So before BP when i knew less than nothing about REI, I bought my first SFH outside Jacksonville, FL where we lived for a few years. Work brought us to PA, so we rented it out to cover the mortgage.
Now that I know more, I ran the numbers through the calculator(vacancy, capX etc.) and found out I am -$150 cash flow/month. I believe the rent to be near the top of the market(1,500) but I do have good equity (60k). I also got ahead of myself and opened a HELOC on the property for capital on new projects, so I can't sell for a few years.
I think the problem is I didn't buy it as an investment. Any creative ideas on turning it around or mitigating the -CF?
Rental Property Investor · Boston, MA · Member since 2018 · 18 posts · 6 votes
6y
Could consider a lease option to bridge the gap to selling the property. Find someone who wants to own but can't due to issues with credit, etc. Charge small payment to activate lease and agree on an eventual purchase price maybe 3-5 years down the road. From what I hear about Jacksonville, it is appreciating, so that helps you, but perhaps you leave some meat on the bone to entice buyer to commit to future sale price. You're "tenant" then had a few years to become eligible for financing to buy the property from you by executing option.
Then continue accepting your monthly check at about what you are getting now. Benefit of lease option is that your "tenant" now has more of an ownership mentality and you can even contractually unload maintenance and capex expenses to him/her because he/she will eventually own it. Vacancy falls to 0 for duration of lease. So now you might even cashflow on the property with those expenses gone and you have your exit figured out too. Only issue comes if person does not execute the option and purchase, but you can just repeat this same strategy with someone else.
Flipper/Rehabber · Willow Grove, PA · Member since 2015 · 355 posts · 104 votes
6y
@Anthony Covington -- is there demand for AirBnb in your area? I know a few people that changed their single family house from using long term tenants into AirBnb rental. They saw monthly cash flow increase significantly.
@Michael Nyszczot Thanks for the idea. I hadn't thought about short term rentals but I'll look into it... I'm about 90 days out from my lease expiration.
Property Manager · Kihei, HI · Member since 2016 · 85 posts · 97 votes
6y
Have you lived in the property for 2 years?
If so, you won't have to pay any cap gains most likely. Honestly, if you have $60k in equity, it would probably be smart to sell the property and use that $60k to actually generate a return somewhere. Best case if you keep the property is that you either lose $150 a month, or break even if you get lucky. Worse case, you hold onto it, the market eventually starts going down, and you are left with no equity, and a $150 a month liability. The only "creative" idea I can think of to generate more revenue would either be Airbnb or some type of room rental if you are near a college. That probably is not feasible though since you moved away.
Salem, OR · Member since 2019 · 33 posts · 23 votes
6y
It sounds like you've been renting it for awhile but only recently realized your cash flow is negative. Is it actually costing $150 out of your pocket or is that an unrealized/assumed loss due to capex and vacancy budgeting?
As long as it's rented you're growing equity that someone else is paying for. Obviously negative cash flow is not ideal, but it may not also be a disaster if you can cover it until you're able to sell.
Rental Property Investor · Boston, MA · Member since 2018 · 18 posts · 6 votes
6y
Could consider a lease option to bridge the gap to selling the property. Find someone who wants to own but can't due to issues with credit, etc. Charge small payment to activate lease and agree on an eventual purchase price maybe 3-5 years down the road. From what I hear about Jacksonville, it is appreciating, so that helps you, but perhaps you leave some meat on the bone to entice buyer to commit to future sale price. You're "tenant" then had a few years to become eligible for financing to buy the property from you by executing option.
Then continue accepting your monthly check at about what you are getting now. Benefit of lease option is that your "tenant" now has more of an ownership mentality and you can even contractually unload maintenance and capex expenses to him/her because he/she will eventually own it. Vacancy falls to 0 for duration of lease. So now you might even cashflow on the property with those expenses gone and you have your exit figured out too. Only issue comes if person does not execute the option and purchase, but you can just repeat this same strategy with someone else.
@Christian Cramer thank you. Yes I lived in it for two years before we moved. Selling is a great option, but I'm hesitant because it continues to appreciate... and if I'm honest @Joe Villeneuve has me dead to rights, it was my first home, and we wanted to keep it.
@Mike Smith Thanks, you are correct. The rent is covering the mortgage and not costing me anything out of pocket without budgeting for Capex, repair, and vacancy etc, but once I add those in correctly, I see the cash flow loss. I can manage it now, but don't like the idea.
@Daren Card Thank you. That is a smart idea. Offloading repairs and capex on the tenant would be ideal because it would then cashflow. Much appreciated.