Hello! We just found ourselves in a new situation, and I wanted to seek advice from those who have experienced something similar.
We recently purchased a new build home in August 2022 in Colorado Springs, and we have been notified we are scheduled to move August/September 2023. We are weighing the options of selling vs. renting out our new home. Current situation is as follows.
Rental Properties:
SFH in Fort Knox, Kentucky - Cash flow positive - $300 / Equity 80K / 3.375%
SFH in El Paso, Texas - Cash fllow positive - $200 / Equity 90K / 3.375%
SFH in Colorado Springs, CO - $350 / Equity $140K / 3.625%
Current Home:
SFH in Colorado Springs, CO - Mortgage - $3300 4.375% 30 YR Fixed VA
Rental comps for a 5/3 in Colorado Springs, CO are anywhere from $2800-3400
We want to purchase another property when we go to our next duty station (possibly San Antonio, TX), but our VA home loan is tied into our current home. We would like to keep our new home, just in case we plan on retiring in Colorado, Springs.
Any information or incite would be greatly appreciated!
Let's say the mortgage is $3,000 and it would rent for $3,400. That only leaves $400 per month or $4,800 per year to cover vacancies, maintenance, capex, property management, etc.
Average maintenance cost is 10% of the annual income or $3,600. One month of vacancy will cost you $3,000 in lost rent plus utilities. Property Management will cost you at least $3,600. All combined, that's $10,200 in expenses and you'll only have $4,800 set aside.
What if you get a bad renter? They fail to pay last month's rent and leave the place filthy and damaged. You spend a couple weeks cleaning it up, and then a couple more weeks to find a new renter. That's two months of lost rent ($6,000), lost utilities ($500), and maybe another $1,000 or more for cleaning and repairs.
Even if you self manage and everything goes perfect, you will likely lose money because the rent isn't enough to cover even ordinary maintenance.
Let's say the mortgage is $3,000 and it would rent for $3,400. That only leaves $400 per month or $4,800 per year to cover vacancies, maintenance, capex, property management, etc.
Average maintenance cost is 10% of the annual income or $3,600. One month of vacancy will cost you $3,000 in lost rent plus utilities. Property Management will cost you at least $3,600. All combined, that's $10,200 in expenses and you'll only have $4,800 set aside.
What if you get a bad renter? They fail to pay last month's rent and leave the place filthy and damaged. You spend a couple weeks cleaning it up, and then a couple more weeks to find a new renter. That's two months of lost rent ($6,000), lost utilities ($500), and maybe another $1,000 or more for cleaning and repairs.
Even if you self manage and everything goes perfect, you will likely lose money because the rent isn't enough to cover even ordinary maintenance.
The only concern that I have is if we choose to sell we will likely take a huge loss. We already used our savings to purchase the home, and with the market taking a turn coupled with realtor fees we will end up around 30-40k negative.
If we rent it at 3400, we would still gain equity and the tax breaks associated with managing and depreciation. The other rentals would make up for it for the time being.
Hello, IMO I think there are at least two ways you can look at this problem. One is by the investor strategy (which, though I have done well for myself with real estate am not a huge expert or claim to be, and just now starting with multifamily investing) and the other is looking at it through as a longer term investment strategy.
Investor strategy states it doesn't make sense to rent just like Nathan mentioned above, as it doesn't leave room for bad tenants and vacancies, damage by tenants ect. You can negate most of this by proper selection of tenants and a great lease, but there are NO guarantees in renting real estate.
My strategy and if I were in your shoes, and I wanted to return to the area, I would rent, even if I am not making any CCR and as long as the payments were made. It does mean you have to dip into savings, but I look at it as a 20-30 year return on my investment and still better than the stock market as far as returns. If the house is well maintained and not in need of any large repairs like roof, hvac system, ect I would hold. If not you may have to work extra hours to make up for the difference which is a sacrifice.
I personally, sold out of a market which I loved the location, now wish I would have held on as I am priced out of it completely at this moment. Maybe not in the future, but for now.
You can simply use a different loan product for your next house. VA loans are great if you don't have any money for down, and you save the PMI, but if you do have down money, there may be other programs available. For instance, did you know in rural part of Kentucky there are USDA loans that are little to no money down programs? Get with a couple lenders to identify if this is an option for you. You may get some other avenues opened up.
We are looking at a PCS soon to New Jersey and wow that is a difficult market to break into as well. Hope your PCS is smooth as silk.
@Anthony Hidalgo, I’m local to the springs and fellow military guy so I definitely understand your concerns regarding wanting to come back here later on.
I think you need to decide what’s more important to you. Do you want a house in SATX now or do you want to retire in Colorado. If it’s more important that you live in Colorado I would find a rental in SATX and just eat the negative cash flow you’d have in Colorado Springs. Your other homes will be able to offset that negative number.
If I was in your shoes the other thing I would consider is selling off the other Colorado home - if that’s at all feasible. However, if you do buy a house in SATX you will most likely have the same problem in a few years, that the rent won’t cover the mortgage- unless you find a screaming deal.
All in all, I’d probably just rent in SATX so you have a baller place in CO you can come back to when you retire.
Is it possible to refinance the current home into a conventional loan? This could free up your VA entitlement and allow you to use it on the next property.
Also, have you considered a mid-term rent model? You will have to provide furnishings but it would help your cashflow for now. And you wouldnt have to move everything! 😄
As you know, the Springs has a lot of transient tenants due to the 5 military bases in the area so I'm sure you could keep it occupied with your current connections. I wish you the best, thank you for your service and feel free to reach out if you ever need anything!
There's some really good advice on this thread, highlighting both the pros and cons of selling vs. renting.
You mentioned as one of your considerations that your VA home loan is tied up in your current home. When you PCS to San Antonio you may be able to utilize your VA loan bonus entitlement (2nd tier entitlement) to purchase a home in San Antonio with your remaining VA loan entitlement without having to sell or refinance your current home in Colorado Springs.
Bonus entitlement is based upon the FHFA Conforming Loan Limits, and these limits have increased exponentially the past couple years due to the appreciating housing market. As I glance at your current mortgage amount and factor in the average home prices in San Antonio, you may be able to utilize your VA loan again to purchase in SATX.
I'm a military veteran and lender here in San Antonio...happy to be a resource for you if you make the transition to San Antonio.
You can have more than one VA loan- there's a total entitlement of around $750k- so you could theoretically have two VA loans with balances around $375k, so don't let that factor in to your decision unless you don't have room in your entitlement. Heck, even if you do, there are plenty of great options out there with conventional owner occupy mortgages.
The simple answer- if you can keep a property, you should. Looks like rents are really close to covering your mortgage and along with write offs and depreciation, you'd likely be making money. As you also know- a market like Colorado Springs is going to be an excellent long term appreciating market, so over time, this property would transform from a sort of not awesome investment to an amazing source of equity and wealth for you and your family. The best investments aren't going to be great for the first few years- it's like anything else, you have to get in your reps before you reap the rewards.
From what you've posted here, I'd keep it and deal with a couple years of breaking even in order to get to the point where it's starts performing really well and you have a ton of equity.
Finally- could you STR it? That might be a better option, but I don't know what regs there are in CS.
Hello, IMO I think there are at least two ways you can look at this problem. One is by the investor strategy (which, though I have done well for myself with real estate am not a huge expert or claim to be, and just now starting with multifamily investing) and the other is looking at it through as a longer term investment strategy.
Investor strategy states it doesn't make sense to rent just like Nathan mentioned above, as it doesn't leave room for bad tenants and vacancies, damage by tenants ect. You can negate most of this by proper selection of tenants and a great lease, but there are NO guarantees in renting real estate.
My strategy and if I were in your shoes, and I wanted to return to the area, I would rent, even if I am not making any CCR and as long as the payments were made. It does mean you have to dip into savings, but I look at it as a 20-30 year return on my investment and still better than the stock market as far as returns. If the house is well maintained and not in need of any large repairs like roof, hvac system, ect I would hold. If not you may have to work extra hours to make up for the difference which is a sacrifice.
I personally, sold out of a market which I loved the location, now wish I would have held on as I am priced out of it completely at this moment. Maybe not in the future, but for now.
You can simply use a different loan product for your next house. VA loans are great if you don't have any money for down, and you save the PMI, but if you do have down money, there may be other programs available. For instance, did you know in rural part of Kentucky there are USDA loans that are little to no money down programs? Get with a couple lenders to identify if this is an option for you. You may get some other avenues opened up.
We are looking at a PCS soon to New Jersey and wow that is a difficult market to break into as well. Hope your PCS is smooth as silk.
Best of luck and Happy New Year!
Thanks, we don't have anything offical yet, and we are close to being able to retire so it made sense to purchase a home that was more suited for our needs. We originally had a position locked in that would keep us in Colorado, but it was pulled off our AIM marketplace during the mid cycle review. We definitely, hate to lose some of the cashflow, but it would make sense to at least keep our new home as an option if we choose to retire in the next two years.
You can have more than one VA loan- there's a total entitlement of around $750k- so you could theoretically have two VA loans with balances around $375k, so don't let that factor in to your decision unless you don't have room in your entitlement. Heck, even if you do, there are plenty of great options out there with conventional owner occupy mortgages.
The simple answer- if you can keep a property, you should. Looks like rents are really close to covering your mortgage and along with write offs and depreciation, you'd likely be making money. As you also know- a market like Colorado Springs is going to be an excellent long term appreciating market, so over time, this property would transform from a sort of not awesome investment to an amazing source of equity and wealth for you and your family. The best investments aren't going to be great for the first few years- it's like anything else, you have to get in your reps before you reap the rewards.
From what you've posted here, I'd keep it and deal with a couple years of breaking even in order to get to the point where it's starts performing really well and you have a ton of equity.
Finally- could you STR it? That might be a better option, but I don't know what regs there are in CS.
Best of luck!
Thanks for the response!
At the moment we currently have 2 VA loans. We currently have a VA loan on the KY house and our current house. We originally had the 2nd VA loan against the other Colorado house, but we refinanced it to open up entitlement for our new place. Our current total VA entitlements is around $650k which was the cap from 2022.
We are looking at this home for a long term investment . The home was recently finished in August 2022. So there really shouldn't be much maintenance that will be needed.
I haven't looked into the STR market, I know there are several in a close by community that has some Air BnB rentals so I believe it is an option.
There's some really good advice on this thread, highlighting both the pros and cons of selling vs. renting.
You mentioned as one of your considerations that your VA home loan is tied up in your current home. When you PCS to San Antonio you may be able to utilize your VA loan bonus entitlement (2nd tier entitlement) to purchase a home in San Antonio with your remaining VA loan entitlement without having to sell or refinance your current home in Colorado Springs.
Bonus entitlement is based upon the FHFA Conforming Loan Limits, and these limits have increased exponentially the past couple years due to the appreciating housing market. As I glance at your current mortgage amount and factor in the average home prices in San Antonio, you may be able to utilize your VA loan again to purchase in SATX.
I'm a military veteran and lender here in San Antonio...happy to be a resource for you if you make the transition to San Antonio.
@Joel Allen we currently have two VA loans totaling approximately 647k (last years limit). The limit for Brexar Country (San Antonio) is 726k which is not enough to purchase a property in SA. Do you have any other loan products available?
Is it possible to refinance the current home into a conventional loan? This could free up your VA entitlement and allow you to use it on the next property.
Also, have you considered a mid-term rent model? You will have to provide furnishings but it would help your cashflow for now. And you wouldnt have to move everything! 😄
As you know, the Springs has a lot of transient tenants due to the 5 military bases in the area so I'm sure you could keep it occupied with your current connections. I wish you the best, thank you for your service and feel free to reach out if you ever need anything!
I'm sure we could refinance it into a conventional loan, but it would probably increase our interest rate 1.5-2% which would bump the price up. Additionally, I'm not sure our equity is close to 20% to avoid the PMI associated with a conventional loan. therefore it wasn't high on the priority list as an option.
I'm not too familiar with the mid-term rental model. If this is something that could take advantage of TLE/TLA that would definitely be something we would be interested in. I'm not 100% sure, but I'll definitely consider this as a possible option. Does it operate more like Air BnB, or more like a month to month rental with increased rates?
Do the numbers work any better as a short-term rental?
I haven't looked into a STR model. I'll do some research, how hard would it be to manage a STR remotely? Are there any property managers that deal with STR?
Is it possible to refinance the current home into a conventional loan? This could free up your VA entitlement and allow you to use it on the next property.
Also, have you considered a mid-term rent model? You will have to provide furnishings but it would help your cashflow for now. And you wouldnt have to move everything! 😄
As you know, the Springs has a lot of transient tenants due to the 5 military bases in the area so I'm sure you could keep it occupied with your current connections. I wish you the best, thank you for your service and feel free to reach out if you ever need anything!
I'm sure we could refinance it into a conventional loan, but it would probably increase our interest rate 1.5-2% which would bump the price up. Additionally, I'm not sure our equity is close to 20% to avoid the PMI associated with a conventional loan. therefore it wasn't high on the priority list as an option.
I'm not too familiar with the mid-term rental model. If this is something that could take advantage of TLE/TLA that would definitely be something we would be interested in. I'm not 100% sure, but I'll definitely consider this as a possible option. Does it operate more like Air BnB, or more like a month to month rental with increased rates?
Hey Anthony,
Yes the mid-term rent model runs much more like an Airbnb where you provide furniture, utilities, appliances and dishes. The tenants will generally pay about 30% more than a long term renter.
There was a book recently released by BiggerPockets called "30-Day Stay" which covers many of the nuances covered in the mid-term space. Many nurses and traveling professionals utilize furnishedfinder.com to find spaces to rent for 1 - 3 month or longer at a time. Many of these professionals may stay just as long as a long-term renter if they love your space!
@Anthony Hidalgo I'm not any kind of expert but we are also an active duty family that uses the VA loan and what you are saying to keep would be the same thought process I would have, particularly since you think you may return.
Sure as an "investment" the house is a "loser" but buying homes with a VA loan while on active duty is a weird hybrid of business and personal due to the way BAH and personal needs intersect, so I don't hold it to the same stringent standard. You know for sure you would lose 30-40k if you sold now, versus the possibility of losing the same or less based on razor thin margins due to renting. Anyway, nothing to add but I get where you're coming from.
@Anthony Hidalgo I'm not any kind of expert but we are also an active duty family that uses the VA loan and what you are saying to keep would be the same thought process I would have, particularly since you think you may return.
Sure as an "investment" the house is a "loser" but buying homes with a VA loan while on active duty is a weird hybrid of business and personal due to the way BAH and personal needs intersect, so I don't hold it to the same stringent standard. You know for sure you would lose 30-40k if you sold now, versus the possibility of losing the same or less based on razor thin margins due to renting. Anyway, nothing to add but I get where you're coming from.
The process is always hard, we wanted to buy in San Antonio also because we've heard it is a nice location and could be a good place for retirement if we can get the property taxes waived with VA disability. I would hate to lose it all up front, especially if the market rebounds. Building the equity in the home is also important as it builds us wealth. Also in time, the rental prices will more than likely increase usually in line with BAH for the area.
With the current interest rates, most appreciation markets are cash flow negative with high LTV. If you sold, you would pay selling fees, likely sell at a loss, nd would potentially be selling your retirement home.
If you were not thinking of potentially retiring there (especially being close to retirement), I may consider selling it.
In your case, I would recommend keeping it and renting in San Antonio or wherever you get transferred. Realize that you cash flow is likely going to be negative, but being close to retirement and the decision on where you are going to retire you have a capped duration.
Each bedroom and any offices or formal dining rooms that could be “bedrooms” will be furnished with a queen bed, desk, chair, dresser, mirror, lamp, and Smart TV, and rented for $1000/mo (whatever the market will bear plus an equal split of actual utilities and shared common area expenses (tenant owed things like plumbing clogs, purchasing toilet paper, paper towels that will come from Costco or subscribe and save).
Use Airbnb, base postings, Hotpads, Facebook marketplace, zumper, furnished finders as lead generation.
Note- use metal bed frames. My friend bought new ikea wood frames and they didn’t survive nocturnal activities. Each bedroom should cost less than $1000=$400 (new Zinus 12” foam bed and metal foundation frame), $250 (43” tv), $100 (desk), $100 (used dresser and mirror), $50 lamp/hangers/towels/sheets/blanket/pillows.
Set strict strict strict house rules. Anyone who doesn’t want to follow can pick somewhere else. I’ve found 1 person per room, quiet hours 11-7, no pets, no indoor smoking/vaping, color coded shelves and cabinet space, electronic locks and front door cameras really help. If I have to message because rent is late, that person is paying a fee. If I’m involved in any house drama, all involved parties are paying for my time. This has lead to me having 4-6 person houses where nobody messages me except about once a quarter for a maintenance request.
I am sending the cleaner for room turnovers more than I am getting messages from occupants.
As a long-term rental in Colorado Springs, it's not great cash flow (by which I mean, you're likely losing some each month). But it sounds like your bigger priority is keeping that home in your portfolio for possible future use. If so, long-term renting it meets your goals. Cover a lot of the mortgage and keep it. That makes sense to me.
If you want to try to make some money, a medium term rental could work. Check out the book "American Nomads," which is kind of the original book all about the trend toward medium-term rentals and remote work. We have had several MTRs and several clients who bought MTRs in Colorado Springs. There's a pretty good market for that. I'd suspect you could get around $4,000 to $4,200 easily with a 5br that's a new build.
Beware short-term rentals. Colorado Springs has strict STR rules, and home would have to be a certain zoning and be 500' away from another non-owner occupied STR.
Thanks, for the info! I'll definitely check out the book American Nomads. Hopefully I'll be able to grab it on audible. We are definitely looking to keep it in the portfolio since we haven't fully decided if Colorado Springs or another location will be our retirement location. Definitely interested in bedroom rentals or medium term rentals as an option to increase total rents collected. Do you do property management? If so, would it work similar to a regular LTR where they would collect 10% of the room rent?
Thanks for your post, reading the different options and opinions definitely makes the decision easier to keep it. If you have some time I do have some questions.
Do you charge more for the master bedroom suite?
Do you manage your own bedroom rental houses? How much more difficult is it compared to a regular STR?
Would you mind sharing a bedroom lease setup? I have the LTR from BP, and I'd like to see how it compares.
Any information is greatly appreciated! We're definitely looking to build our portfolio, and increase cashflow at the same time.
- Yes I charge more for the more desirable rooms. People pay by size and if the bathroom is private. So for example a 10x10 room with a twin is earning $700/mo plus split utilities on long term lease and maybe $900-1000 on Airbnb. A 12x13 room with queen bed is earning $750 long term. A 12x20 room is earning $800 long term. A 16x16 master bedroom with large closet and private bathroom is earning $1000 long term lease, $1200/mo short term lease, $45-50/night on Airbnb with x days minimum in between leases. Private bathroom bedrooms in shared houses are very attractive on Airbnb because it’s much closer to a whole unit rental but for like 50% off. In my area a whole studio/1br is about $70-90/night.
- For smaller houses, STR the whole thing is more lucrative and easier to manage than renting rooms. Like 2-3 bedrooms definitely just rent the whole unit for like sleeps 4-8.
- I manage myself but I make it clear that I don’t want to be involved in any drama. This has resulted in them avoiding messaging unless there’s a maintenance problem, which, all else equal, is ok.
I don’t have any inside cameras, except sometimes in my private storage basements, so unless someone tells me, I don’t have any idea who tore the couch or clogged the kitchen sink. It can be hard to tell who is responsible and I end up eating some expenses that for a full unit landlord, long term rental you could and probably would definitely charge for.
- The lease is similar to a whole house lease except I change the language to they are renting a bedroom with access to the common area, that their rights to use the kitchen or laundry could be restricted if they’re inconsiderate pigs and/or they would owe fines for cleanup, and that I or my representatives can access the common areas at any time. I have fees for stealing food, causing drama, and overnight guests. I don’t always charge these fees, but they are there so people follow the rules or I have a page to refer to and say Hello so-and-so, you signed agreeing to quiet hours 11-7pm and cleaning up your kitchen sink dishes. Either you can follow the rules or you can move on.
In the past when everyone is on a long term lease, I stop providing common area supplies like toilet paper, paper towels, laundry detergent etc. anything that is usually wasted. (I’ve had people go through 150 load laundry detergent in 1 month and I know it’s because they use too much), but when you have ANY Airbnb guests in the house, you need to provide all those things plus a very good check in / clean kitchen and common area experience or your Airbnb reservation can bounce like “not as described.” And
Usually the price point is so attractive I’m 95% occupied anyway. I find that many people who meet me on Airbnb end up staying longer term with me, whether that’s 3 months, 6 months, 12 months, etc. I convert them to a lease with a security deposit after the first month or so.
On Airbnb, it’s really hard to get paid for damages, because when you file claims against people they give you terrible reviews, so I end up eating a lot more than when someone is on a lease and I have a security deposit and I can charge them for staining the carpet or my towels or whatever.
Overall, I’d say Airbnb is consistently yielding about 20-30% more rent from the same spot, and the guest is usually paying 15-25% more than what I’m collecting. So the room I rent for $750(850) long term is collecting $1050 (35/night) per month fully occupied on Airbnb and they’re paying Airbnb $1250-1300 to rent it.
I've been in the same situation several times, and have always kept the property as a rental. With time, it's worked out very well for me. One thing that I like to think of with the VA loan specifically, is that I never made a down payment, so a negative cash flow is like making that down payment over time. In the long run all of my properties ended up being cash flow positive, but some took longer than others. I bought my first property with a VA loan in 2005.
There are other low down payment loan products that you could look into for your home in San Antonio. Homes are pretty cheap here (I happen to be in San Antonio), so 3-5% won't be a ton of money. It also might just make sense to rent here initially. We have pretty nice rental stock here.
You can have more than one VA loan- there's a total entitlement of around $750k- so you could theoretically have two VA loans with balances around $375k, so don't let that factor in to your decision unless you don't have room in your entitlement. Heck, even if you do, there are plenty of great options out there with conventional owner occupy mortgages.
The simple answer- if you can keep a property, you should. Looks like rents are really close to covering your mortgage and along with write offs and depreciation, you'd likely be making money. As you also know- a market like Colorado Springs is going to be an excellent long term appreciating market, so over time, this property would transform from a sort of not awesome investment to an amazing source of equity and wealth for you and your family. The best investments aren't going to be great for the first few years- it's like anything else, you have to get in your reps before you reap the rewards.
From what you've posted here, I'd keep it and deal with a couple years of breaking even in order to get to the point where it's starts performing really well and you have a ton of equity.
Finally- could you STR it? That might be a better option, but I don't know what regs there are in CS.
Best of luck!
Thanks for the response!
At the moment we currently have 2 VA loans. We currently have a VA loan on the KY house and our current house. We originally had the 2nd VA loan against the other Colorado house, but we refinanced it to open up entitlement for our new place. Our current total VA entitlements is around $650k which was the cap from 2022.
We are looking at this home for a long term investment . The home was recently finished in August 2022. So there really shouldn't be much maintenance that will be needed.
I haven't looked into the STR market, I know there are several in a close by community that has some Air BnB rentals so I believe it is an option.
Unfortunately, a good chunk of the Springs is NOT eligible for STR and even so I've started to see a few STRs here get moved to mid/medium term rentals. You are in a tough spot because unfortunately refinancing right now would mean you need to $ to the table.
From a LTR cashflow perspective I think it would be a winner over time but there will be some lean years that you would need savings for.
I love the Springs (which was why I chose to stay when I got out) but you may want to consider offloading your other property if you're convinced Colorado is home when you're done.
