Sell or keep out of state rentals? MI and NC. THanks!

37 Replies

I own two rentals, one in Grand Rapids, MI and one in Raleigh, NC, but live in NY.  The GR home is a 1920's home valued at approx. $130k,  I owe $100K.  Lease is $1,100 a month.   I make about $100 a month.  Lease expires March 31.  Due for an upgraded HVAC and roof within a couple of years.  Could probably raise rent to make $200 a month.  Good neighborhood is starting to see prop values rise.  Its possible that it could be paid off in 6 to 7 years.  At that time it might go up $10k (or may drop $50K, it IS Michigan after all). The Raleigh home is an early 70s with good mechanicals new windows and roof.  Approx value of $270K  I owe $220K.  Rent is $1,500 but I break even on payment.  That rent for the area is maxed out.  They are paying down the mortgage but unless I refi theres no margin.  This area however is a hotspot that is appreciating rapidly.  Could be upwards of $300k in 5 yrs.  Wondering if I should hold or sell?  Thanks for any advice you may offer.   I really appreciate this community!   

@Terry N.  "At that time it might go up $10k (or may drop $50K, it IS Michigan after all)..."

In other words, you don't know your market at all.  GR is a great area...and will go up.

I'd say I generally know the current market but not the future.  It was a bit tongue in cheek.  $50k is an exaggeration but we DID experience a nearly $25K reduction in value during the dip.  I am still somewhat shocked to see how this particular neighborhood has rebounded.  I have no idea what will happen in the next few years (like everyone).  I realize too that this question totally depends on what my goals are.  Which I'm still trying to figure out.  Thanks for your reply. 

@Terry N.  

  what would you do with your equity..?  Now if your going to cash out to buy a business that would bring you in monthly income.. That could be good... Or use the cash to partner with a good fix and flipper and make far more money that drip rental income.  Or you don't really need the cash and let the tenant pay the home down  nothing wrong with that especially since it is probably a easy manage property at that price point ( talking NC)

In my mind if your going into the rental business with its drip income approach IE 100 to 200 a month PCF... one should have a goal to ramp up and get as many as possible ..

Great comment Jay. Thank you. Drip income. Good one! I've listened to nearly all the podcasts and have never heard that term. What is PCF? I've considered ramping up but the thought of being landlord to many homes freaks me out. I'm not an investor (at least not professionallyl) but feel like I have the aptitude and interest. I may just need to put on my big boy pants and start making some decisions. I have a huge appreciation for you guys who pull this stuff off. Thanks!

Here is an entire article I wrote on the subject

http://www.biggerpockets.com/renewsblog/2014/12/29...

That being said, I have create an entire "market" about turning personals into investments with small margins. 

Food For Thought

  • What would you do with money if you sold?
  • How much profit would you TRULY get after expenses
  • Are you okay with continuing to be a landlord?

I LOVE being a landlord. I LOVE watching not only my cash flow but my principle each month! It is awesome to me that my passive investment pay almost 60% (cash flow +pay down) of my W2 income. That even during OH SHOOT times, I can still see the "prize" early retirement. For me this is a more "excitable" means to the end (funding early retirement) Than other investment options.

So if this isn't how you want to fund your retirement, how would you do it differently. Do you have a plan?

A $130,000 house that rents for $1,100... in Grand Rapids??  Short of the medical mile, I'm curious where this house is... there are $30 - 50k houses that rent for $800 - $1,000.

@Nathan I think of $130k home as fairly average.  I will say that I don't know the average rent in GR.  Which I should.   I didn't think that values of homes necessarily impact what the market rent is.  I honestly cant imagine why someone would pay $1k in rent for a $30 to 50k house.  That kind of house, I would think, would be about ready to fall over and not pass any of the new inspections.  That said, I need to raise the rent, no doubt...  Loving these comments.  You guys are awesome.

@Terry N.  

PCF = Positive Cash Flow ... Land lording in my mind is not passive ... it requires attention to be successful.. Investing in the stock market is passive.

There are levels of ease of ownership  IE I bet your higher end home in NC is relatively easy

If you buy lower end rentals you will need to engage more often as the tenant base is more fragile by and large.

But if you take 50 to 100k and you actually net that from your sales after tax.. You could provide equity for a fix and flipper.. then get the debt from a HML and make probably many times more in actual in your pocket cash flow than owning these two homes.

Jay...this is a great comment. But can you explain what HML is? Thanks so much again!

@Terry N.  

Re: Raleigh - your decision will really depend on a mix of factors:

- do you need or want to cash out now?

- if yes, what do you plan to do with the cash? Use it to make more $ (exchange into other properties or totally different investment vehicles) or will it sit in the bank & earn paltry interest?

- do you still want to be a landlord or don't want to deal with it at all? Do you have a PM? Since it's an early 70s build, do you really break even over the years?

If you need or want the cash now for one reason or another (medical bills, you're ready to go on that trip around the world that you've always dreamed of, etc.) - then yes, sell. Investments exist now so that we are more able to fund future needs and future dreams. If you have a need or dream a-knocking now, go for it!

If you're still not sure what you would do with the cash or if it will go stale in a savings account or low rate CD, etc. - then hold off. In selling, you might trigger some tax situation (I'm definitely not a CPA). Unless you sell and exchange into another property(ies) - then that goes back to landlording...

Think you need to dig deeper and seek some answers in terms of motivation and what you are really looking to trade these properties for? Freedom? Ease of mind? Cash (due to need)?

Best of luck!

@Terry N. you are a long way from doing stuff like what @Jay Hinrichs is proposing. HML is hard money lender. If terms like that and positive cash flow are new to you I suggest not doing anything until you study up some more.

Regarding your rentals. There are only two trap and to own rental property. Cash flow or appreciation. It's always a balance between those. The market fleeces down cash flow in appreciating markets and vice versa. Your NC property is an appreciation play but 10% over 5 years is nothing. If that's all you expect then get out of it. The MI property is not worth it. The Midwest is not an appreciation play and your rent ratio is terrible cash flow too. I don't even think you get 100 per month if you factor vacancy, long term expenses etc.

How did you end up with these "investments" ?

Two reasons. And forces not fleeces Damn iPhone auto correct

@Anish Tolia  

  Although I think partnering with a proficient and experienced flipper as a money partner Is not really that complicated.. But like anything one has to choose wisely.

Or heck just buy a Subway sandwich franchise and call it a day !!

This is my first real day on this site so I just needed a hint at the acronyms. I get both terms now. Although I doubt I could get a HML to deal with me without showing more experience or aptitude for a project to show either PCF or get a solid ROI on a flip. These were both primary residences prior to moves out of town. Options include letting the GR house pay itself down or selling now and putting that equity somewhere more useful. Maybe I could get $1.3 or 1.4K per month (it IS a 4 bdrm) in which case the CF would be more P.  Thanks all for excellent insight. 

Originally posted by @Anish Tolia :

Two reasons. And forces not fleeces Damn iPhone auto correct

I figured that you meant two reasons.  But I was going with you on fleeces down cash flow. I liked the sound of it.

Originally posted by @Anish Tolia :

Terry Naranjo you are a long way from doing stuff like what Jay Hinrichs is proposing. HML is hard money lender. If terms like that and positive cash flow are new to you I suggest not doing anything until you study up some more.

Regarding your rentals. There are only two trap and to own rental property. Cash flow or appreciation. It's always a balance between those. The market fleeces down cash flow in appreciating markets and vice versa. Your NC property is an appreciation play but 10% over 5 years is nothing. If that's all you expect then get out of it. The MI property is not worth it. The Midwest is not an appreciation play and your rent ratio is terrible cash flow too. I don't even think you get 100 per month if you factor vacancy, long term expenses etc.

How did you end up with these "investments" ?

Almost always here on BP when hear about those kinds of rental numbers in disparate locations....it's due to converting primary residences to rentals. In some cases there is neither a cash flow play nor appreciation play in sight.

talk amongst yourselves.  I'm eating anyway... just kidding.  I liked the fleece angle too.

I  maybe interested in the Raleigh home. 

Originally posted by @Terry N. :

@Nathan I think of $130k home as fairly average.  I will say that I don't know the average rent in GR.  Which I should.   I didn't think that values of homes necessarily impact what the market rent is.  I honestly cant imagine why someone would pay $1k in rent for a $30 to 50k house.  That kind of house, I would think, would be about ready to fall over and not pass any of the new inspections.  That said, I need to raise the rent, no doubt...  Loving these comments.  You guys are awesome.

Given a complete lack of knowledge on the local market, I would advise you to exit and invest some place you know.  What you're doing now is akin to throwing a dart at the stock page of your local paper and buying whatever it hits for the long term.

Originally posted by @Terry N. :

I own two rentals, one in Grand Rapids, MI and one in Raleigh, NC, but live in NY.  The GR home is a 1920's home valued at approx. $130k,  I owe $100K.  Lease is $1,100 a month.   I make about $100 a month.  Lease expires March 31.  Due for an upgraded HVAC and roof within a couple of years.  Could probably raise rent to make $200 a month.  Good neighborhood is starting to see prop values rise.  Its possible that it could be paid off in 6 to 7 years.  At that time it might go up $10k (or may drop $50K, it IS Michigan after all). The Raleigh home is an early 70s with good mechanicals new windows and roof.  Approx value of $270K  I owe $220K.  Rent is $1,500 but I break even on payment.  That rent for the area is maxed out.  They are paying down the mortgage but unless I refi theres no margin.  This area however is a hotspot that is appreciating rapidly.  Could be upwards of $300k in 5 yrs.  Wondering if I should hold or sell?  Thanks for any advice you may offer.   I really appreciate this community!   

LOL 100k to bring in 1100 in Michigan.  Did you buy this from a turnkey?  Sure sounds like it

220k for 1500 in rent.

@Joe Villeneuve  

  It sure is nice to be in Michigan with the numbers we can get.  How do these people make money else where?

A couple of parking spots in Brooklyn might fleece more cash flow. 14% of New York staters live in Brooklyn. NYC added 280k population since 2010, not sure but I think the vast majority are new renters. Brooklyn population alone is at 2.6 mil. All of LA,CA proper is at 3.6 mil for a comparison. 

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