Negative Cash Flow on Rental Property - Hold or Sell?

[Yun Han]

Hey everyone!

I wanted to get some advice about my investment property. So, in 2020, I bought my first house with only 5% down. I put in a lot of work and made some improvements while I lived there for a year, which helped me get rid of the PMI. Now, I've been renting it out for the past 1.5 years, but unfortunately, my monthly cash flow is -$200 when I consider rent, mortgage, and management fees at 6%. And this doesn't even include other possible expenses like vacancies or improvements.

So, what do you think? Should I hold onto the property? If so, any tips on how to generate some positive cash flow? Or would it be better to use this as leverage to invest in something else?

Oh, and by the way, I did raise the rent by 4% last December. Also, I moved to East Coast so managing the property myself is unfortunately not an option.

[James Hamling]

@Yun Han you havn't supplied enough information for anyone to give an intelligent answer, only knee-jerk feeling based opinions. 

For example, what is the interest rate your locked in at? Is your current cost of $ sub 6%? Your not going to get that going forward. 

Are you using depreciation? How much is it? 

Have you looked at Cost Segregation and accelerated depreciation? What kind of $ impact does the use of depreciation have on your taxes? 

Yeah, you could sell, 1031 into some other "cash-flowing" properties, clear as much as a few hundred per month, but depending on your situation and use or non-use of depreciation, that more cash-flow could COST you thousands per year. Yeah, sometimes -$200mnth results in highest ROI after depreciation.

And what is the area like? Is it flat, ascending, descending? Is there room for growth or is it capped out? 

Your taking 1 item, 1 alone, putting on blinders of the 40+ other factors. Decisions made with such tunnel-vision are all but certain to end regrettably.