Negative Cash Flow, 2 Family - Advice & Analysis

[Frank Fiore Jr]

Negative Cash Flow, 2 Family - Advice & Analysis

Introduction

The following information is a bit painful to post; pride I guess; embarrassment for sure. I will be outlining the details of a current 2 family property I own. I think it would be best to part ways with this property.

It has never been positive cash flowing. I was living in one unit for all but the last 2 years so it was my primary residence.

Long Term

Believe it or not; I want to establish a buy and hold portfolio of cash flowing properties. I need to correct this problem before I move forward; it is killing my savings and causing me some personal discomfort to say the least.

Goals for this Post

I am asking for advice on the following:

1. Can I make this a positive cash flow property and actually make money long term?

a. How long to do so?

b. Factors I am not including?

c. How to formulate data?

2. How do I project numbers for the following?

a. Property value, 10, 20, 30 years out

b. Rent, 10, 20, 30 years out

3. Ideas to make this a positive cash flowing property?

a. I have outlined a couple below

The more I get into this the more numbers I have to dig up and project going forward.

Background Information

· Purchased 2003: 250,000 (no down payment)

· Refi 2006 timeframe (money out for improvements)

· Refi 2009 (to avoid drastic increase in payment and rolled in prepayment penalties) I signed the papers so I have to live with it

Unless it is absolutely necessary I would rather not discuss the above mistakes in great detail. Let’s just say I have learned from them.

Notes

· I do not qualify for HARP I missed the cut off date; I believe it is May 2009

· I have great credit and on time payments (780ish) at least I think it’s great. (That and 25 cents get you a gum ball)

· Current property market value is 200,000 +/-

· Current mortgage balance (280k, and 30k) 80 / 20

· With both units rented I pay 500$ a month +/- out of my pocket

Questions

1. Should I be including future rent increase projections? Where would I get this data? Or how would I project it?

2. Should I be factoring in a property value increase? How to I project that? Historical data?

3. Looking for short sale advice, I think this may be my only way out. (I’ll take the hit to my credit score for a couple years)

Ideas to Improve Cash Flow

I see these as non starters as they are going to increase my out of pocket expenses.

· Adding a studio in the attic, below average chance of getting a variance from the town, and it will increase expenses.

· Adding a 3rd bedroom to the 2 bedroom unit, again need town approval and will increase expenses Lost rent during work, construction cost, but would generate about $300 more a month in rent.

· What about short sale? This place has bled me almost dry trying to do the right thing and hold on to it. (I realize I did this to myself but I have to think of my long term survival here.

Let’s Go to the Numbers

I can provide more detail if necessary

10 Year Future Projections
Mortgage Payment	226,943.45	based on current monthly payments
Repairs	78,000.00	Based on projected work (today $)
Annual Expenses	54,700.00	Based on current yearly expenses (taxes insurance included in this)
Total Expenses	359,643.45
Project Rent	259,440.00	Based on current rent (no increase) (6% vacancy)
Total Mess:	-100,203.45	I will be negative

10 Year Past
Mortgage Payment	207,600.00	Not actual but close
Repairs	24,000.00	Not actual but very close
Annual Expenses	56,400.00	Based on past year so may be a little less
Total Expenses	288,000.00
Rent	117,300.00	Not actual but very close
Total Mess	- 170,700.00	What I already have into this place