Should I sell my first rental?

Question

my first rental in Chattanooga

Bad

Constant maintenance issues

Capex (roof right around the corner/old ac unit)

Has yet to cash flow broke even maybe even gone negative since ownership

Good

2014=63k             2019=100-110k

New sports Stadium going up down the road with restaurants and lodging

Mortgage=512 with escrow

Rent= 895

The way I see it after fees and closing I could get 35k out of a sale

Refi scares me with it not even cash flowing now

10% pm

10% capex

8% maintenance

7% vacancies

=35% of 895

313.25 operating expenses plus 512 mortgage and escrow

825 = 70 month cash flow over time

70x12= $840 annual

840$annual vs 35000sale that’s 2.4% on my money.

Am I doing this right? Please help cause if it is I’m thinking I should sale what do y’all think?

Joe Villeneuve · Answer

Yes.  You don't keep tires on cars that are leaking air do you?  You replace them.

Alex Smith · Answer

East Ridge, nice.

If you're not cash flowing, either find a solution with it as a rental to get it to cashflow, or cut your losses, learn from this scenario and find something else. It sounds like you have a gut feeling already as to what you should do.

Kevin Sobilo · Answer

@Joseph Bass, your numbers are ultra conservative.

Negotiate your PM down to 8%. Also, they should get you 5% or less vacancy or else fire them!

10% capex and 8% maintenance are also very high. I would think 5% each would be more typical.

If you were able to adjust those numbers would it cash flow more to your liking?

Also consider the tax ramifications. Are you depreciating the property on your taxes? If so, any cash flow is likely tax free or nearly so. If you sell, you will pay tax on any profit, unless you 1031 exchange into another investment.

You mention constant maintenance issues. Perhaps look at why that is? What type of issues? Are they things that the PM should be mitigating through their management policies? Are any of the issues caused by the tenant and should be billed back to them? Is there deferred maintenance to the property where if you took care if it ahead of time it would cost you less in the long run?

Bill Connor · Answer

I agree with @Kevin Sobilo. In the meantime, perhaps raise the rent to $950 and maybe that will add some clarity?

Brian Levredge · Answer

You don't mention the beds/baths but either way I suspect you're actually low on rent even if it's only a two bed.  That being said you have a couple options.  One is potentially switching PM companies.  They may be over charging for maintenance and other items which will obviously eat into your bottom line.  You give a value for what you think it's worth, but another direction to look at is what would it sell for fixed up?  If you sell it with a roof that needs replacement, an old HVAC system and whatever other deferred items are there you're gong to take a hit.  You could put together a budget to take care of those items and then evaluate if there's a cost benefit to doing the work to get an even higher resale price or market rent.

Or you could just sell if you're numbers are accurate.  You can not just continue to refi because houses are primarily valued from a comp sales approach rather than the income approach so you have an upper limit to what you can pull out and when.

Luke Carl · Answer

@Joseph Bass East Ridge! I’m buying in this area. Would need to see it in real life. You sure it would appraise for 110? Seems it should be fairly easy to make this thing work just put a roof on it and raise the rent. Again I’d need to see it.

Dennis M. · Answer

Well you paid 63k to get 895 which isn’t very exciting . What did you think was going to happen ? DI’d you not do an Analysis- before- you bought it ? That is your problem you bought wrong . I would sell if it were me and explore other options to get cash flow

Should I sell my first rental?

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