My first post :D

I have been lurking on this site heavily for the past month and would now like get some feedback on my current situation. I have 2 properties that were bought as a beginner with limited education. Keep in mind that the goal then was more long term investments with a lean on appreciation as oppossed to 'cashflow' (in the NYC tri-state area).

Property #1
Purchase Price $149,500 (Nov 2004)
PITI - $1725 (includes $350 for HELOC, $250 for escrow shortage pymt (12months left), $125 Association Dues)
Rent Received: $1195
Net - -$530 (ouchhhh)
And this does not even take operating expenses into acct (double ouuchhhh)...and a very high vacancy rate in Property #1...

Positives: This areas has NOT seen a decrease in prices at all. The FMV for the unit now approx $175 conservative (still owe $149 b/c of heloc) and there are a couple big plans in the works (huge corporate complex, direct train line to NYC) that would mean lots of growth and possible real estate appreciation in the next couple of years.

Property #2
Purchase Price $95,000 (Nov 2006)
PITI - $1165 (includes $150 for HELOC and $215 Association Dues)
Rent Received - $895
Net - -$270 (ouchhhhh)

Positives: This particular condo unit is in a building that is under renovation. Slum landlord let the building fall apart, city stepped in and forced him to fix building and sell off his majority share of units. He is selling them off one by one. So as the buiding is being fixed the prices rise. Purchased 18 months ago for $95K and currently selling for $115K (owe $93K). Also, the city got approved for a major revitilization last year and once that is complete can also mean major appreciation for real estate in the next few years. The next town over did this revitalization back in 2001 and had a HUGE impact on RE prices (above what everyone saw with the bubble)

Now normally these negative cashflows screams...SELL, SELL, SELL......But these properties are both on the east coast and in areas where appreciation is expected in the next 2-5 years. I look at the $800 loss and money I would just put in the bank every month.

So my question is: Would you hold onto these two properties and possible benefit greatly in the upcoming years? Or do you sell in a down market and possibly get less than the FMV? If I sell, by the time I add selling expenses I would hardly walk away with anything.

I'd sell these so fast it would make your head spin. As you acknowledge, you real loss is quite a bit more than $800, with other expenses and vacancies. I seriously doubt we're going to see any overall appreciation in the next few years. So, unless you're confident these local drives are going to give you some real appreciation, these are money losers.

If you get annual appreciation of 5% (very speculative, IMHO) one will be worth $191K and the other $146K after five years. After selling costs and paying off the loans you net roughly $70K.

But you're losing $800 a month by your accounting. Realistically after other expenses and vacancies I'd guess its more like $1000 or even more. So, after holding them for 60 months, you will have a loss of $60K.

You're net after five years is $10K. That's after having all this cash flow tied up and dealing with tenants.

If you don't get 5% annual appreciation, you'll end up with a net loss.

If you just took that $1000 a month and put it in the bank at 0% interest you'd have $60K after five years.

Wow thanks for the advice.

Great the future really doesn't look that great. Definitely not worth the headaches I have now.

Prop#1 - I may at least hold out till my neighbor sell his unit (which should be soon). His recently renovated unit will sell for much more than my old unit. It would make for a great comp right?

Prop#2 - my realtor friend is trying to convince me to hold out. Says over time rent will rise eventually leading to cashflow. As similar unit in the next town (next block over) goes for $300 more/month.

If your realtor is so confident ask him to cover your shortage and agree on splitting the profit when you sell ?...lol

I agree with tiredout. Have your realtor friend buy your unit at current market value and stomach the loss month after month. I'll bet his opinion changes when it's his money on the line. Remember, the title "realtor" doesn't necessarily make him any smarter than you or I regarding investment real estate...

Says over time rent will rise eventually leading to cashflow. As similar unit in the next town (next block over) goes for $300 more/month.

Yeah, I'll bet!!! The truth that you never hear is that expenses also go up over time. However, right now they are not rising "eventually" as with his prediction for rents, expenses are rapidly rising right now and runaway inflation is a real possibility.

I'm with Wheatie on this one, I'd sell this thing so fast...

Mike