Long Term Rental - Would you keep it?

Real Estate Deal Analysis & Advice
10yFollow

Long Term Rental - Would you keep it?

Colin SmithBusiness Member
Realtor · Colorado Springs, CO · Member since 2013 · 987 posts · 447 votes

I am trying to decide whether or not I should keep a single family home or sell it and am looking for advice. Here is the background story.

I bought this house as my first home borrowing the down payment from my parents at 3% and I only paid the closing costs. It was both a live-in-flip and house hacking home. Since then I have bought a new house, another live-in-flip, with my new wife, but we will not be house hacking this one. In order to do this, we used a line of credit on my old house to buy the new one with the intention to sell the old one, however, I am now reconsidering, even though it wouldn't meet the 1% rule and won't cash flow. Here are the current numbers:

Original Purchase Price: $156,000

Current Value: $225,000

1st Mortgage Lien: $116,000

Line of Credit Lien: $60,000

Parents Lien: $15,000

Rent: $1,400 / Month

If I sell it, I could pay off all the liens and my student loan ($15,000) and we would be debt free less our current primary mortgage... something to consider as I would like to be purchasing another flip in the next few months which may help boost my credit ability. Or I Refinance the current 1st and line of credit:

New 1st Mortgage: $168,750 - 4.5%, 30 Yr Fixed, 0 Points, $855 / Month - I'll pay the $7,250 to pay the difference between the new loan amount and the original 1st and line of credit. 

Parents Lien: $15,000 - $625 / Month - 3% - Paid in Full 11/2017

Therefore: 

Rent: $1,400 / Month

Mortgages: $1480 / Month for 2 years, then $855 / Month

HOA - $50 / Month (Includes Trash)

Taxes & Insurance: $140 / Month

So, do I sell it and become debt free less my mortgage and buy BRRRR properties in the future, or do I keep it as a long term wealth building investment that won't cash flow?

0Reply
27 views

Most Popular Reply

Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
10y

What kind of wealth will you have if you have negative cash flow.  That's like playing poker with a bad hand...and you still keep adding to the pot.

Sell it, and get another property to replace it that WILL have positive cash flow.

As far as future wealth, the new property will replace this one's potential, but it won't steal parts of it from you due to the NC F.

4Reply
See this reply in the discussion

36 Replies

Jump to latestLatest
  • Kevin Borland
    Portland, OR · Member since 2015 · 12 posts · 5 votes
    10y

    Are there any markets in the country now that have the 2% (or higher) rule in play? Other than deeply distressed?

    0Reply
  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    10y

    @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.

    2Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    10y
    @Matt R.

    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. 

     Location and the market analysis is EVERYTHING.

    1Reply
  • Colin SmithBusiness Member
    OP
    Realtor · Colorado Springs, CO · Member since 2013 · 987 posts · 447 votes
    10y

    @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.

    1Reply
  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    10y

    @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?

    1Reply
  • Colin SmithBusiness Member
    OP
    Realtor · Colorado Springs, CO · Member since 2013 · 987 posts · 447 votes
    10y

    @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.

    1Reply
  • Travis Sperr
    Lender · Denver, CO · Member since 2009 · 1k+ posts · 597 votes
    10y

    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. 

    1Reply
  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    10y

    +@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.

    0Reply
  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    10y

    @Colin Smith Your dad just might be more savvy than you think. I assume he could have invested anywhere in the world. It looks like he chose very wisely.

    0Reply
  • Adam Anderson
    Developer · Palm Harbor, FL · Member since 2015 · 307 posts · 96 votes
    10y

    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.

    1Reply
  • Franklin Romine
    Visalia-Fresno, CA · Member since 2009 · 1k+ posts · 863 votes
    10y

    If you don't have to sell it...I would keep the property.  


    Frank

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free