All Forum Posts by: David Kimball

I can relate to this. The math does not work out on Rental because the Loan Term is 15 years. If it was 30 years, there would have been opportunity for a +ve Cash flow. I have made this mistake by going in for 15 Year fixed on a Rental property.

Insurance SHOULD usually go down when it changes from Homeowners to Landlord. I would shop this with a broker before making your decision as it could affect cash flow greatly. 

I personally would sell - if it's not getting showings at 450k - there could be a few things: bad location, needs work or priced too high (very common these days) - the market shifted pretty quick and it's not 2020/2021 anymore - lots of people still think their house is worth 2021 prices. Lots of areas have dropped 10%+ in price so dropping 40-50k off the price is not unheard of - it's fairly common where I'm at, especially on the more expensive properties. We had a house just down the street listed for 499k, dropped to 449k and sold for 435k

On top of that a $250/month cashflow is a really low return on equity - I'd drop the price, sell it and move that 220k somewhere where it can do some good for you. Even if it did "work" as a rental the ROI will be so low, I don't think it's worth the time, hassle, or opportunity cost. How many other rentals to you have to potentially offset this one? IF you have several, you could keep it as a appreciation play, if it's the only one, I'd personally move on.

IF you did decide to make it a rental, you will likely lose money - at the very best you could break even. Unless the house is in a perfect location (which I have to assume it's not because it hasn't had any showings) I'd keep it. 

Sounds like you'll do fine if you decide to sell it anyways - likely make a nice profit and get to move on with life. You just won't be getting top dollar, which is the case with most things 

This is not a good rental.

When calculating cash flow, you want to cover the mortgage, taxes, and insurance, but you also want to set aside a significant portion of the rent to cover maintenance, vacancy, capital expenditures, and property management. As a general rule of thumb and quick assessment, you can assume 50% of the rent going into a savings account to cover those expenditures. Then pay the mortgage. Whatever is left over is cash flow.

In your example: $2,100 - $1850 = $250. Insurance is $500 so you will be spending $250 out of pocket each month and that's before you spend the average 10% on maintenance. You'll have nothing to set aside for capital expenditures, cover vacancies, or hire someone for property management. An all-too-typical scenario is a tenant causes $2,000 in damages, doesn't pay their last month of rent, and it takes you a month to turn the unit around before you can rent it again. That's over $6,000 in losses and you're already losing at least $250 per month. 

Sell the property and move on. If you want to invest in real estate, learn how to calculate cash flow the BiggerPockets way and make a wise investment that produces money instead of sucking more money out of your pocket.

Here's a guide that describes what good cash flow looks like and how to analyze a property.

https://www.biggerpockets.com/...

Hi David, 

The Numbers seem a little tight to work as a rental.  You mentioned that the insurance would just to 500 a month after you move, would that increase the 1830 or is that number already taking the increase into account.  

The biggest question that you need to ask yourself is if you didn't already own it, would your purchase this house to use as a rental property? If the answer is no I would sell, if the answer is yes I may hold onto it.  

I hope this helps! Good luck with your decision!

Have you asked around to banks and see what they offer for loan programs for owner-occupied properties. I ask because I am sure most would not make you put 20% down, some as low as 5% or even some 80-20 loans that you do not have to put any down. Heloc would potentially work too but I like that more when you know it is temporary like a BRRR or buy something in cash to refinance.

Hi David ! I am a bit confused, you mentioned that you would need a 20% down payment for house #2 that you would be moving in to. Assuming this would be your primary residency and you would rent out house #1, why not just put down 3.5 or 5% on an FHA ?