Should I sell this rental?

Question

I have a rental in a good area, after repairs I probably had about 60K in it and it originally rented for $950 a month.

The area has appreciated for housing values due to some new developments coming in and the area becoming an "art-sy" area of town, and so the house is now worth about $120K+ (I've owned the house for about a decade). But, the rents have only increased to about $1000/month.

I'm having troubles with the property manager of this house and had a bad one before that.

I currently own two rentals in two different states. So, I am wondering if I should sell this rental and find something with a better ROI near where my other property is (Cincinnati) and where I'm satisfied with the management team. This would also simplify taxes at the end of the year as I'd only be filing one state and with one manager.

I realize buy/sell overhead would be high but just trying to see things from a longer term perspective. On the flip side, the house I'm having problems with the management, is in a good area with extremely low vacancies and so is a solid rental, was rehabbed and so has very little issues that have come up, so from a maintenance standpoint is still a decent property.

Also, the property managers on my other property that I am satisfied with, I've only been using for about six months now. However their references were also solid and they have an A+ with the BBB and only do property management since 1971. Their management so far has put my "bad manager" to even more shame.

Appreciate any thoughts? Thanks!

Amie D. · Answer

Marco Santarelli, I think you are right, one of the excuses my manager had for not getting back with me in a timely manner is that he had so many closings he was trying to take care of. No thanks!

Amie D. · Answer

Steve Babiak, thanks but I'd have to take time out and fly in and stay there in a hotel or something until the property got rented each time it went vacant. I'd also not be able to check on the property as I live out of state. I have not lived there in a long time so don't have any reliable contractors I could call if something did come up, and really don't want tenant calls or complaints. I really am not desiring to manage my properties myself, it's not in my long term game plan.

The town is small and with city codes I don't know that they would accept a box as an address as well, and I tend to try to play by the rules and codes rather than break or bend them, but that is just me.

David Beard · Answer

I think you're right to "challenge" your holdings.  If you didn't own the $120k home, would you buy it as a rental at this time, to get just $1k in rent?  Since the answer is obviously no, then you have to at least consider selling.  But unfortunately that is theoretical, and you also have to factor in transaction costs of selling and buying something else, tax implications (1031?), and the availability of a suitable replacement investment with better rent yield.

You could always sell the house with owner-financing, just to give you another idea.  You would sell to someone with temporarily tainted credit or possibly self employed, getting top dollar on your sales price, 10-20% down, charge 7-8% interest, and rid yourself of the PM, maintenance, and all other expenses of holding rental property.  This creates a great passive stream of "mailbox money", and spreads out the capital gains tax over time.  You could put in a 5 year balloon, giving the buyers plenty of time to refinance you out.  This could be done without paying a real estate commission, seller concessions and other things that end up driving fees up to 10% of your sales price, though it would take some work on your part to advertise it.  (Your potential buyer is probably not using a realtor, since they can't get financing, they are looking on-line for owner-finance and lease-option deals.).

Just schedule out the cash flows and returns from your various options.

Marco Santarelli · Answer

Hi Amie D.,

Clearly it sounds like you're in need of a new property manager asap.  In reading your last post, it sounds like you'll be interviewing some potential new property managers soon.  Hopefully this article will be a little help:

Good luck in your search.

Continued success!

Amie D. · Answer

I'm calling another realtor friend of mine in the area tomorrow to get some recent comps and see what's going on with the market now. The manager is a realtor but obviously I'm not going to go through him.

I am under contract with the current manager, but let him try to take me to court about it. He is in breach of contract from so many angles he'd be laughed out.

Mike H. · Answer

I think your hinting at your best option and should just do it.
Why not simplify things and centralize in an area that the numbers appear to be working and you have a good management team already?

If you're all in at 60k and could sell it fast for 110k (even though its worth 120k), thats a nice chunk of change to be able to pocket. Figure 15 to 18k in closing costs and another 5 to 10k to get it sellable and you'd be looking at about 25 to 30k in profit.

That should roll over real nicely in another rental or two in cinci.
Seems to make a lot of sense to me.

Amie D. · Answer

I'm making a list of companies to call now. The town isn't that big so there's basically no information from the better business bureau on any of them. And any comments online tend to be negative from previous tenants, so that's not too helpful,

I just noticed my property manager has no ad for my property on Craigslist. And this is in a college town. For a property that goes vacant next month (he already missed the high rental season). *sigh*

I'm calling the realtor that sold the house to me to see what her take is on the current value.

Ali Boone · Answer

Lol. Well it could definitely go either way. The reasons I prefer individuals are:
- I usually have their cell phone number, so much easier to get a hold of then trying to call an office line and leaving a voicemail
- Simple statements, usually in Word or Excel and just simply say the income and expenses and total deposited
- Way less players in the game, meaning the one guy handles a whole situation. None of this, office person had to call the maintenance person who reported to the invoice person who retired last week and no one knew about it nonsense
- In general more personalized attention
- Easier to tweak their procedures
- Never have to explain a situation to anyone, back to the too many players in the game thing
- Individuals will typically adjust the toilet floaty ball at no charge and just because they are already there. Companies won't touch anything without invoicing and charging and all that sh-- (pun intended).

For the statements, I don't know what it is about all the property management software out there, but I can never understand what in the world the statement is saying to me. And I have an engineering degree and was a math minor, so if I'm confused, there's no way it's not just confusing. They use weird terms, and backwards symbols, and... I have no idea. It's strange. Not a fan.

Just my reasons! Definitely if you find a good PM company, go for it.

Marco Santarelli · Answer

Amie D.:

The problem with individual property managers is often times they are "part timers".  It is not uncommon to find real estate agents working to sell property and manage some other properties at the same time.  There is power in specialization!

Amie D. · Answer

Ali Boone, well, the last two I hired for management there were individuals, and were bad. LOL. I'm going to start making calls in a couple hours.

Marco Santarelli, thanks for the article, I'm still making a list... checking it twice !

Should I sell this rental?

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