Not a deal gone bad, just not a deal: need advice!

[Branden Cunningham]

Hi All, I'm in the military, at my first assignment. As a lot of mil folks have probably heard, I got the advice/idea given to me to start purchasing a house at each duty assignment. So I went and purchased a home to live in & rent rooms out while I live there, to eventually rent the place out after I move. The idea was simple enough, so I thought, and I got myself a house with a zero down VA loan. I had no clue about real cash flow on a property, about capital expenditures, etc. etc. had never heard of bigger pockets, my only resource was a local real estate agent I was working with who knew about VA loans. You don't know what you don't know, so as you can guess, I now have a nice relatively expensive house in Massachusetts that will negative cash flow when I leave.... unless I can somehow get someone to overpay (obviously not wanting to do that to someone) It was move in/rentable condition when I bought it, fresh paint and all. So I paid top dollar for it (it's a sellers market here in Mass/Greater Boston area) I think I made about 50 offers on places that were below or at asking price, some even over, and hardly got a 'best and final' request back; they were all getting over asking price. So I ended up paying over asking price for this place just to get a house out here. Currently I'm not necessarily losing money on it since I'm living there. I'm just not sure what to do when I leave in the next year and a half. I will have very little equity in the place by time I leave so I will lose money on the sale. (If I speculate, the price of the house is estimated to go up 2% by next year so I may be able to come close to breaking even on a sale, but again only on speculation so I'm not counting on it) I should be able to rent it out and break even if I manage the place myself. I know I don't want to invest in Massachusetts long term. I want to invest back in my home state of Michigan. As for my general goal in real estate I do want to have multiple buy and holds. Do I take the loss now and get out when I move next year, or hold onto it and let the equity build so I (hopefully) don't lose money on the sale in a few years? Or are there better options I'm not considering, like holding onto it for longer? On a positive note, getting this house really got me into real estate, investing, and changing my mindset on money (thanks to Rich Dad, Poor Dad) Any advice would be truly appreciated! -Branden

[Jennifer Maldonado]

Hi Branden,

I was a Rich Dad student too. I'm grateful that I got to quit my job 2 years after I started investing. Now they invite me to their bus tours to share experiences and how to succeed in any market. So congratulations in taking action.

There are some good recommendations here. From re-purpose to evaluate alternatives to even sell. I have few questions for you: What's your real goal: cashflow? Are you planning to keep using your VA loans in the upcoming after you moved? Are you planning to buy and hold?

I'm asking that because you mentioned that you don't want to invest on this market for the long-term but Michigan sounds good to you for buy and hold.

So, let me share an alternative that has not been mentioned yet. 

Apparently, you are looking for cashflow. The rents on this area might be breaking even with your mortgage. Here is what I will do. I will do a Lease with Option to Purchase for 2 years  tenant-buyer. The tenant buyer will pay a higher rent, they will give you a downpayment non-reimbursable and they will pay x price or the Fair Market Value at the time of closure - whichever is greater. A lease option will give you a higher rent that any other alternative (at least you do air bnb -which requires the right market for it). This will cover your mortgage and you will cashflow for 2 years, you will make money in the downpayment, and it might give you a little equity or get advantage of potential appreciation. There are many details that you need to know about Lease Option and Tenant Buyers but explore this.

Also, since you are looking to buy and hold - since you will be renting the property in boston then when you sell you can do a 1031 exchange for cashflowing properties in Michigan.

Let me know if you have questions.

Have a nice day!