absentee landlord: Keep Renting or Sale

11 Replies

I am trying to decide if I should keep renting a home or if I should sell it and invest the equity.Below are basic facts and then concerns I have.

3 Bed 2 bath rancher with one car garage

Fenced in backyard

Build in 1997

Located near military installation (minor reduction affecting the local installation ~5%)

Cash flows ~$120 monthly after PM fees

Est value at $103,900

Mortgage at ~$75,000

HVAC replaced four years ago

Roof original to home

I am an absentee landlord

Vacancy rate, < 5% over past 7 years

Concerns:

Maintenance, roofing, paint, rugs, appliances, etc are eating my budget.Recent $1800 whole interior painting, exterior roof leaks, and wood rot pending.I know the roof will need to be replaced with 5-7 years.

Well, maintenance is my only real concern as it is eating my budget.I am thinking of taking the money and paying into other homes I have to provide better cash flow (I have a second mortgage on one home I could almost pay off with the cash) or just save the money for another purchase/repairs.I have three other homes.

I am open to all thoughts and questions.

@Joe G. - You should consider the current market. Will you be able to sell you home in 60 days or less? Sometimes its better to keep renting if the sales market is poor.

How did you calculate your $120 cash flow? Are you setting aside money for repairs and vacancies? You really need to include those numbers to figure your "true" cash flow. Brandon Turner recommends that you assume 50% of your gross rent will be spent on repairs and vacancies. I am comfortable with 45%, but maybe I'm too risky :)

Originally posted by @Joe G. :

I am trying to decide if I should keep renting a home or if I should sell it and invest the equity.Below are basic facts and then concerns I have.

3 Bed 2 bath rancher with one car garage

Fenced in backyard

Build in 1997

Located near military installation (minor reduction affecting the local installation ~5%)

Cash flows ~$120 monthly after PM fees

Est value at $103,900

Mortgage at ~$75,000

HVAC replaced four years ago

Roof original to home

I am an absentee landlord

Vacancy rate, < 5% over past 7 years

Concerns:

Maintenance, roofing, paint, rugs, appliances, etc are eating my budget.Recent $1800 whole interior painting, exterior roof leaks, and wood rot pending.I know the roof will need to be replaced with 5-7 years.

Well, maintenance is my only real concern as it is eating my budget.I am thinking of taking the money and paying into other homes I have to provide better cash flow (I have a second mortgage on one home I could almost pay off with the cash) or just save the money for another purchase/repairs.I have three other homes.

I am open to all thoughts and questions.

 The property isn't really cash flowing enough to cover a ton of maintenance. That is one reason why we should always buy our primary residence as an investment. It would be different if you had bought the house at a discount and completely rehabbed the place while living there.

 Look at the long term, not 5 years, but 25 years from now. Is this an area where you expect growth? If you see further cut backs on the military base, and the economy of the area is reliant on that base, I would sell. 

[email protected] | 402‑965‑1853

In 7 years you can save 8K from your current cash flow.  If your cash flow is indeed considering vacancies etc -- why not budget for it?

A quick google search of "Ft Lewis growth 2015" shows me that there is a lot of growth and infrastructure projects going into that area along with bases being joint bases now in that area.  It seems like you are somewhat in the path of progress no?  

How is the rental inventory?  How far are you from this property?  Is it in Washington?

How would selling it improve your investment portfolio and get you to your goals sooner?

Medium erm logoMichael Roy MBA, EastRoy Management, LLC

Account Closed

I miss Woodbridge, VA (I lived there for 3 years). The $120 is gross cash flow. I am open to how to figure out 'true' cash flow. I do budget for repairs, but in the last 6 months I have repaired roof leaks ($300), painted the interior ($1800), and there is a siding issue that needs attention ($600). This is not common, however only seems like it is getting worse. Rental inventory in the area is higher, lots to pick from in the neighborhood and surrounding areas (this doesn't help me I know, but I am the one of the lowest priced for the area). The property is in GA, I currently live in WA.

How would selling it improve your investment portfolio and get you to your goals sooner?

Lastly, this is a great question.  My main goal is to supplement my retirement income with $5K in passive income.  Selling could help me pay down a second mortgage I have on another home thus increasing my cash flow or I could save the money until a better investment opportunity comes up.  

Thank you gentlemen for the advice.  I will keep the forum posted on my decision and why to help anyone else in this situation.  

@Joe G. To run your numbers start here - even with a basic account you can run numbers a few times: 

biggerpockets.com/calc

Also, use the search function to look for NOI and How to calculate Cash Flow. These figures will make the decision for you as the numbers will drive your decision it sounds like.

I hope that helps.

Medium erm logoMichael Roy MBA, EastRoy Management, LLC

Hi Joe, 

  Don't know much about the area you're in, but $1800 for interior painting seems a steep for a 3Br. 

So I'm still a little new to this myself so I haven't even done my first year of taxes after owning my first property (bought in 2014 and filed an extension), but couldn't you just add the depreciation expense back into the rental income reported on your taxes and divide by 12?  Since you've owned it for a few years these numbers should be fairly accurate.  I wouldn't rely on repair and capex costs being accurate in the first year or two but I would think you would reach some sort of steady state over many years.  Does anyone see a flaw with this line of thinking?

Hey @Joe G. If I were you, the primary determining factor for me would be the opportunity cost of selling your property. 

I'm not sure what the Dupont, WA market looks like...but say, for example, you're able to sell your property and bank $20k after closing costs etc. If, with that money, you can put a down payment on one or two solid cash flowing SFH's, or a cash flowing MFH then by all means do it.

If on the other hand, those opportunities aren't available yet. I'd hold on to the house until they are. 

Medium regular logo   png file   quick print for sticker web  etcTyler Flagg MBA, Ragnar Realty, LLC | [email protected] | 405‑320‑9880 | http://www.ragnarrealty.com

@Joe G.  

How much of your personal cash do you have tied into the property?  If you have very little then your return on investment could be ok.

I wouldn't sell the property.  You will have little equity to extract from the sell.  After the selling costs, c omissions, buyer credit, etc.... you will probably net around 10-15K. 

To me that 10-15K cash is better locked up into a tangible asset that is moving and working every month.  

Frank

@Joe G.

   Going through a similiar thought process for a property i have in NC (Fayetteville) it ws my primary residence when i stationed there but has been a rental ever since i left (about 15 years)  

before selling , just remember your total retuen is more than just cash flow .  you also have equity build-up as you pay down the mortgage ( I am guessing that 11 years with 7 as a rental.  means 19 years left on loan.  you shold start seeing rapid increase on your eqiuty build up now as your loan balance decreases, assume you havent refinanced)   as well as the tax break from depracation  and possible appreciation.  

 If you can handle break even cash flow while paying offf the mortgage, you end up with a free and clear rental that can add to your passive income when you retire .  

just more food for thought

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you