I bought Condo in 2007, should I keep the negative cashflow?

Question

Hi Everyone,

As the title states, I bought a 1 bedroom Condo in a town where I used to live, just outside of London, UK, in 2007.  Since then it's been rented the entire time but requires around $150US per month to keep it afloat.  It's being managed by close family members.

I'm certainly in it for the long haul, I'm hoping rents will increase while the mortgage goes down, but part of me wonders whether or not I should just cut my losses and move on.  Right now I'm pretty much treating it like a savings fund - 'only' $150/month (this should decrease) for a fully paid off condo in 22 years time.  Is this the right attitude?

I had a valuation recently that put it about $20k over the 2007 price so I could pull out with minimal profit, but I'm inclined to just keep it on the back burner and continue with my full time job in the meantime, whilst looking at other properties in North America.

Any advice you could give would be greatly appreciated.  Thanks in advance!

Andy

Joe Villeneuve · Answer

Sell, Sell SELL,...ASAP.  Words like, "hoping", "wonder if", and "lost", (your words) are not words investors use.  Speculators use them.  Don't you use them.  They are used to rationalize bad deals...and rationalization, or other forms of that word, are the most expensive words in the English dictionary...even with a British accent.

Skyler Smith · Answer

I would get out of bed right now and call your agent in the UK and get him to list it today. $20k is enough to at least break even, and you won't be hemorrhaging money every month just waiting for a disaster, or to be saved by some unseen market event in the future. Way too much risk with what seems to me like little to no upside. I'll bet you there are SFR's on the market in Edmonton that you could put what's left of your equity down on and have a cash flowing investment out of it. You could wait either property out till the bitter end, but even just a little bit of positive cash flow over time will make a HUGE difference if you're not pulling that out of the account over the years. It's fine to invest hoping for appreciation, but counting on appreciation as your sole business model is gambling with all the risk but none of the fun.

If you want to keep it, I'd consider using it for a vacation rental. How far outside of London is it? I'd hop on Airbnb and see what you might be able to rent it out for - that could turn your cash flow situation right side up almost overnight. You might have the perfect solution for a backpacker that doesn't want to pay downtown London prices!

Steve Vaughan · Answer

Hi @Andrew Reid.  Sounds like you could get out and not have to bring a big check to the closing table as and absentee owner of a condo?  Sell, sell, sell, brother.  Long-distance LLing is bad enough.  One tenant will smoke inside, sneak in 5 pets and change their Harley oil in your living room and you'll be out thousands.  Not to mention the hassles of an HOA and the special assessments they love so much.   Sell and grab a pint at the pub!

Jesse T. · Answer

Would you tenants be interested and able to buy the place?  If you split the typical commission it could be a good deal for both you and the buyer.

Walter W. · Answer

Andy,

If you are paying down the loan by $300 a month, your net worth is going up by $150 a month. Plus if the property is appreciating, this could be a good deal. However as others are pointing out, appreciation cannot be counted on. And we might be nearing the top of the real estate market. But none of us here know the local market like you do. So if you like the area, I think this is an ok hold. Especially if you think you might move back someday.

But I would look long a hard at the HOA-review their financials. There are so many horror stories on BP about condo associations.

Good luck!

Walter

Andrew Reid · Answer

Thanks to all for your replies!

It's sometimes tough to remove the emotional attachment from something like this and your opinions from an outsiders point of view really help.

In answer to some of your questions/comments, I guess I've been lucky with the tenants I've had so far.  The most recent ones have been in for 4 years and cause no fuss, despite rent increases.

I do have capital to cover vacancies and repairs. and the $20k appreciation was before closing costs.  It's a fixed rate mortgage and the principle is around $300 a month (Why do you ask this?).  I do believe the property value will continue to rise.  It's centrally located, near trains and Airport nearby, plus the town serves as a commuter town for London - only 25 mins to the centre by train.  And yes, rents are increasing in the local neighbourhood.

Airbnb could be an option but managing that from across the pond would be a nightmare, plus it's quaint but not touristy.

Basically, I feel like I've survived the worst of it and I'm approaching the break even point so I should stick with it to reap the rewards on the other side rather than cut my losses.  8 years in the red, but 20+ years making decent cashflow.

Thanks again.

Andy

Jesse T. · Answer

Agreed.  If you stay at losing $150/month you will have paid almost 40K by the time the loan has been paid off.  That losing money is with it occupied, so even if you somehow avoid disasters - you would have vacancies to contend with.

Would the family member managing the property be interested in buying it?

Walter W. · Answer

Andy,

This is a tough one. But I don’t have enough info to say one way or the other. How well is the HOA capitalized? Do you have the reserves to cover vacancies and repairs? Is the $20k in appreciation before closing costs? Do you have a fixed rate mortgage? How much principal do you pay every month? Is the principal pay-down greater than $150?

Do you believe that the property value will rise? If so, why? Will it rise enough to off-set the $150~? Are rents trending up in the neighborhood?

There is nothing wrong with thinking of the condo as a savings account. Just need to make sure that the property’s value is stable/increasing and that you have adequate reserves.

Walter

I bought Condo in 2007, should I keep the negative cashflow?

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