To make matters worse 2 major storms did considerable damage to the property, the insurance did not cover it all. So basically all my rental income went back into the property for the past year. Good thing I planned for this eventuality.
Bottom Line, I would not recommend rental property as retirement income. Sell the property before you retire.
Rental is very difficult to make money if you have a mortgage.
Refinancing at 7.9% shows the stupidity.
As the owner says he owes $450,000, assume the loan was for that amount. The difference, 2.76% a year, amounts to $12,420 more a year in interest payments.
HODL ! Property never goes down. ;-)
Really though, dump it.
1. If the numbers he is presenting are correct, then he’s got a negative cash flow even with a low mortgage balance relative to the value of the property. He’s not charging enough rent.
2. Why would he refinance at an higher rate AND take another $100,000 out of the equity if this move put him in a cash flow crunch that is a problem for him?
Why did this guy refi from 5.14 to 7.9? That likely speaks to other issues in his life, the best of which would be that he’s lousy at math.
I would also have to believe the renter pool quality has fallen considerably in the last few years. Thank you, Democrats.
I would not want to be a landlord these days, unless it was on a large enough scale that you could hire all the necessary services and still make money.
The guy should sell it to a real person, not a foreign entity, who wants to live in it.
As was said, not if you have a mortgage on it.
I have a rental property that has struggled to keep up with the monthly costs but it does have a small mortgage. Most years it was right at break-even or may just a touch over. While I was still working in my career, it wasn't much of an issue as we used the home when we could, rented it during high season(FL). Now that I'm just doing inspections and side work, it's become tougher to hold up those expenses
That said, the home has appreciated in value about 1/3rd, so we're going to sell it this year. Once sold, It will reduce all our expenses to basic utilities on our current home. No mortgages, no car payments, no nada and we will have around 100k left over. I can coast into early retirement and relax until I'm gonzo.
Translation: I increased my overall debt by converting an asset into spending money. So, "Losing Money Fast" seems unable to grasp simple notions. You either 1) have or 2) do not have assets / liquidity, by degree.
So where to put your investment dollars then
At a minimum a rental property should show a profit of two months rent annually after saving two months rent for repairs annually and with any mortgage/tax/insurance costs being covered with maximum six months rent allowing for two months a year being unoccupied.
I would also figure the payoff on a seven year mortgage (max of ten).
If it doesn’t fit these parameters you are looking for trouble. Oh, I also plan any tax benefits as gravy.
Be strict with yourself as an owner and fight the urge to pull profits for spending until properties are paid for.
Good luck, WWG1WGA!
Considering the MASSIVE run up in real estate prices a few years ago and the fact that there has not been a price correction in the market yet, I would sell. I think the current home prices are unsustainable.
Historically, sellers have been very reluctant to give back any of the paper gains they “made” on their property so they often choose to sit on their property rather than sell it, but historically sellers lose that battle with buyers and are eventually forced to sell even though it often takes several years for this to play out. If you can sell now and capture that price increase, I’d take it. I don’t think it will last.
“I recently pulled money out” (mistake 1)
“increased my mortgage race to 7.9%” (mistake 2)
“The costs ... are currently higher than the income” (well yea braintrust, you didn’t own a calculator before doing this?)
and genius here now wants to know if, having screwed himself, if he should finish the job by now selling at a loss, spending the $100k he just took in cash in realtor and other costs, and walking away with no income and no property?
Suck it up, buddy. Vote Trump and look towards refinancing again at better rates.
Letters like this usually start with “Dear Penthouse,”
He must have had a balloon mortgage instead of locking in a low long term rate when money was cheap. Voluntarily refinancing “from 5.14% to 7.9%” isn’t a rational decision.
Another dolt that fell for the “ unlocking your equity “ scam .
As a real estate entrepreneur, I know that my rental investment assets have 5 profit centers. The largest of these is EQUITY. This guy has negative cash flow which can likely be remedied with the lease renewal. The smartest thing to do is get a part time job, rather than losing an estimated 4.7% compounded yearly interest value (over a 10 year market cycle)! His rent should increase at least 4% year over year. If it’s a single level ranch, then it will become far more valuable in ten years as the Senior Tsunami hits and boomers sell their 2 stories to downsize so that they can age in place (which will be an estimated 37% of them!!). I bought my first rental asset in 2000 and it wasn’t always a positive cash flow, but I sucked it up and lived poorly for a few years. Today, I’m a millionaire, heading toward the multi-milionaire goal in 5 (barring the likely nuclear holocaust). It’s tight for me right now because I’m not liquid. Hope he sucks it up, fixes whatever problems are eating his money, and takes whatever is left of that $100k and buys more properties!
If anyone wants to join my real estate podcast, please look up Not Your Average Investor Show.
It sounds like he is using common core math in his finances, and actually believes the results he arrives at.
Yes; but where will you find a buyer?
I thank you all for your comments here. The best concentration of useful info I’ve ever seen on FR.