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Updated about 9 years ago on . Most recent reply

OK to Keep Negative Cash Flow Rental?
I converted my homestead condo in Uptown Dallas to a rental property 2 years ago when I married and moved, and I am hoping some experienced - and objective - investors can advise me about whether to sell or continue to hold it. Here are the numbers:
Paid $145K in 2006 and I could sell for $180K today (I owe $90K). If I sell by year end I can still treat it as a homestead and avoid any cap gain tax because I've lived there 2 out of the last 5 years.
I am 4.5 years into a 15 year mortgage at 3.0%. Current cash flow is negative $110 a month, not including vacancies or maintenance (which are very low as the unit is in a very popular area, HVAC and hot water heater are new, and the HOA maintains the exterior). However, the mortgage is ticking down at nearly $600 a month, so holding it positively impacts my net worth.
I know negative cash flow is never ideal for a rental, but I also love how low maintenance this unit is. It was built in 1999 so building is in good condition and has a stable HOA. I can also see myself moving back into it one day if I ever get divorced or if my husband pre-deceases me - or if we run into hard times or want to save a ton of money fast we could squeeze in there together.
If I sold I would probably use the proceeds to pay off another rental mortgage I have that is at 5%. Theoretically I could reinvest into other rentals, but the market is pretty frothy - and competitive - and it seems silly to sell a predicable easy rental just to bet on another that has also run way up in value over the last decade, even if the cash flow *could* be better. Any thoughts??
Most Popular Reply

Couldn't have said it better myself. If you're unable to utilize the passive losses now due to income limitations, this is actually a perfect scenario.
Those passive losses will accumulate until your income either dips below the limitation or you sell the condo. At that point, if you have huge capital gains on the actual transaction, all of those accumulated passive losses will then be deductible all in the year of the sale and may offset your tax position quite nicely.
It's all in the math, obviously, but this does not seem like a terrible situation to be in.