Take a loss on the property or raise the rent

Real Estate Deal Analysis & Advice
12yFollow

Take a loss on the property or raise the rent

Dee Georgian
Conyers, GA · Member since 2013 · 7 posts · 1 vote

2 years ago I was plunged into renting my property after a loss of a job and split from my partner in Henry county Georgia where the home is under water and I now own 100% of the property. However, even though the value has risen in the past year, it is still almost $50K under water of what the property is estimated to be worth and do not want to walkaway from a semi-higher end home.

Rental income does not cover the mortgage and the maintenance on the property, so leaves me in the negative of about $200 each month. About $150 is due to HOA maintenance.

Existing rent is shown to be about $50 lower than what it can sustain (still will have negative flow). The lease agreement renewal is coming due in March and would like ideas on how, or should it increase as higher end homes have vacancies longer than others in the area. Renter has been there for 2 years with no issues (fingers crossed).

With the negative cash flow and still under water, thoughts on best options for a way forward?

Thank you

0Reply
19 views

8 Replies

Jump to latestLatest
  • Ron Feinsod
    Investor · Venice, FL · Member since 2014 · 8 posts · 2 votes
    12y

    Can you re-negotiate the mortgage? How long can you hold on with a $2400 yearly loss? If the property is a rental, ask your accountant how the net effect of the depreciation effects your Federal taxes. The net loss might not be as much as the gross loss and it is possible that it might actually work in your favor. 

    0Reply
  • Account Closed
    Investor · Sunnyside, NY · Member since 2014 · 355 posts · 114 votes
    12y

    @Dee Georgian 

    That's not a nice situation to be in. I know you like your tenant but even raising the rent by $50 will mean you are per year $600 less in the red than you are now. I don't know what the rent on the place is per month, but $50 increase does not sound unreasonable. I'd say, if you've done your homework on what is market related rent for the area, go ahead an increase the rent.

    I agree with @Ron Feinsod   look at the possibility of renegotiating your mortgage and also the tax write-off possibilities.

    Hang in there!

    0Reply
  • Anthony Dooley
    Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
    12y

    I would not increase the rent by $50 unless you are sure that they cannot find an equal rental for less. If you like the tenant, you don't want to lose them. A $25 per month increase may be easier to swallow each year. Renegotiating the loan would be nice, but there is no incentive for your lender to do this, so don't get your hopes up on that.

    0Reply
  • Michaela G.
    Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes
    12y

    Are there things that could improve the property or that the tenant might really want? 

    You could maybe offer them to install a ceiling fan for an extra $ 15/month (might cost you $ 50-60, install depends)

    Or maybe a microwave vent hood for a certain price per month. 

    You know your house better and might be able to come up with some ideas, in addition to an increase of rent.

    0Reply
  • Colleen F.Pro Member
    Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
    12y

    $50K under water of what you owe on the property?  Is that what you are saying?  Or what you originally paid for it?  Figure out what you would need to bring to the table to sell it. Compare that answer to what you are losing each year.  Keep in mind you should also figure in the cost of any long term repairs over the next few years in your loses for keeping the house.

    If market rent is higher then of course you would want to increase to market.  If the tenants are good you might consider less increase then market to keep them.  Anotherwords an increase that makes it not worth them moving.  Another thing to do might be to shift a cost to them in lieu of a rent increase if you are paying for any regular services on the property.

    0Reply
  • Dee Georgian
    OP
    Conyers, GA · Member since 2013 · 7 posts · 1 vote
    12y

    @Colleen F. Owe 47K over what the home is currently. I like the idea of shifting the regular services on the property over to the tenants as opposed to raising the rent if there can be a tactful way of handling the process.

    @Ron Feinsod renegotiating sounds like a good idea as I went through the process along with the government program right before the renting the property, and was denied. All payments up to date with a conventional loan with an interest rate of 4.5% which I believe is why I may have been given the no go. I can certainly look into it again on Monday to see if that is possible now.

    @Wendy Noble thank you for the comment. Recent rentals for the level of home in the area are between $1550 and $1895. I am renting it for $1495 and will be the first to admit I was scared and needed to rent it quickly and failed to cover for the maintenance

    Thank you all for the suggestion

    0Reply
  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    12y

    Seems like you have not had an increase in rent over the two years, so you should be able to draft a letter explaining that your expenses for this property have become higher than you can sustain at the existing rent, and as such you are given little choice but to raise the rent by $50 (or whatever number you think you can get without losing the tenant you have in there).

    Now, there is this creative thing called a "lease with option to purchase" that might be something to consider at some point in time.

    0Reply
  • Paul Wurster
    Investor · San Antonio, TX · Member since 2014 · 129 posts · 79 votes
    12y
    You could even raise it by 100/month by raising it 50$ at lease renewal and $50 six months later. People understand the effects of inflation. As long as you are bringing it up to market rent, they should realize the value.
    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free