Huntsville rental/investment property. Time to sell or keep?

Question

Hello BP family, I’m looking for some advice here in my SFH rental in Huntsville 35810 built in 1950. It’s a 3/1 rented for $800/month. I cash flowed about $300 each month. With the hype of today’s market, I’m wondering if I should sell for a 40% profit or keep it for rental still. My property manager kept telling me to not increase my rent to keep my tenant blah blah but I’m seeing inventory shortage everywhere which should either increases my rent or values of my property. Any suggestions?

Laurie McGuire · Answer

$800 a month for a 3/1 home in that zip code is way too low.  If you loose the tenant there is no shortage of great tenants in that area.  I have a waitng list. It sounds like you made a good investment weather you go up on the rent and keep the home or sell while prices are so high. If you sell and want to buy a rental home in county areas near Huntsville where the price has not inflated so rapidly, those area rent very well. Let me know if I can help.

Michael S. · Answer

@Mora Clark  I think it's interesting that everyone is telling you to raise rent without knowing more details on your specific property.

I am not clear on how well you know Huntsville, but 35810 is an incredibly variable area code;  it includes everything from B to D class neighborhoods, although the majority are typically C class for the 1950s to 1970s built houses.

If your house is a 1950s with minimal updates in a C/D area, $800/month is not unreasonable given the 1 bathroom and lack of updates.  On the other hand, if the house is in a solid C area with recent updates/appliances, you could get up to $1100 as @Dena Puliatti quoted, although the one bathroom will probably make $1000/month more likely.  As @Gorden Lopes mentioned, making it a 3/2 can get you into the $1100-1200 range depending on the location in 35810.

We did a BRRRR in 35810 last year in a solid C neighborhood with a big yard and away from the main roads.  New kitchen, paint, and bathrooms outside of the bathtub.   3/2, 1300 sq feet.  Rented for $1150/month.

Finally, I have no idea who your property manager is - but if they placed a good tenant who pays regularly, and you've had minimal repair calls, why would you get rid of them?  They did their job - you determine the rent amount, not them;  they can advise you, but you make the final decision on rent amount.

Joshua McMillion · Answer

@Mora Clark

I focus on a different area code but would increase the rent to market value. Does the property need any improvement? If your property manager is not willing to increase your rents willingly, that tells me they are lazy. I would find another property management company with all three interests (tenant, owner, company).

Bottom line, if I could not increase rents, I would sell for a profit and turn over into another investment. Just my opinion...

Sincerely,

Scott Matthew C. · Answer

@Mora Clark

Offer your tenants an option to buy in 1 year. Get an up front non-refundable option consideration. Offer Seller Finance, agree on terms and condition, and collect a monthly mortgage payment, you will still technically control the property without a property management, and taxes, insurance, toilets will be the responsibility of the tenant/Buyer. Play with a mortgage amortization schedule and you’ll find out you will most likely make more money in the long run.

Or

Cash out now and do a 1031 exchange and keep the money moving forward.

Best of luck!

Gorden Lopes · Answer

Congratulations @Mora Clark! On your success!

If you have another bigger and better investment (like a large MF deal etc) and are low on cash then cashing out makes sense.Huntsville has at least 5 years of solid growth ahead so I would definitely recommend to keep holdin 'em!See if you can make your rental 3/2, that would also help get a higher rent as well. Oh yeah and you should definitely fire your PM! ;) I have couple of  good referrals as well.

Dena Puliatti · Answer

Rent should be $1100.  Your property manager may be encouraging you to keep the tenant if the make-ready will be costly.    You may want to have a contractor take a look and quote the basics.

Timothy Hero · Answer

Your property manager telling you to not increase the rent is poor advice. This is a business. In today's market, investors are raising rents 5-8% and the tenant agrees or a new tenant is found within 10 days. Your property manager just doesn't want to do the extra paperwork.

Buddy Holmes · Answer

@Mora Clark

I don't know all the input for the calculation but say your place in H'ville is worth $100k today.

And  I assume your mortgage at 5.8% is about $325/mo and you are cash flowing.  Current investment rate are 3.6%.

So a 80% l/v loan of$80k would be $360 or about $35/mo more.  So financing all your closing costs ($5K max) you net

80-50-5=$25K for your project in Denver and still have you rental income and higher value SFR in H'ville.  Sounds like there is a real possibility that you can even increase your rental income and cash flow!  This looks like a win-win to me.

Good luck.

James Carlson · Answer

@Mora Clark

I'm biased as I work in Denver, but I do always believe in buying where you live. If you don't own the place you reside, that's the first step in my book. And I think you can cash flow way more and get the better appreciation that Denver is likely to have. (Sorry Huntsville.)

Find a home with a basement apartment or carriage house and Airbnb the heck out of it. (You don't even need a full kitchen for Airbnb, as these Denver house-hacking clients of mine show.) Most anywhere in the Denver metro, you can make $2,000/mo even on a basement. More, if it's in a desirable area or is a really charming basement. That's going to cover most if not all of your mortgage.

If you instead rented in Denver and invested in Huntsville, let's assume you pay the average Denver rent of $1,825. So you pay $1,825 here and get $300 from the Alabama rental. That's a net $1,525 negative. If you cover all your mortgage here with an Airbnb in the basement, then you're netting $1,525/mo. Plus you're getting better appreciation. (Actually, I don't know this. Someone check me on Huntsville v. Denver.)

Whatever you decide, I wish you luck!

Josiah Cooper · Answer

@Mora Clark I don’t care what your property manager says, raise your rents! ;)

Huntsville rental/investment property. Time to sell or keep?

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