My wife and I just moved out of the country for at least 3 years. We kept our townhome as an “investment property.”
Problem is, no one has rented it yet, (it’s only been a few weeks since we left), BUT it’s now looking like once we do get a renter we’ll probably be in the hole ~$500/month with our mortgage. We currently have a 4% rate on our mortgage, so refinancing doesn’t look like an option right now.
Is it even worth keeping at that point? I just can’t help but think that money could go toward other investments, but I do understand a renter will be paying ~$2,000 for us. So much of that goes toward interest, though.
I also am still on the job hunt, which is why this is more painful as well.
Is this the type of thing that’s worth keeping in the long run still, we just eat the cost and wait until we can refinance (if ever), or would our money be better spent going toward something else?
Thank you!
No, it’s only worth keeping if you are moving back in a few years.
People say it will appreciate in value. Maybe. But…meanwhile an Investment you have to feed *at least* $500 a month (plus repairs) isn’t a great investment.
Just depends on what the downside is vs the upside and the timeline. -$500/mo is not something a lot of people can afford. Even if the value goes up. What if it goes up? Well, are you going to sell it? Cuz you’d need to to access that value. But now you have contracted tenants in it so you need to continue eating that $500/mo loss + transaction costs as you sell it.
No one here could offer accurate advice cuz it’d take dedicated RE knowledge about your local market and a crystal ball.
It’s really up to you. If you can afford to make up the difference while saving & contributing to retirement, then I’d keep it. Will you be able to cover the mortgage + current rent on your incomes (if there’s no renter for a few months)?We decided to rent our home once we moved since our interest rate was low enough that the rent can cover our mortgage/HOA/property management fees. We are now looking to buy our second home in the future.
If you’re going to be in business — and being a landlord is being in business — you’ll want to get familiar with the difference between your income statement and your balance sheet.
First, let’s look at your mortgage. When you buy a property with financing, you acquire an asset that has value. Let’s say you paid market value of $200k, but you made a 20% down payment so you only financed $160k. Your balance sheet now looks like this:
|Balance Sheet||
|:-|:-|
|**Assets**||
|Townhome|$200,000|
|**Liabilities**||
|Townhome Mortgage|($160,000)|
|Total Assets & Liabilities|$40,000|
For simplicity, let’s assume that the value of the townhome remains static over time. Each month, you collect rent and pay your mortgage. While your rent may not exceed your mortgage amount, you are still turning a net profit. Here’s why.
Your rent is income, but your mortgage is made up of two parts: principal and interest. The interest portion is a regular old expense, but the principal portion reduces your mortgage liability. This causes your balance sheet bottom line to increase over time.
The figure you should be calculating is rent minus ownership *expenses*, excluding the principal payments on the mortgage.
You can run a lot of tax deductions against a rental.
The house will increase in value.
You interest rate is more than fair.
I’d hold. But cash is king if you’re low.
Negative cash flow of $500 is too much, and that’s best case only when it’s rented and nothing needs fixing.
You can justify keeping it and hoping for appreciation if it’s close to breakeven, but not that negative.
Sell, sell, sell.
I think a big variable to this is your combined incomes as this is not a liquid investment. This is my opinion:
Consider that rent goes up every year. That might start closing your $500 gap.
You’re not “losing $500”, a good portion of it is equity.
The amount that goes towards interest goes down with every payment; look for an amortization table in excel, it might give you a better perspective of how much equity you’re getting each month.
In the long term you’ll get equity through appreciation.
@ 4% for a rental property I’d find a way to make it work; such a low rate is uncommon.
It is most definitely a risk that becomes less risky as the years go by but in my own personal opinion I think it’s worth it.
Depreciation. Depreciation. Depreciation.
Until you see what it does for your taxes, you won’t fully get why it’s so awesome.
Get it furnished, put some dishes in and expense that out. Now put up for rent to professionals.
Bulk rate everything water electric everything. And charge based on them using it like crazy.
Get a lease from a short term place and then copy the same terms. Noting special things like damages. Or use a lawyer and expense it out.
Get a book on taxes not one of those shady writers but a legit book on proper handling for taxes. Or find a great cpa that knows the ins and outs of each rule. Usually they should be authorized agent to handle IRS. Get one that knows the pitfalls of each rule. Some tax preferences you may decide not to use because it comes with audit risk and your record keeping might not be sufficient.
Or somethings are either or and knowing about that stuff is important.
Cpa if you can afford it and they are good will be worth it if they can pull money you leave on the table. I have seen many that aren’t worth it though so it’s tough to find a good one. And good CPAs are not cheap.
There’s an interesting tax rule that I can’t figure out regarding renting to low income individuals. What makes it worse is I went through low income housing training some years back and did accounting for it. But I was low level so not an expert in any stretch of imagination. I rent to a low income individual and take a loss up front but do ok when it comes to taxes. I would like to utilize the low income individuals rule if I could get to understand the rule to use it.
Professionals that have to travel are really the best.
Next is felons, they have a super hard time getting a place and take care of property like it’s their own but better than their own.
Last is fixed income which is where I cater to. Not making bank on the fixed income people but depreciation eats up your taxable income.
You may try section 8. What is worth noting is section 8 debt has no statute of limitations. So they can have SSI taken to repay the debt. Even still it’s a mixed bag. If you can handle the extra hoops and hassle it’s great. But like all renters, sometimes you get ones that are difficult. The reduced profit makes this even more challenging.
Rent reasonableness is easy to look up in your area and there’s also exceptions to that if you have extra features.
Find out about expensing out the year one costs of starting a business.
Don’t take any of this as tax advice, confirm with a CPA or verify rules directly from IRS.gov. and print anything that supports your activity and how you claim it. If you find that there’s a rule that allows something print that out or keep with your records. You’ll never find that rule again when you have to.
It keeps you in the acting in good faith category having documents and support and the actual IRS rule you went by.
Also if you need to, talking with the IRS is always a big help. All they care about is compliance, there’s tons of preferences the government puts out to encourage business activity. Use the rules properly and you’ll find you make more money because they are encouraging the economic activity of rentals.
https://www.cnbc.com/2021/04/02/investment-properties-buying-real-estate-is-a-risky-strategy.html
Real estate is a horrible investment.
Property value appreciation likely won’t exceed inflation. That equity is better spent in the market. Especially if you’re burning money to keep it. That $500 a month could go into your retirement fund. You might as well give it to me if you don’t want it that bad.
Sell it (to a family, not an institution).
Why not consult a property management company to help you rent the property? The fees vary, but are well worth it in my experience. In addition to dealing with tenant issues and property repairs that are inevitable, they also have solid knowledge of the best price points for your property, since they typically manage a lot of them; their job is to know where the market is at. Trying to rent it out yourself creates all kinds of problems. For starters, you have to background check and credit check potential tenants to make sure you don’t accidentally rent to a wacko (which I’ve done before). Also, they help handle the transition between tenants, and negotiating with existing tenants, which is not fun at all. Basically: they are the bad guy who deals with all the problems— like finding a contractors, dealing with deadbeat renters, and working on your behalf on the business end. Meanwhile, you collect the checks. It works out great if you find the right company.
Sell baby sell.
You are losing money….. Stop the bleeding.
You should have sold when you left the country.
Landlording is hard. No renters is the worst.
Never have a rental property with a mortgage. You learned the hard way.
Totally agree, it’s worth keeping in the long run. A good taxing accountant can get you a different types of tax write offs for a rental property but then again you won’t see all that money now. If you need money now to survive and meet other payments then maybe it might be time to liquidate it, but if you can manage to budget through to keep it then that will be the best option too.
Sell. Since you’re out of the country you would likely need to have a property manager as well. That’ll eat another few hundred a month. Add in maintenance and you’ll be out of pocket closer to $1k/month.
The numbers don’t work as a rental, and even more so since you’re still looking for a job.
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