
    9y
    I'm very surprised that a house purchased in 2010 isn't fetching a pretty penny more in 2017. I'm in CT and in Fairfield county the majority of purchases in this time were so discounted that there only has been movement upwards. Did Southington not experience the same?
  • Property Manager · Windsor Locks, CT · Member since 2016 · 1k+ posts · 1k+ votes
    9y
    Originally posted by @Dom Smith:

    Thank you Rick, I did not realize selling a property at a loss had any tax benefits, so I definitely need to look into that further.  I might add, when I was trying to sell initially (at a loss), it was not yet converted to a rental property.  Now that it is a rental property, I thought I could only claim any lost value since the conversion. Additionally, being in the first year of the rental, I'm not sure what the hit is going to be come tax season, with the rental income received minus the property's expense write-offs and any depreciation that can be claimed, other factors that I'll need to consider going forward as well. 

    Ideally, long-term, I'd like to stay involved with real estate investing - just not sure that this property is right for a long term rental property.  As Brian mentioned, it's definitely not ideal that I'm only basically breaking even, but was curious as to what others have done / are doing, in this situation.  

     Dom, it sounds like you should touch base with a real estate friendly accountant, so that you can run some scenarios by him/her. My advice is to have an agent run a comparative market analysis on your home to see what it would sell for in today's market. I'm not sure what you are currently using to get an idea of the value of your property, but folks often use Zillow, which is rarely right.

    Personally, the way I decide if I should sell something, is by asking myself if I had "X" amount of money, would I buy THIS house, car, stock, etc? If not, I sell whatever I am questioning. It's more than a math game, really. There's a mental strain to owning something you aren't sure what to do with...

    Set yourself free if you wouldn't buy it again today, then let us here at BP help you get into some real cash-flowing properties !

  • Investor · Southington, CT · Member since 2017 · 6 posts · 1 vote
    9y

    First, let me say that I am very appreciative to all of the feedback I've received, lots of ideas to take forward, so thanks to all. 

    Remigo - I'm not a professional, so can't say for certain, but I'd think central CT hasn't enjoyed the same upward movement that Fairfield county has seen over the last several years.  With jobs fleeing the state left and right, especially around Hartford county, there hasn't been much or any, turnaround in my area.  My other obstacle is the 2/1 comp, for which there is very little inventory in my area to make a fair comparison. The few 2/1s that do sell are often significantly smaller, on a busy street, no garage, no private yard for which my property is opposite in each of those areas.  That said, from looking over recent sales (~last 3-6 months), it does seem that values of "comp" homes are trending up compared to what I was seeing when my home was recently on the market.  Hope that continues.  

    Based on offers I've received and the home being under contract, the market has more or less assigned a fair market value of around 200-205K.   

    Filipe - I'm glad you brought up that question, I often read/hear about that very question and always ask, "am I buying it at the original price I purchased it back in 2010, or am I buying it on the amount of loan that is left to pay it down?" If it's the pay down, I would absolutely buy it at that price, if it's the original value - definitely not.  

  • Property Manager · Windsor Locks, CT · Member since 2016 · 1k+ posts · 1k+ votes
    9y
    Originally posted by @Dom Smith:

    Filipe - I'm glad you brought up that question, I often read/hear about that very question and always ask, "am I buying it at the original price I purchased it back in 2010, or am I buying it on the amount of loan that is left to pay it down?" If it's the pay down, I would absolutely buy it at that price, if it's the original value - definitely not.  

     You are "buying it" at what you paid for it, because that's how much $ you have in the deal, currently. Whether it be an asset or liability, that's how much $ you have out there, good or bad. :)

  • Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
    9y

    @Dom Smith Homes priced right sell in Southington. The problem isn't the market in CT or central CT in particular the problem is the house is a 2/1.

    The buyer pool is a lot less for a 2/1 house in this area because you can often get a condo or townhouse that is a lot newer and cheaper than a 2/1 house. 

    Do you have a high paying W-2? Keeping it as a rental even if it loses a little bit each month may not be the end of the world if it brings your taxable income down a little bit. Also, you are getting the equity pay down during that time like others have mentioned. 

  • Investor · Southington, CT · Member since 2017 · 6 posts · 1 vote
    9y

    While the biggest problem may be the 2/1, I do think the market has taken it's toll and definitely has not recovered to where we were in the early 2000s.  The house sold in 2005 for 255K, 220K in 2010 and should sell for around 200 now.  I've seen several homes of varying bed/bath counts follow a similar trend for houses that have not made significant improvements, in this area, over the last 10 years.  

    Is 2/1 my biggest obstacle at this point? No doubt, but I'd have to think central CT's market is playing a role - to some degree. 

  • Gilian GegawinPro Member
    Virtual Assistant · Scottsdale, AZ · Member since 2017 · 236 posts · 38 votes
    9y

    @Dom Smith  Welcome to BP, Dom. Congratulations, you have found one of the most valuable free resources on the internet for real estate investors new and old. We are happy to help you in any way we can. 

  • Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
    9y

    @Dom Smith, I think you're overlooking an opportunity. If you have great tenants, why not see if they are willing to buy the place? I would frame it as "giving them right of 1st refusal" and see if they are interested.

    They will most likely qualify for an FHA loan, meaning they only have to come up with $6-8k. They're monthly mortgage will only be ~$1k/month (at $200k sales price), bit more with PMI and insurance. That's probably right in line with the rent they're paying.

    CT even has a bunch of first-time home buyers assistance programs.

    Worth a shot. 

  • Investor · Southington, CT · Member since 2017 · 6 posts · 1 vote
    9y

    @Jaysen Medhurst thanks Jaysen. We definitely plan on offering them that option! 

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