No cash flow but great property! Rent or Sell?

Rental Property Investor · Ellsworth, ME · Member since 2021 · 1k+ posts · 2k+ votes

2y

What's the bed/bath count? If you like the property and the long term prospects of Denver, I'd get creative to increase the rents and hold on to it. The first two ideas would be rent by the room and/or making it a mid term rental if those make sense.

1 Reply

Trevor Toft

OP

Homeowner · Parker, CO · Member since 2024 · 4 posts · 5 votes

2y

@Travis Timmons 3 bed / 2.5 bath (1400 sq ft). I like your idea of a mid term rental but I am slightly worried about the future market. Long term I think this is a great rental property so maybe I bite the bullet in the near term and ride out the long term benefits

0 Reply

Mike PaolucciBusiness Member

Realtor · Columbus Cleveland Dayton, OH · Member since 2022 · 492 posts · 550 votes

2y

If you're open to exploring different strategies, look into out of state investing. It treated me pretty well when I was just starting out on my investment journey while living in San Francisco. I ultimately settled on Columbus, OH as my target market because there was positive cashflow from day one, cheaper entry points and landlord friendly laws that won't handcuff both hands and 9 toes behind your back.

Happy to share some experiences and answer any questions you might have.

[email protected]614-892-9184

Reafco - Mike Paolucci 512 Reviews

Website View Page

2 Reply

Steve K.

Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes

2y

What part of town is it in? I’d probably hold personally if it’s a long term play. It’ll be hard to beat what you’ve got going out of state. You’re making a lot on appreciation and principle pay down here, and rent appreciation will create more cashflow in a few years for you. I talked to 6 people this week who went out of state for more cash flow and are dealing with negative cash flow now (properties looked good on paper but maintenance, repairs, capex, tenant and PM issues have caused significant losses for them in reality). They’re all looking to sell so if you are looking to go out state, I can hook you up lol. Their properties aren’t nearly as good as what you’ve got though.

3 Reply

Bill B.

Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes

2y

Are you looking at $140/mo or higher rent increases every year? Are you at $330/mo cash flow in 2 years?

How much of the payment is profit towards principle?

All this profit is obviously tax free after depreciation.

Does the property really need 50% for capex and maintenance? My average property is waaaaay under 10%.

If you wanted to give me this property sight unseen, I’d happily take it. I don’t know what you have invested in it. (Your downpayment) but it’s obviously going to cost you $30k+ to sell. So all you’re risking is eventually paying taxes on the remaining $60k profit you could take tax free now.

Ps. What if it cash flowed triple? $150/mo? Does that make any difference in your life or lifestyle? Plus or minus $100 or even $200/mo should make zero difference in your life if you are truly ready to invest in real estate. Good luck either way.

2 Reply

Eric DeNardoPro Member

Real Estate Agent · Denver · Member since 2020 · 364 posts · 151 votes

2y

@Trevor Toft, would you be open to moving and house hacking? You could rent out your current place and although you only break even, you are building equity. As rents rise, you will cash flow. You could also try renting by the room and get better cash flow.

[email protected]

0 Reply

Jonathan Bock

Accountant · Bryn Mawr, PA · Member since 2023 · 409 posts · 321 votes

2y

@Trevor Toft

Please don't base this decision on a Zestimate it's very surprising the value only increased around 26% (2020-2024), I do not know your market but do your homework and contact an agent and ideally an appraiser you trust to get a real valuation.

As it stands, your house essentially barely kept pace with inflation probably close to a negative real return when you factor that in.

As always it depends and only you know what's in your best interest. Wish you success in whatever you choose!

1 Reply

Greg ParkerBusiness Member

Realtor, Contractor, Property Manager · Montgomery AL and Kowaliga, AL · Member since 2017 · 663 posts · 536 votes

2y

Keep it. Let the tenants continue to build wealth for you.

[email protected]

MGM Property Pros LLC

View Page

0 Reply

Wale LawalBusiness Member

Real Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes

2y

@Trevor Toft

The decision to use a HELOC on your primary residence for real estate investing involves considering various factors, and it's great that you're evaluating the potential outcomes. Here are some aspects to consider:

Positive Aspects of Keeping and Renting:

Low Interest Rate
Equity Growth
Tax Benefits
Market Stability
Considerations for Selling
Limited Cash Flow
Opportunity Cost
Market Conditions
New Primary Residence

Decision-Making Tips:

Establish clear objectives for your long- and short-term finances. Think about your investing plan and which should come first: stock growth or cash flow.

Think on being diversified. In the event that you choose to sell, look into alternative real estate investment alternatives that fit your investment objectives or have a higher prospective cash flow.

To obtain tailored guidance based on your entire financial circumstances and goals, speak with a tax counsellor, real estate agent, or financial advisor.

Keep up with the current and developments of the regional real estate market. Your decision-making on holding or selling will be aided by this knowledge.

Ultimately, the best decision depends on your individual financial goals, risk tolerance, and the current market conditions. Taking the time to thoroughly evaluate the pros and cons of each option will guide you toward the most suitable choice for your real estate investing journey.

[email protected]832-776-9582 Podcast Guest on Show #469

NETWORTH BUILDERS5236 Reviews

Website View Page

1 Reply

Trevor Toft

OP

Homeowner · Parker, CO · Member since 2024 · 4 posts · 5 votes

2y

Quote from @Jonathan Bock:

@Trevor Toft

Please don't base this decision on a Zestimate it's very surprising the value only increased around 26% (2020-2024), I do not know your market but do your homework and contact an agent and ideally an appraiser you trust to get a real valuation.

As it stands, your house essentially barely kept pace with inflation probably close to a negative real return when you factor that in.

As always it depends and only you know what's in your best interest. Wish you success in whatever you choose!

I can imagine those Zestimates are not perfect so that would be great if the value appraises higher. I will keep this in mind when I am preparing my strategies. Thank you!

1 Reply

James CarlsonPro Member

Real Estate Agent · Colorado | stan.store/JamesCarlson · Member since 2014 · 2k+ posts · 2k+ votes

2y

@Trevor Toft

My wife and I always say the only mistakes we've made in real estate wasn't any bad purchase. It was selling a place in Denver and a place in Colorado Springs a few years ago.

We tell our clients the same.

Use the HELOC, take a small hit on LTR in the short term, and grab another when you can.

[email protected]720-460-1770

2 Reply

Theresa HarrisPro Member

Member since 2019 · 15k+ posts · 11k+ votes

2y

Use real estimates, but also factor in rent increases over the years and what condo/HOA fees are likely to do as well as major repairs. If the place is in good shape and the condo board does a good job managing it, that $50 a month will increase every year with annual rent increases.

1 Reply

Peter W.

Member since 2020 · 351 posts · 329 votes

2y

Missing a few details—namely it seems your expenses seem high. But if the heloc is on 10 years that may be right. The question comes down to opportunity cost. Are you going to be able to take the 10% hit on selling fees and get something better. I’ve looked a little around the Lakewood area because we might move for work and I don’t think you are going to find anything which cash flows better. Out of state is a crap shoot—you are putting a lot/all of the execution out of your hand so it’s dependent on you being able to identify good operators (which requires experience). I live in a market which is considered top 5 in the nation for cash flow and the only places you can cash flow at 8% interest rates are areas my wife won’t allow me to travel. While you may be able to make 200/door you probably lose that with lower appreciation.

I would run some numbers on new purchases in Denver and one or two Midwest markets (using zip codes for household income to identify your b- neighborhoods) and see what makes sense. Use Zillow+case Schiller to get historic appreciation rates. Zillow has it by area code, case Schiller only has the largest 20 or so cities so you might have to use comps for the Midwest markets. Last 4 years have been an anomaly so weight the pre 2019 data more than 2020-2024. My gut tells me your townhome is the best bet.

Good luck.

2 Reply

Jake BakerBusiness Member

Flipper/Rehabber · San Diego, CA · Member since 2020 · 1k+ posts · 695 votes

2y

@Trevor Toft

HELOC vs Cash out refinance. It depends on what you plan to do with the money. HELOC to fund flips/brrrrs. Cash out refinance to buy another rental.

Given your interest rate, I recommend a HELOC.

[email protected]

BookkeepingRE - Bookkeeping for Real Estate & Service-Based Businesses58 Reviews

Website View Page

1 Reply

Sophia Buesing

Lender · Denver · Member since 2023 · 127 posts · 26 votes

2y

That’s an awesome rate! Have you thought of turning it into a short term rental or mid term rental?

0 Reply

James CarlsonPro Member

Real Estate Agent · Colorado | stan.store/JamesCarlson · Member since 2014 · 2k+ posts · 2k+ votes

2y

Quote from @Sophia Buesing:

That’s an awesome rate! Have you thought of turning it into a short term rental or mid term rental?

@Trevor Toft

Unfortunately, Parker bans short-term rentals of any kind -- in your own home or in investment properties. They're unique in the Denver metro area in how strict they are. Most towns/cities in the Denver area allow for STRs in your primary residence -- like house hacking with a basement or carriage house or just a room in your home. A few cities in Denver actually allow non-owner occupied vacation rentals (pure investment STRs), and then there's Parker, alone in its outright ban of them.

MTRs are an interesting choice. Depends on the size of the home and location, but we've had some success with midterm rentals in both Denver and Colorado Springs and in everything from a 1br condo to a 4br SFH.

[email protected]720-460-1770

1 Reply

Gabriel Zurita Pertinez

Real Estate Agent · Central West area of Florida · Member since 2024 · 13 posts · 3 votes

2y

I would personally keep it as a rental, unless you think you can find a property that you could purchase and confidently say you can cashflow significantly more money and have the type of appreciation you has had in that property.

By saying that you are in a great neighborhood, and seeing the appreciation you has had, do you think the value is going to keep going up at a good pace? Are you going to be able to increase rent in the next years? Could you find other ways to increase rental income? maybe doing mid term rentals, or even short term rentals?

I would study the market and play with other ways to generate income aside from long term rental before selling something like that.

Good luck!

0 Reply

Talha Hafeez

Member since 2023 · 1 post · 0 votes

2y

Quote from @Travis Timmons:

What's the bed/bath count? If you like the property and the long term prospects of Denver, I'd get creative to increase the rents and hold on to it. The first two ideas would be rent by the room and/or making it a mid term rental if those make sense.

What are good places to list apartments for mid-term rentals? Also, what are some important details for the lease to have with midterms that would be different from a long-term rental?

0 Reply

Nathan GesnerBusiness Member

Moderator

Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes

2y

Quote from @Trevor Toft:

If you pull out the equity, you'll have a second loan to pay and you'll be in a negative cashflow situation.

I bought my first house in 2000 while in the military. I bought three more houses in the military and sold each of them when I moved. If I could go back in time, I would have done everything I could to hold onto those homes as investments. Those four houses would have earned me about $1.5 million if I had kept them.

The DIY Landlord Book4.7248 Reviews

Website View Page

1 Reply

Greg WeikBusiness Member

Property Manager · Denver, CO · Member since 2020 · 263 posts · 327 votes

2y

Quote from @Trevor Toft:

I currently own a town-home in a great neighborhood that I purchased back in 2020. I am looking to start my real estate investing journey and my first thought is to utilize a HELOC on my primary residence, rent it out to start my cash flow and use my equity to purchase a new primary residence. My question: Should I still pursue this strategy if the rental calculations show close to no cash flow? The main reason I am still considering it is because of my extremely low interest rate. Info below:

Original Purchase Price = $340,000 (2024 Zestimate = $430,000)

Interest Rate = 2.25% !!

Estimated Rent (based on neighborhood median) = $2800

Total expenses including HOA, Capex, Property Mgmt, and 50% rule for maintenance = $2750

Cash flow = $50 :(

Do I hold onto this gem or sell it and move onto a new strategy??

Hi Trevor, as a local investor and owner of a PMC, I strongly urge you to hold and rent the townhome. The rental market is solid right now, and long-term unfurnished rentals are a very stable investment vehicle. Current legislation is trying to undermine that stability, but with proper guidance (I suggest hiring a good PMC unless you're an attorney and you know all the current landlord/tenant laws) you should do well.

$50/month cash flow is fine. As long as you're financially prepared for a new hot water heater or other new appliance or other expenses that may come down the pike, I would not spend much time thinking about cash flow. After all, cash flow is not how you build wealth. Appreciation and mortgage paydown on multiple doors at once are how you build wealth. Adding another door to your portfolio is a smart move, particularly if the home you buy next is positioned well to become another rental property in a year or two.

Please do not sell your townhome with its 2.25% interest rate. You will only regret it if you do. Go the HELOC route and buy another property.

303-586-5560

Real Estate Solutions4.4389 Reviews

Website View Page

0 Reply

Jim Victor

Investor · Golden, CO · Member since 2022 · 10 posts · 12 votes

2y

Hold on to this gem, and that loan. Keep turning your primaries into rentals when the timing is right, but don't ever sell any of them unless you absolutely have to. You will thank all of the long-term Denver investors for this advice later.

2 Reply

Tim Bratz

Developer · Charleston, SC · Member since 2015 · 100 posts · 91 votes

2y

2.25% interest rate is incredible. I would love a breakdown of those expenses, because I think they might be skewed. Rule of thumb, your expenses will be 50%, and your loan would be on top of that. So I think there is a bit more meat on the bone than $50/mo.

If you share the exact expenses you are estimating, we can dive in from there.

0 Reply

Erin Colander

Property Manager · Centennial, CO · Member since 2024 · 13 posts · 4 votes

2y

Hi Trevor,

Congrats on your journey in becoming a real estate investor! The Denver Metro area overall is a great appreciative market. The downside to that is that cash flow can be challenging depending on the deal. The fact that you are coming out ahead in cash flow means your already ahead of investors buying in todays rates :)

I would recommend you dive deeper into your overall strategy and market area to determine where your comfort level lies. Is this a long-term hold scenario? 5-7 years of renting? What is prior appreciation looking like in your neighborhood? Can you live with this cash flow for a few years?

0 Reply

Jeff WhiteBusiness Member

Realtor · Denver, CO · Member since 2016 · 278 posts · 371 votes

2y

@Trevor Toft Your expenses seem way too high for a townhome unless it has a lot of deferred maintenance, I don't think it will be that high, it is great to be conservative, but the 50% rule doesn't apply to all rentals, especially in HCOL areas like Denver.

For example, if you rent is $4k per month, do you really think you need 50% for expenses or $2k per month, maybe it is a beatup property, but you are probably not getting $4k per month on a junk property.

The 50% rule works better in midwest markets where houses sell for $100k and rent for $1k per month.

Also, your debt structure is your asset more than the property, I wouldn't sell it, I would keep it as a rental, and maybe use a HELOC on it to tap into some equity, and then go another primary residence.

After buying another primary residence, I would re-evaluate every year or two to see how you can better maximize the returns.

1 Reply

No cash flow but great property! Rent or Sell?

No cash flow but great property! Rent or Sell?

Most Popular Reply

24 Replies