Sell or hold?
I have had a rental property that I bought 2020. Initially, I was cash flowing, but 2023 and 2024, I have been negative cash flowing. Since I bought this house during Covid, equity has dramatically gone up. I have not been concerned about negative cash flowing due to gaining so much equity. Now that the housing market is slowly settling, should I sell and get out the equity I have? or should I keep it and continue to lose about $200 a month?
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My first question is why did a cash flowing asset lose it's cash flow? You haven't provided enough information on that to allow specific advice.
If you purchased the property in 2020 you should still be at a good interest rate (assuming a 5 year balloon ARM). I know taxes and insurance have gone up a lot in that time so I understand that problem but the solid rent increases in that time have been able to cover most of that (at least for me it has worked out). Have you not increased rent?
Have you had larger Cap Ex projects that you didn't anticipate? Roof, HVAC, sewer, etc.
Has the property been poorly managed? i.e. longer than normal vacancy, bad tenant screening, poor maintenance, skipped rent payments, etc.
There could be a handful of reasons why it lost it's ability to cash flow. Instead of dumping a property that isn't cash flowing I would understand why it isn't cash flowing. If it's something that you have caused then it needs to be corrected. If not you'll just 1031 into another property to fall into the same trap.
If you have a chunk of equity, do a 1031 in to a property that is performing in a way that you feel better about. If you don't NEED the cash, why pay taxes on it?
- Corby Goade
Hey Randall,
Your question totally depends on your goals and situation but rarely is it best to lose $200 a month. I would be happy to run a CMA for you and make sure you're confident in what you would get for your property. Likely your best solution is to do a 1031 exchange. I'm a Realtor in Wichita, KS and well connected in the investing community here. I host meetups and would be happy to connect you with the right people to guide you through that 1031 process. Reach out!
- Joseph Hamer
I would consider your long-term goals. If you have a long time horizon, I would not be worried about $200 a month (as long as you can afford it). I don’t know your exact situation, but I expect principal paydown and appreciation to cover the $200 and still give you a nice gain.
- Matt Bellamy
- [email protected]
- 469-745-8199
My first question is why did a cash flowing asset lose it's cash flow? You haven't provided enough information on that to allow specific advice.
If you purchased the property in 2020 you should still be at a good interest rate (assuming a 5 year balloon ARM). I know taxes and insurance have gone up a lot in that time so I understand that problem but the solid rent increases in that time have been able to cover most of that (at least for me it has worked out). Have you not increased rent?
Have you had larger Cap Ex projects that you didn't anticipate? Roof, HVAC, sewer, etc.
Has the property been poorly managed? i.e. longer than normal vacancy, bad tenant screening, poor maintenance, skipped rent payments, etc.
There could be a handful of reasons why it lost it's ability to cash flow. Instead of dumping a property that isn't cash flowing I would understand why it isn't cash flowing. If it's something that you have caused then it needs to be corrected. If not you'll just 1031 into another property to fall into the same trap.
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@Randall King If you find the property isn't performing well, a 1031 exchange would defer the tax and concentrate that equity into something that has a greater cash flow potential, like what @Corby Goade said.
And if you really want to diversify, invest into multiple replacement properties with the proceeds. Purchase the first one cash (to mitigate risk) and the second property with a loan.
- Dave Foster
I think doing a 1031 would be ideal. It is confusing why the cashflow dropped. Rents are up compared to 2020 in my area. Along with that you purchased at a decent price, cheap rates so your mortgage should not be expensive. Did you do a refinance and it affected the property?
Hi Randall-
Congratulations on buying a rental property well back in 2020.
I am sorry to hear the property is now cashflow negative $200 a month.
Your question is should you sell or continue to keep it with the negative cashflow.
Depends on your personal goals and if being negative $200 a month plus any unexpected repairs or vacancies is affordable to you, but if you can solve the negative cashflow by turning the property into a furnished mid-term rental, for example, your future self may thank you.
To Your Success!