Sell @ $15,000 loss or rent it?

Question

Joe Villeneuve · Answer

Think of it this way.  REI is a lot like Poker.  Not because both are gambling.  It's because success in both demands the "players" follow one strict path to that success.

"Stay in the game".

I'll explain with 3 questions:

1 - In Poker, start with $100 in chips.  If you played 5 consecutive hands, put an average of $5 in chips in all 5 hands, and lost all 5 hands, how much money would you have lost?

2 - In REI, start with a $100k in cash.  Spend it all on a property.  Sell the property for $90k.  How much money have you lost?

3 - Same house/situation as #2, except instead of selling the property, you keep it...and have a negative CF of $4000/year for 5 years...and counting.  How much money have you lost?

Jordan Slater · Answer

Wow, that was a lot of responses!  Thanks everybody!  The neighborhood is new construction and my home price was within approx. $10,000 of all other houses there.  The neighborhood is approx. 60% built and 40% occupied.  The mortgage and expenses are approx. $1,250 and we are asking $1,450 for rent.  This may all be a non-issue, I think I have a renter at the $1,450 after only 3 days on market.  Sheesh.

As of right now, I would like to build my cash reserve to enough by next late Spring/early Summer to safely buy 2 rentals ($80,000 -$100,000 range) and put the down payments on a 0% credit card.  This feels doable to me.  I can re-evaluate the current home as the lease approaches its end.

Thanks again everybody!  This is exciting.  Even if I am not doing everything perfect, at least I am doing something.  I can't wait to get a hold of the equity on the home and free the debt up to use on better cash flowing properties.

Thomas S. · Answer

The problem with renting it out hoping to sell at a profit in the future is life seldom goes without a hitch. Bad tennat , evictions, damage, vacancies. In the end you may very likely still sell at a lose.

If your going to gamble do not become addicted. The house will ultimately always win. Know when to take your losses and lick your wounds. Don't keep digging a deeper hole with the hoping you will dig your way out. It may work but probably not. Best to put it behind you now and work toward your next venture.

Patrick Liska · Answer

so right now you pay the mortgage and insurance, etc. if you are living rent free elsewhere but still making your same salary but able to rent out the house for say 3/4 of what you pay now, then that house would only costing you a quarter of what it is now while the tenants pay off 3/4 of it for you. remember, mortgage, insurance, property taxes and give an allowance for PM, even if you are doing it, is what you would pay, all utilities put on the renter. so now you own the house, you are only paying a 1/4 of what you were to keep the house yet it is getting paid down and you are gaining equity in the property. you are living rent free, keep it and rent it out, down the road you will make your money ( i did not even go into tax savings with expenses and depreciation).

Mike Cumbie · Answer

@Jordan Slater

Also with new construction are they still building in that neighborhood or is it a one off somewhere? How long before all of the phases are complete for development? Builders normally don't lose new home buyers to ones already built. But when complete the houses go up in value because another one just like it can;t be built. Another thing to consider is you are going into a cooler market with school starting back up (at least in my area). If you held on until spring it may cover those costs in higher sales price..... or not.

Thomas S. · Answer

Sell now, losing more money every month with negative cash flow will never add up to a win. Simple math says sell, creative math will indicate otherwise but will never work out.

Andrew B. · Answer

the $15,000 you would "lose" is a sunk cost and actually has no value. You should ignore this in your calculations. All that matters is what you do now, and what the future will bring. As you have stated, it will not cash flow and there are better investments out there. if that's true, the only real choice is to sell. Only caveat, is if you have reason to believe you can force appreciation or high enough rents to make it worth keeping OR if you have reason to believe some event will increase rents or property values.

JD Martin · Answer

Questions:

1. It sounds like the property fair market value is $180k?

2. What do similar properties in your area rent for?

3. What are the terms of your mortgage, your property taxes, HOA, etc costs?

No way to answer the question without more information.

Jeremy Taggart · Answer

@Jordan Slater I am assuming that it won't cash flow if you rent it, so you are better off cutting your losses now and using what money you are left with to buy leveraged rental properties. I am sure you can accumulate cash pretty quickly as well living rent and expense free so keep saving as much as you can and shovel that money towards investments as well when you get enough.

Sell @ $15,000 loss or rent it?

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