Keeping a rental with negative cashflow but positive equity

[Travis Silva]

Hey All - New to the forum here and need some opinions from investors who rent single family properties.

We are planning on up sizing/building a house soon, and we are trying to figure out what to do with our current home. We are on the fence about selling our current home, or keeping it as an "investment property". Based on the rental comps in my neighborhood and in the area in general, we would be seeing a negative cash flow. Now I know negative cash flow is almost never a good thing to have, but lets play out the scenario below -

Lets say that all in (Mortgage, PMI, HOA, HOI, Prop tax) I am right around 2,000/month.

I could potentially rent the home for 1700/month putting me at a 300 deficit or negative cash flow per month. 300x12=3600/year in negative cash flow.

The estimated value of my home has consistently grown between 10-12k/year, and based on the current estimate, I have around 40k in equity at this point.

I'd really like to keep this as an investment property due to the substantial yearly growth that my city sees, however, is it worth it?

My options -

1) Sell the home, take the ~40k in equity and put that down as a portion of the down payment on our new home

2) Keep the home and eat the 3600/year in negative, and hope the consistency of 12,000+++/year growth stays constant. Then in a couple years get it reappraised and hope to drop PMI. Maybe even refinance for a lower rate in the future depending on the rates? (Right now it is about 1% lower than when I bought)

Full transparency in option 2 - I know the market and economy are extremely volatile, and anything can happen, however the city I live in (Raleigh NC) has been continuously exploding over the past decade. I also understand to an extent that playing the "equity game" is risky as well.

Any advice is much appreciated!

[Joe Villeneuve]

Your rationalizing this.  Sell it.  There's never a good reason to have negative CF...sorry.  Negative cash flow comes out of your pocket, and has a domino effect on the rest of your "actual" financial situation.  What it amounts to is this:  You are paying someone else to live in your property.  The job of the tenant is to payoff the property for you.  The only cost to you, is the down payment.