What to do with this house?

7 Replies

Let me paint you a picture of a problem one of my close friends has been dealing with for over 10 years...

She bought a house in 2007, (I know not an ideal time to buy), for $190k. This is a town house w/ an monthly HOA fee.

With that, the insurance, mortgage, & other expenses it has had a negative cashflow from roughly between $200-$400 for over 10 years.

In 2008 when the Market ate ****, the value plummeted to $130k, and has since risen to $170k. She has about $75k in equity, amounting to just under 40%. And in the following years the principal starts get bigger and bigger. However its still negative cash-flowing over $200.

It is a very nice home in Palm Beach Gardens in a nice location for families, has a pool, and the HOA covers the majority of maintenance.

She is not as well educated in RE rental properties as she should be. And although she does have to pay over $200 into that mortgage each month, she does make near six figures at her job.

Note she also has a primary residence that is $90k above the value of what she paid for it. Which in a way makes up for the negative cash-flowing rental.

I'm looking for solutions for her. Should she sell at $170k having under 20 years left? I personally think the property will continue to go up in value in the long term. She has paid so much in interest thus far, I feel like with limited knowledge in RE that her best bet might be to keep the prop. Let me know what you guys would do? All solutions welcome.

Thanks BP,

Sam

@Sam Giberti . Just my opinion. People (me too) hang on to loosing investments too long. Where is she in the cycle in her market? I believe people make decisions because they are inspired or are in pain. Which one is she? If she is neither, she may be too comfortable to make a decision. #1) what are her goals? Without clear direction, you don’t know where you’re going. So get a goal/direction/plan. Once she has a plan then that will drive the action.

If she pulled her money out, could she find a place for a similar price that cash flows better? Ie a single family house. The HOA while maintenance, it also costs a lot.

As for interest, the majority of your mortgage payment initially goes to interest, but after a point, more is going to pay down the principal.

I probably got the numbers wrong but just doing quick math using today's numbers because we know that over time her HOA will increase as well as what she collects but say it washes each other out. At its Current Value 170k, assuming modest appreciation growth in 20 years, the town house will be worth about 205k. so over the course of 20 years that's 30k. but at the same time she is giving up ideally only $200 a month for 240 months and that's - 48k. This is where I would recommend selling and cut her losses and use it as a lesson learned... "You make money when you buy, not when you sell"

@Sam Giberti investments are to make money. $75000 equity costing $2400 per year. Negative 3.2% ROI. She could put in a money market account and get 2.5%. Is it going to appreciate at 5.7% long term when adjusted long term appreciation is 3.7%. She could buy 2 starter homes and cash flow better than this property. Sell and use the equity to buy positive cash flowing properties.

Sell it yesterday, if not sooner, and put the cash you get out of it into a place that DOES cash flow.

Rationalizing that she can afford to pay the tenant to live there (negative cash flow), is like saying you work full time at your regular job, and because you have more income than you need, you're willing to take a side job...and pay your employer for the privilege of spending your extra income on them. 

The tenant has one job, and one job only...to pay the mortgage and the rest of your expenses...plus extra (cash flow).  Why help them?