Long Term Rental - Would you keep it?

36 Replies

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I would say if the house isnt in the 2% rule or the 1% rule or in an amazing area I would sell. Tax free money plus pay off your depts that's a great incentive as well. If you're looking for cash flow try finding a better deal or another house in a different area. Seems to me your money would be best elsewhere.

@Larry T.  in your market I would do,  and invest,  exactly how you are doing it.. CASH FLOW only .. when your in a market that basically has more homes than people there is not price increase to speak of and the value of the assets is more commercial in nature IE Cap rate driven.. what will an investor pay for that cash flow.  I started my now famous thread ( 2% rule kills values) based on this very premise.

Most of what I see in these areas the homes could never be replaced for what you pay for them so new construction is out.

I was in Milwaukee last summer and looking at some absolutely stunning 1930's and 1940's craftsmen homes that would be well over 1 million in our market and they were 60k and would cost probably 500k to replace... this is the same in virtually every market in the upper mid west and other parts of the mid west as neighborhoods turn from owner occ like they were 30 years or more ago to rentals... and they will NEVER return save the little pockets that are right by down town areas and developer with VERY deep pockets come in and  re- gentrify.. this is playing out in most big cities for sure.

ON the West coast were we do NOT have enough houses for all the people's that live here,   values hold by and large,   Very few SFRs are bought as rentals in comparison to mid west rust belt.. So the values hold and increase to at least replacement value and above.

@David Faulkner  @Jay Hinrichs Your strategy seems to be the approach experienced investors take advantage of in those low cap rate environments. @Joe Villeneuve uses another approach for his local MI RE that is perhaps regularly much higher in initial cash flow and cap rates. 

IMO the location is the biggest factor to whatever strategy might fit better. I am speaking in general terms as exceptions exist in all markets. BP is biased towards the cash flow stuff which makes sense for 90% (guess) of the nation. Many of the greatest RE investments have very low initial cash flow or even temporarily negative. You can favor the strategy the location supports best. All REI is considered high risk regardless. My dos pesos are just make it worth the hassle, paperwork and time.

@Colin Smith Trading CO Springs for some cash flowing Pueblo monster is always an option that will be there probably for the rest of our lives. Buying the same back n CO Springs might get increasingly difficult though.

@Matt R.

I would never buy in Pueblo. I know many CO Springs investors do like to invest down there because they are cheap properties with good cash flow. However, I really don't like the area and Pueblo has a growing drug problem from what I know. Not a place I want to invest.

@Colin Smith I know dudes who make it work great in Pueblo but cash flow is their only goal. The future value of your investments could be a goal too. I like to ask the question when your kids ask where dad invested back in 2015 which location do you think they hope you picked?

@Matt R.

To spin your questions around, I can look at where my Dad invested. Castle Rock and Colorado Springs, both of which he has had great success in. However, I don't know if I would call him the most savvy of RE investors as most of his properties have been for appreciation, and ultimately, a place to put his cash that he knew he could rely on as a good investment. He never really saw them as a means for cash flow and he never followed any 1% rule or 50% rule.

sell it get your parents paid back ( Xmas dinner will taste better without owning them money - they didn't back an investment property, they backed your primary. Get the bridge paid off, own your home without that amount hanging over your house. Pay off the student loans. Build capital and buy more rentals without so many strings attached. 

+@Colin Smith Agreed. Location is primary and fundamental long run. Your dads investments are proof. Some regular BP rules are not found in any RE textbook nor taught at any of thousands of accredited insitutions worldwide.

Personally, I would sell it while you can get the tax free gain.  I had in a similar situation with my first home that I quickly out grew.  I had the opportunity to sell it but rented it instead even though it had hardly any cash flow....didn't know much better at the time. The market turned south and now its under water.  I was able to refi and it now has a little better cash flow but its still years away from a break even.