Cash flow cunundrum. Restructure mortgage and lease or sell?

[Rawn Wilson]

Ok, here we go.  I need to separate emotion from business.

I have recently started becoming serious about investing into buy and hold properties.  I have purchased 2 properties so far in 2018.  I have a third property that I have owned since 2003 and have rented since 2005 when I deployed to Iraq.  I have had good and bad tenants.  Current tenant has been there 2 years, is now a single mom and has a good job as a nurse, but is constantly late on rent.  (just separated and getting it together with her 2 children) She is currently on a month to month lease.  The property does not cash flow in its current form.  Do I terminate the lease and raise rent or sell and take capital to invest in a better cash flow property?  I am searching for a multi family and could do a 1031.

Here are the numbers:

I owe $97K and it will sell for $180K.

Mortgage with interest and escrow is $1225

Current rent is $1500, but I could get $1600.

The property has a pool, and I have a service that cleans it at $150/mo (don't trust tenant to do maintenance).

So NOW, I get $1500, pay $1225 Mortgage, $150 Pool Service, $75 Vacancy (5%), $150 Maintenance (10%).  That is negative $100 cash flow.

To continue to hold, I could refinance to lower mortgage to about $1000, increase rent to $1600, cancel pool service and cash flow about $360.

Or terminate lease for a struggling single mom and take the cash to turn into a larger investment.  I was thinking of giving her till the end of the school year.

What are your thoughts?

[Rawn Wilson]

Yep. I have an appraisal on Monday. Pool is due a replaster. That is 4K easy. Time to stop loving the house and move on.