Off-ramp for hemorrhaging negative cashflow

[Trey Manfield]

Greetings everyone,

13 months ago when planning to move to Monterey, CA I was swept up in a wave of enthusiasm to enter the real estate market after feeling like I missed out over the past 15 years, and I used my VA loan to purchase a SFH. Fast-forward to today and I am moving again this summer on military orders, and I am struggling to decide on a way-ahead or even a way-out of what I now realize was a terrible choice for a property I was only ever able to live in for 1.5 years and then have to rent out due to moving on military orders. The parameters and the courses of action I am looking at are below. Any words of advice or encouragement on my possible plans, angles or questions I need to be asking of myself that I am not, etc etc…will be deeply appreciated. Thank you so much.

SFR Purchase Date, Loan Price, Interest Rate, monthly payment, and home layout:

Dec 2022, 614K, 6.25%, 4300.00 a month, 1 Bed/1 Bath/590sqft/3800 sqft lot  

Current Assessed Value: 633K (Average from Trulia, Zillow, Reding, and Realtor.com)

Assessed Rental Value: 2300.00 a month

Original plan: Take advantage of my lot space and build a 2 bed/1 bath DADU on the property to rent out at around 2500.00 a month. After looking at a renovation refinance loan, my projected negative cash flow appeared to shrink from 2000.00 a month to 600.00 a month, while losing a year of equity due to starting a new 30-yr fixed loan. This was tolerable to me for a long-term hold in what I assume will remain a hot market due to location.

However, due to an issue with obtaining water rights in this area, it is looking like I may not be able to build a DADU.

Backup plan: Expand the house to 3 Beds/2 Bath and ~1200 sqft. Looking at initial quotes for this expansion while utilizing the same renovation refinance loan I discussed above, the potential negative cash flow will shrink from 2000.00 a month to 1200.00-1600.00 a month, which is not much of an improvement.

My secondary backup plan is to just sell the place at the two-year mark, however I am thinking I will take a 5 figure loss by doing that due to the fees inherent in selling home with the assessed appreciation of the house (670K to 680K by Dec 2024 if projections hold true).

Thanks again

Regards,

Someone who is learning the hard way!   

[Trey Manfield]

Thank you Hamp.

The city tightly manages airbnb licenses and I will not be able to obtain one for awhile. Also, luckily, I have stable and well paying employment so I am not in danger of being homeless or not being able to rent a decent and safe place in my new town this summer. Thanks so much for the reply and recommendations