Breaking Even For Potential Future Income Buy or Sell?
I purchased my first investment property in the Fox Valley Area back in April. It’s a side by side duplex that has broken even over the past several months. I had to do some maintenance for the tenants a few months, which made me lose money and other months I cash flowed roughly $30. I’m still unsure if I’ll be able to put money away for any future issues.
I am an about $80-$100 under the rental market for each side of the duplex. So I am potentially losing out on $200 in revenue. But I know I can get to that number after increasing over then next 3 years in small increments.
Would you guys hold or sell?
15 year old house
Rent $1,400
Management Fees 8%
Mortgage,insurance, prop taxes $1,260
I'm going to assume that you inherited your tenants. If this is the case you should go to market rent when their lease is up. If the property is running that tight then its in yours and your tenants best interest to make sure the cash flow is better suited being able to take care of any issues. You showed that you had a property manager, so that will at least take the personal edge away from raising their rent. Hopefully everything works out for you.
You didn't say how much equity you have, that is a major factor in making this decision. Personally, I would sell everything that isn't making money right now because any dip in the market could bring rents down and even slightly and you'll be coming out of pocket. If that happens the value will drop at the same time and if you don't have equity or cash to cover the spread you'll be stuck every month covering the gap, maintenance, etc.
#2 General Landlording & Rental Properties Contributor
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Once the leases are up (or when it is time to give notice for renewal), increase the rent as Peter said. With any rental, you need to have enough in reserves to cover repairs. If you are just starting, this will come from your income; once you've had them for a while, you should have enough saved up in your 'repairs and maintenance' account.
@Theresa Harris would you raise the rent right to market value even with the potential chance I lose the tenants or would you increase it over a few lease terms? The way I am starting to look at it, even if I raise rent and lose tenants. The price I would go with is at market value, so someone would fill it.
What do you think?
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Originally posted by @Kyle Root:@Theresa Harris would you raise the rent right to market value even with the potential chance I lose the tenants or would you increase it over a few lease terms? The way I am starting to look at it, even if I raise rent and lose tenants. The price I would go with is at market value, so someone would fill it.
What do you think?
Talk to the tenants and let them know you will be raising the rent and why (rents are will below market value). Show them comparable units in the area, so they can see how much they are below market. Even if you go for the $80 increase this year and raise it the other $20 next year, you are still further ahead. I don't know what vacancy rates are like where you are, but if they are high and it might take a month to fill the unit, go for a smaller amount this year ($70) and more the following year ($30). Losing a month's rent will cancel out any potential benefits.
@Theresa Harris thank you for the input! All good thoughts.