Monthly mortgage is greater than rent - What to do?
Boerne, TX · Member since 2020 · 36 posts · 24 votes
Monthly mortgage is greater than rent - What to do?
Most Popular Reply
Check your amortization table. If you’re paying off more than $150/mo you’re making money. Tax free money at that, and more each month. Would it really change anything big picture if you had an extra $151/mo coming in? If so, then sell now! Otherwise imagine how many things could cost you more than $1,800/mo.
What’s a 5% rent increase next renewal so to the numbers? And another 5% the next yer? Unless you plan to only own it for a year or two next years number mean almost nothing. Consider it a retirement account, does anyone expect their 401k to cashflow?
73 Replies
- Member since 2022 · 13 posts · 1 vote3y
In the same situation, curious as well. Best of luck to you sir.
- Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes3y
Is this your primary residence? And are you moving or otherwise need to do something with this house?
Not every home is an investment, and you always have to live somewhere so it won't always be 'profitable' to live where you enjoy.
Check your amortization table. If you’re paying off more than $150/mo you’re making money. Tax free money at that, and more each month. Would it really change anything big picture if you had an extra $151/mo coming in? If so, then sell now! Otherwise imagine how many things could cost you more than $1,800/mo.
What’s a 5% rent increase next renewal so to the numbers? And another 5% the next yer? Unless you plan to only own it for a year or two next years number mean almost nothing. Consider it a retirement account, does anyone expect their 401k to cashflow?
- 3yJohn MorganPro MemberRental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
3.
- Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes3y
Quote from @Richard Rohrbough:
Hello BP friends. I need your help on what to do with my rental.
My monthly mortgage payment is greater than the rent I can get by $150 and the 2023 taxes are going up another $150/month.I’m sure this is a common issue, so what are my options beyond the three I can think of below? Anything creative?
1. Ignore it/deal with it/subsidize it with other properties until someday rent catches up with my payment (meanwhile equity should have grown).
2. Make a large payment against the mortgage and ask the mortgage company to re-amortize the loan so that my monthly payment is less than what I can get for rent.
3. Sell the house (and make a better purchase on the next property).
Don't fall into the trap thinking that property always appreciates. It doesn't. Sometimes it drops, and drops reallly hard.
Look at cash flow, write-offs and depreciation (taxes). It's better for you than you may think. But, know the numbers.
- Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes3y
@Richard Rohrbough, maybe some more details would help stimulate some creative solutions. How many units? What's the rent? How long have you owned it? What kind of loan and at what interest rate? How much equity do you think you have in it?
Without more information, I'll bring up one thing. Why are the taxes going up $150/month this year? Were the tax rates just raised or was there a reassessment of the property's value? Have you investigated whether you can appeal your assessed valuation to try to reduce your taxes. I have done that a couple times when it seemed appropriate and got substantial reductions. Last time I did it I think I reduced it about 20%.
- You're going to get lit up. But agreed.
Quote from @Bill B.:
Check your amortization table. If you’re paying off more than $150/mo you’re making money. Tax free money at that, and more each month. Would it really change anything big picture if you had an extra $151/mo coming in? If so, then sell now! Otherwise imagine how many things could cost you more than $1,800/mo.
What’s a 5% rent increase next renewal so to the numbers? And another 5% the next yer? Unless you plan to only own it for a year or two next years number mean almost nothing. Consider it a retirement account, does anyone expect their 401k to cashflow?
$150/mo is very temporary. Weather it if it's a good house, if it's a bad location I'd sell though. I'd sell bad location even if it was cash flowing. - Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes3y
@Richard Rohrbough
Did you buy the property like this?
If your mortgage is $150+ $150 taxes you still have insurance, vacancy, repairs and capex.
Sell.
7e investments53 Reviews - Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes3y
Look at other ways to cash flow. Rent by the room, Airbnb, etc.
- 3yUpen PatelPro MemberLender · Nationwide Lender · Member since 2015 · 1k+ posts · 814 votesAnother way to look into things is potentially a loan recast. This depends on how long you have owned it and do you have enough to drop 20-30k into it. I have several investors that were like that ie "technically upside down on a loan, saved up a few grand, called the bank got a recast and now are cashflowing 300 - 500 a month. It all depends on the area, how long do you want to own it, are you going to do a 1031 tax exchange or something later.
Quote from @Richard Rohrbough:
Hello BP friends. I need your help on what to do with my rental.
My monthly mortgage payment is greater than the rent I can get by $150 and the 2023 taxes are going up another $150/month.I’m sure this is a common issue, so what are my options beyond the three I can think of below? Anything creative?
1. Ignore it/deal with it/subsidize it with other properties until someday rent catches up with my payment (meanwhile equity should have grown).
2. Make a large payment against the mortgage and ask the mortgage company to re-amortize the loan so that my monthly payment is less than what I can get for rent.
3. Sell the house (and make a better purchase on the next property).
- Lender · Nationwide · Member since 2018 · 571 posts · 310 votes3y
Your specific question is whether there are other options besides the three you've listed. I assume you're trying to see if there is a #4 you haven't thought of rather than asking other people what you should do.
If that's the case the only thing I would add is that you can dispute your property taxes and perhaps get them lowered, making all 3 options more attractive.
- 3yTheresa HarrisPro MemberMember since 2019 · 15k+ posts · 11k+ votes
Option 1 or 3. When is the lease up, what is the current rent vs market rent, can you increase the rent?
- Boerne, TX · Member since 2020 · 36 posts · 24 votes3y
Quote from @Matt Devincenzo:
Is this your primary residence? And are you moving or otherwise need to do something with this house?
Not every home is an investment, and you always have to live somewhere so it won't always be 'profitable' to live where you enjoy.
Thanks for the reply, Matt. This is a rental, not my primary residence.
- Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes3y
@Richard Rohrbough then before doing anything, reconsider the thought process and steps involved in buying. What was the reason, does that still hold true? How much in buy/sell costs would you eat if you sold today?
As mentioned above with the principal paydown and deductions etc, you're probably achieving some benefit even if it isn't a great return. So if you'd lose $15K in transaction costs your nominal $3,600/yr loss would take a little over four years to achieve. Game out a four year sale, would the rents and prices increase enough to warrant selling then? It's anyone's guess but time heals a lot of wounds in buying RE...I bought my first 'flip' in March of 2008 and rode the value down over $150K, lost easily $10K on rent learning to be a LL and eventually sold that home around 10 years later for just about what I originally purchased it for. Holding that dog of an initial buy absolutely 100% was the best choice....I learned a lot, stuck through the hard decisions and eventually made money, not much but it was something.
- Boerne, TX · Member since 2020 · 36 posts · 24 votes3y
Quote from @Bill B.:
Check your amortization table. If you’re paying off more than $150/mo you’re making money. Tax free money at that, and more each month. Would it really change anything big picture if you had an extra $151/mo coming in? If so, then sell now! Otherwise imagine how many things could cost you more than $1,800/mo.
What’s a 5% rent increase next renewal so to the numbers? And another 5% the next yer? Unless you plan to only own it for a year or two next years number mean almost nothing. Consider it a retirement account, does anyone expect their 401k to cashflow?
Thanks for the reply, Bill. Good point on the principal part of my mortgage payment. It was $216 this past payment, so looking at it from your perspective, I may be $150 short cash flow-wise, but I'm actually making money when I consider that I'm paying off $216+ each month. (Perspectives like this are why BP is so valuable!!!)
However, with the 2023 tax increase, I'm going to be around $300 short on cash flow each month, unless I can successfully protest some of the tax increase. So let's call it $280 short each month this year. I won't hit that amount on the amortization schedule until year 5. (I just got the loan in January.)
I'm not sure I follow when you said, "Would it really change anything big picture if you had an extra $151/mo coming in? If so, then sell now! Otherwise imagine how many things could cost you more than $1,800/mo."
As for rent increases, a 5% rent increase takes $1625 to $1706 and another 5% increase takes it to $1792. If making positive cash flow is my goal, (and I think you're telling me to look at the bigger picture instead), then I need to be at $2015/month this year just to break even on cash flow. With annual tax increases, I may be chasing positive cash flow for years! And that's my concern. - Boerne, TX · Member since 2020 · 36 posts · 24 votes3y
Quote from @Account Closed:
Quote from @Richard Rohrbough:
Hello BP friends. I need your help on what to do with my rental.
My monthly mortgage payment is greater than the rent I can get by $150 and the 2023 taxes are going up another $150/month.I’m sure this is a common issue, so what are my options beyond the three I can think of below? Anything creative?
1. Ignore it/deal with it/subsidize it with other properties until someday rent catches up with my payment (meanwhile equity should have grown).
2. Make a large payment against the mortgage and ask the mortgage company to re-amortize the loan so that my monthly payment is less than what I can get for rent.
3. Sell the house (and make a better purchase on the next property).
Don't fall into the trap thinking that property always appreciates. It doesn't. Sometimes it drops, and drops reallly hard.
Look at cash flow, write-offs and depreciation (taxes). It's better for you than you may think. But, know the numbers.
Thanks, Mike. I appreciate your response and perspective.
@Bill Brandt said something similar. Namely, that I need to think more broadly than just cash flow. When principle, write-offs and depreciation (taxes) are considered, I'm probably doing better than I think. I guess my accountant will have to help educate me here. Thanks! Your property taxes are increasing $1800? (From negative $150 to negative $300/mo). That’s not good. A bad year for me is a couple hundred more.
What I meant but the “if $151/mo would make all the difference” comment is if you had it, you couldn’t count on it. A fridge, a furnace, an ac unit could go bad and it would all be gone. So if you NEED that $151, this isn’t the property for you, you can’t afford it.
One of my best investments was negative $800/mo cashflow. But I was paying off $1,500/mo in principle with a low interest 15 year mortgage. I was making $8k while showing a taxable loss of $12k (providing an additional $3k) while it appreciated about 5%/yr (generating another $30k/yr). So I was feeding the property $10k/yr to make $40k in year 1, the worst year. Now it generates $30k in Cashflow but it’s almost all taxable. But I was ready for that investment because I was about making money, not cashflow.
Your numbers don’t sound so promising. The tax is a killer. Would you make a profit if you sold? How much would you have left after taxes? Is there anything better to buy? You know this deal, paying $20-30k to buy something else has to be for a known better deal. Are you using a PM? Are you sure you’re getting market rents? (If you’re not using a PM contact a couple, give them the address and so them how much they would charge, how long it would take to fill, and what they charge you. You might find your net is higher than doing it yourself.) try to find a local expert. Good luck.
- Lender · Washington DC · Member since 2015 · 2k+ posts · 2k+ votes3y
Location? Fire insurance will also increase as is happening nationwide.
#1 no
#2 maybe not possible and the lender will charge something
You earn a W-2 and need some losses? Is the location a A+ and will hold value?
I'm going with 3
- Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes3y
How much equity do you have in the property?
What are your long term goals?
Can you refinance?
I haven't heard of a lender willing to redo the payments unless it is a full on refinance.
As mentioned before, you are actually in the hole more than the $150 once you factor in repairs, cap ex, and vacancy.
Is there a way to increase revenue for the property? For example coin laundry, passing on gardener fees to the tenants, etc.?
If you sell, what would you buy?
If you convert this to a STR or MTR, does that change anything?
I know this doesn't give you a straight answer, but I think there are more questions that need to be addressed before making a move. On the surface unless there is a long term play of adding value (such as adding another unit), selling may be the best option. You are not in the business of losing money.
@Richard Rohrbough- thanks 1) if the property has a good track record of decent apprecaition - and the future looks equally as promisiing - you might consider holding it absorbing the negative 2) if not a decent future appreciation property - sell it as your negative position is likely a lot more than $300 / month after factoring in all the other issues like vacancies / repairs / upgrades etc ....3) refinancing the loan- this is likely not viable because of rates being high now but woth mentioning 4) have you tried renting it at the higher price yet? if not - you might try it and try to upgrade it somehow to justify it being a bit more expensive ? 5) if you sell - consult with a tax person in order to get the details on reinvesting it / 1031 exchanges and any other tips for selling an investment property
- Boerne, TX · Member since 2020 · 36 posts · 24 votes3y
Quote from @Bill B.:
Your property taxes are increasing $1800? (From negative $150 to negative $300/mo). That’s not good. A bad year for me is a couple hundred more.
What I meant but the “if $151/mo would make all the difference” comment is if you had it, you couldn’t count on it. A fridge, a furnace, an ac unit could go bad and it would all be gone. So if you NEED that $151, this isn’t the property for you, you can’t afford it.
One of my best investments was negative $800/mo cashflow. But I was paying off $1,500/mo in principle with a low interest 15 year mortgage. I was making $8k while showing a taxable loss of $12k (providing an additional $3k) while it appreciated about 5%/yr (generating another $30k/yr). So I was feeding the property $10k/yr to make $40k in year 1, the worst year. Now it generates $30k in Cashflow but it’s almost all taxable. But I was ready for that investment because I was about making money, not cashflow.
Your numbers don’t sound so promising. The tax is a killer. Would you make a profit if you sold? How much would you have left after taxes? Is there anything better to buy? You know this deal, paying $20-30k to buy something else has to be for a known better deal. Are you using a PM? Are you sure you’re getting market rents? (If you’re not using a PM contact a couple, give them the address and so them how much they would charge, how long it would take to fill, and what they charge you. You might find your net is higher than doing it yourself.) try to find a local expert. Good luck.
Again, good perspective, so thanks for educating me on how to look at this situation.
I retired early last year at 57, but want cash flow to cover my living expenses so I can let my 401k/retirement nest-egg ride until I'm 65 or whenever I want to tap into it. So cash flow is more important to me than increasing my net worth. However, I'm not saying that perspective is the right one. I'm open to thinking differently if I should be.
Taxes are going up from 5122 to 8634 this year, an increase of nearly 69%! I'm fighting the increase, of course, but that likely means it only comes down a smidge from 8634. The monthly increase is $293, and I'm already short on cash flow by $96/month, so I'll be short $389/mo unless I can increase rent.
At current rent of $1625/mo., my annual revenue on this property is $19,500.
Total expenses with the new tax increase per month is $2014 or $24,170.
A cashflow loss of $4,670 for 2023.
This leads me back to the question, do I take option 1, 2 or 3 or some other option/perspective I haven't considered? I do have another rental property that is doing well and can cover this gap. Maybe option #1 (subsidize it) is best and I need to turn my attention to finding better cash-flowing properties.
- Boerne, TX · Member since 2020 · 36 posts · 24 votes3y
Quote from @Caroline Gerardo:
Location? Fire insurance will also increase as is happening nationwide.
#1 no
#2 maybe not possible and the lender will charge something
You earn a W-2 and need some losses? Is the location a A+ and will hold value?
I'm going with 3
Thanks, Caroline.
The lender said they'd charge a one-time $200 fee to recast the amortization, but I'd need to pay down something like $50k-$60k to bring the monthly payment into a better cash-flowing situation for me on this one property.
I don't earn a W2 anymore. Retired early last year and trying to cover my expenses via REI to avoid dipping into my retirement until years from now. Location is downtown San Antonio and it seems to be recovering some of the losses in value from last fall.
- Boerne, TX · Member since 2020 · 36 posts · 24 votes3y
Quote from @Rick Albert:
How much equity do you have in the property?
What are your long term goals?
Can you refinance?
I haven't heard of a lender willing to redo the payments unless it is a full on refinance.
As mentioned before, you are actually in the hole more than the $150 once you factor in repairs, cap ex, and vacancy.
Is there a way to increase revenue for the property? For example coin laundry, passing on gardener fees to the tenants, etc.?
If you sell, what would you buy?
If you convert this to a STR or MTR, does that change anything?
I know this doesn't give you a straight answer, but I think there are more questions that need to be addressed before making a move. On the surface unless there is a long term play of adding value (such as adding another unit), selling may be the best option. You are not in the business of losing money.
Good questions, Rick.
This was supposed to be a cash-flow property, so selling might be best. However, I appreciate other people's perspective in taking a longer-term look at this and considering broader factors than simply cash-flow.
It's a 2/1, so I could add on (i.e., invest more) and make it a 3/2. Or I could take that same money and pay down the mortgage and have the payment recast or I could sell and invest in something that cash-flows better. I guess it's an opportunity cost question.
STR isn't possible due to current city regulations. There's already a STR next door, so my property can't be one as well. Like a STR, a MTR would take an investment to furnish my house. Just don't know enough about that space to know if the cash-flow would be improved.
- Lender · Washington DC · Member since 2015 · 2k+ posts · 2k+ votes3y
2% appreciation or may see San Antonio fall...
Don't recast and throw money at this.
Your SSI and pension probably are taxable, so the current loss has a use.
This does not sound like a hold for income.
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