I’m losing money on my rental property, which has a $420,000 mortgage and a 7.9% interest rate. Should I sell?

Marketwatch ^ | March 1, 2024 | Aarthi Swaminathan

[Sequoyah101]

This guy is dumb, too dumb to be in so deep. He put all of his eggs in one basket. I have had two rental properties as a result of buying larger properties. Absolutely no good came of them. They were a near net loss and the PITA that came with them was not nearly worth the little remaining cash flow. Both were decent enough houses, not great but sound. The rents were modest, we don't have a booming economy around here. I ended up selling one to be moved to somewhere in town and burned and buried the other one. I am preparing to do the same to a third this spring.

I know that people claim to do well with rentals but they are not for me. Most experience I hear of is similar to yours, a near net loss that may only be compensated on liquidation with the cap gain.

[Alberta's Child]

The guy mentions “high monthly maintenance fees,” which suggests he’s dealing with a condo or townhome. I wonder if he’s using it as an Airbnb rental instead of long-term rentals.

[Alberta's Child]

There’s nothing wrong with running a business with borrowed money as long as you follow one of my most important rules: always maintain enough liquid assets to pay off your business loans on short notice.

In 2021 I took advantage of the low interest rates to front-load some major business expenditures and give myself some reserve funds to smooth out my revenue stream over the next two years. I got a business loan at a great interest rate, so I borrowed more money than I needed. It would be ludicrous to pass up an opportunity to borrow money at 3%-4% when inflation would be running at 6%-8% for a couple of years.

[MV=PY]

I remember a story in Guy Kawasaki’s books about a new entrepreneur who was excited about a negative cash flow deal.

The experienced investor asked him how many negative cash flow deals he could do.

Then he asked him how many positive cash flow deals he could do.

;)

[Organic Panic]

Rentalmuse to be great. Luckily, I got out before kung flu “eviction moratoriums “ were invented. I know people who haven’t gotten a single penny for three years. And when asked to pay rent the disgusting freeloaders get mad and trash the place and lodge complaints to get it fixed up.

[eastforker]

I live in NE Alabama. What I do is look around for houses that look in distress. Lawns grown up, no lives there things like that. Then I research who owns it to see what they are going to do with it. Half the time I can get them to sell it to me cheap since it probably needs plumbing or floors need redoing. Sometimes all they need is new drywall and paint inside and out. I am working on one right now I paid $40K for. 2400 square feet, Half the floor joist were rotted out and needed all new plumbing , new drywall for half the house and new appliances. I’ll have close to $90K in it when I’m done but will probably sell for around $180K.

[FamiliarFace]

I’m still surprised you can find places like that, but if you’re someone who is handy like that, more power to you! I like the idea, but I don’t think it’s right for us at this point in our lives.

[eastforker]

Hell I’m 71 but ya gotta keep busy doing something, now it’s getting spring time and the fish are starting to bite.

[FamiliarFace]

Definitely gotta keep busy! Life is worth LIVING.

[JAKraig]

You have to be crazy to refinance to a higher interest rate.

I lost a lot of money in the stock markets of 2003 and 2008, Mutual funds that were supposed to be safe. They weren’t. I took money out of the market and invested in rental properties. I either paid cash up front or got them all paid for by the time I retired. I wish I had started sooner. I have 8 properties and find them a lot more advantageous to have than my Social Security. Yes sometimes they cost money. You have replace roofs floors appliances but collecting 16k each a year gives me enough padding to pay for those things. I figure two to three months rent each year for expenses including taxes and insurance. If I get a good tenant I may have no extra expense for several years.

If I sold out I have to pay terrible capital gains tax but then I would have to figure out what to do with the money to give me the same income. It would cost me a good 50k a year.

I love my rental properties and recommend everyone young enough to get them paid off for retirement to do so.

[where's_the_Outrage?]

As was said, not if you have a mortgage on it.

I have no mortgage but this past year and 2017/2020 I lost money on the property. Too much storm damage in 2023 hit hard, and in 2017 the renter lost his job and it took 8 months to get him out.

Tried to sell in 2020 unfortunately all offers were way below market value. House was empty but needed to put in multiple upgrades (e.g., new flooring, painting, repairs) while the house was empty for 9 months.

If I would have been working it'd been a nuisance, but as a pensioner I had to watch my spending.

[where's_the_Outrage?]

So where to put your investment dollars then

Mutual funds and money market. I try to keep enough ready cash available in case I decide I want something now (e.g., new boat, property, relocation, travel, etc.).

[where's_the_Outrage?]

In my 40’s/50’s I self managed property doing the maintenance myself, now at almost 70 I use a property manager and repairs cost thru the nose, but worth it to avoid the hassle. So at my age I’d just assume divest myself of all rental properties and spend the money on wine, women and song.

[where's_the_Outrage?]

Yes; but where will you find a buyer?

Exactly my problem several years ago when I tried to unload the rental, after 8 months decided to go with a 2 year lease to at least have the property pay for itself.

[where's_the_Outrage?]

Here’s another, avoid an annuity. Sounded good to begin but after 10/20/30 years there is no adjustment for inflation. You get the same about of money with less and less spending power month after month.

[where's_the_Outrage?]

To your point though, when buying real estate you need to be able to hold and maintain it. Proper long-term planning too.

That is my point as there will almost always be times of no cash flow or even excess expenses, if you are a pensioner like me it can cut into your living expenses. When I worked the expenses were in the noise, not the same being retired and living over 600 miles (even 10,000 miles away) from the property.

[where's_the_Outrage?]

Almost agree. I made money on my property because I never had a mortgage. Now I just want to get rid of the hassle, but at a fair price.

[where's_the_Outrage?]

Just last month I auctioned off a real fixer upper for $30K, was glad to get it.

[where's_the_Outrage?]

Wish I had known you did that, just auctioned a house in New Hope AL for $30K, would have been glad to sell to a freeper.

[LittleBillyInfidel]

Agree!! I want to follow your exit plan! 😎