When and when Not to get rid of a property

Question

Hi every one,

I have a propriety in Memphis that is braking even in income and expense .

Just asking to see if I should sell or trade it in for a cheaper propriety .

I have had it for about a year and its rented out for $1000. It is hard to find and keep renters in it maybe because of the high rent.

would love some advice from other investors.

Thanks

Curt Davis · Answer

He purchased the home for $82k and my estimate to get gross cash flow was assuming rent minus PITI and property management expenses.  The only thing not factored was vacancy and repair allowances.  $423.00 in gross monthly cash flow is great for a purchase under $100k.

Johnny Khoury · Answer

@Douglas Skipworth

This has nothing to do with you company.. or the General manager , I requested the house to be rented at that price range.

Just to let every one know Crest Core Did nothing without my consent and I fully trust them

Alex Craig · Answer

@Johnny Khoury something to think about. While break even is not ideal, at least you have a year of a tenant paying down your mortgage and expenses to write off (interest and cost related to owning a property such as cell phone, internet, home office, etc). While I enjoy the cash flow my properties provide (which I use to pay down mortgages), I really enjoyed the $150,000 in deprecation I took this year.  That was a game changer for my taxes.  Even if I had lost money, I would have come out way ahead with my tax bill.

I agree with Curt on this one, $895.  That part of Perkins is very busy and loud as people tend to start speeding up in the right lane to get on to 240. Then you have the big banner on the fence of the house on the corner of Perkins and Mallory about the kid who was killed in a hit and run.  I don't mind houses on busy streets, but some streets are so busy that it effects the rent dramatically.  I would even say that $850 is more in line as their are 4/2's in the area that rent for $900 to $950 that are not on such a busy street.

As to buy and sell, I think it would be hard for you to sell without a loss. $85,000 is top of market, which is fine if the house as new HVAC, roof and was fixed up well.  However, the home would sit on the market for a while I believe trying to find a retail buyer.  My suggestion, rent for $850 to $895, have Douglas's company take care of the tenant so that they will not want to move.  Give people a good house at a good price with great service and you have done all you can do to give yourself the best opportunity at a long term tenant.  Try to gouge them, pass on yearly rent increases and they will move to find a landlord who values on time payments and loyalty.

Dean Letfus · Answer

@Johnny Khoury, crestcore are more than competent, I am surprised they haven't told you to reduce the rent. Vacancy is the managers issue. 6 weeks vacant at $1000 takes you 20 weeks to recover as opposed to $925 and staying rented.

Alexander Price · Answer

@Johnny Khoury

I would say $423 gross cash flow isn't much if you bought the house for $200,000, but if you bought it for 75k then that might be a good COC return after factoring in vacancies and repair costs. What did you buy it for and who is managing it?

Michael Seeker · Answer

@Johnny Khoury - If the rent is too high for a market, then as you've seen you won't be able to keep the property occupied.  You'll have loss of rents, additional upkeep while it sits empty and you might even be attracting worse tenants than if you lowered the rent to be more in line with the market.  It's possible you could make more money renting it for $900/mo instead of $1000.

There are a lot of factors that go into whether it makes sense to sell a property or not.  Do you have other property in the area?  Is the neighborhood improving or deteriorating?  Do you have something better to do with the money?

Dean Letfus · Answer

Not if you are set up correctly, (unless US residents are treated differently to non residents).

Johnny Khoury · Answer

OK update,

I was reading Memphis state Law and they said i have to file an exemption every year for the state tax ?

Jeff B. · Answer

re the topic question: When to keep vs When to Sell?

If the REI investor is in it for the long haul (B&H), then the asset is  much like a Stock or Bond and factors become things like Current Performance, the economic climate, and Future Projections.  Because B&H will entail lots of landlord/tenant interactions, Human Factors can become a stimulus to the question.

I was an absentee landlord/operator and it was a 2hr drive for every onsite visit -- did that for 19yrs.  Thus, the human factors weighed heavily in my decision.

Taking you at face value "propriety in Memphis that is braking even in income and expense" and noting you're an absentee owner with a PM, your posting here suggest you are dissatisfied with Current Performance and see no possible improvements in the future.  Put on your investors hat and look for reasons Why should I continue with an under performing asset?  If you can't find any, then the choice should be obvious.

Douglas Skipworth · Answer

Thanks, @Johnny Khoury.

We enjoy working with you (and all of our other clients) and really appreciate your vote of confidence.

When and when Not to get rid of a property

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