All Forum Posts by: Richard Rohrbough

So your cash flow numbers don't include any CapEx, vacancy, routine maintenance or other typical costs you should factor in when you really talk about cash flow? If that's the case your real "cash flow" is WAY more negative.... WAY more.....

In my opinion the only time you would ever want to accept negative monthly cash flow is when you are 99% sure the appreciation is going to pay off in the long run...and it better appreciate a LOT.....

You can sugar coat the situation with the tenant paying down the loan, the write offs and depreciations.... but your goal in retirement was to replace your W2 with rental income.... not rental loss.....

In my opinion, time to cut your losses.....it will hurt in the short term but be better in the long term.

Thanks, Ned. This particular property was supposed to be a fix & flip, but the market turned down sharply last fall (as you know) and I couldn't sell it for what I wanted. So I decided to rent it for a while, even at a loss each month. Thus, this property turned into a long-term hold situation. I was just curious what the BP community would advise me to do, and I've received a lot of good suggestions, including yours.

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Quote from @Albert Hasson:

Quote from @Richard Rohrbough:

Quote from @Bill B.:

Your property taxes are increasing $1800? (From negative $150 to negative $300/mo). That’s not good. A bad year for me is a couple hundred more.

What I meant but the “if $151/mo would make all the difference” comment is if you had it, you couldn’t count on it. A fridge, a furnace, an ac unit could go bad and it would all be gone. So if you NEED that $151, this isn’t the property for you, you can’t afford it.

One of my best investments was negative $800/mo cashflow. But I was paying off $1,500/mo in principle with a low interest 15 year mortgage. I was making $8k while showing a taxable loss of $12k (providing an additional $3k) while it appreciated about 5%/yr (generating another $30k/yr). So I was feeding the property $10k/yr to make $40k in year 1, the worst year. Now it generates $30k in Cashflow but it’s almost all taxable. But I was ready for that investment because I was about making money, not cashflow.

Your numbers don’t sound so promising. The tax is a killer. Would you make a profit if you sold? How much would you have left after taxes? Is there anything better to buy? You know this deal, paying $20-30k to buy something else has to be for a known better deal. Are you using a PM? Are you sure you’re getting market rents? (If you’re not using a PM contact a couple, give them the address and so them how much they would charge, how long it would take to fill, and what they charge you. You might find your net is higher than doing it yourself.) try to find a local expert. Good luck.

Again, good perspective, so thanks for educating me on how to look at this situation.

I retired early last year at 57, but want cash flow to cover my living expenses so I can let my 401k/retirement nest-egg ride until I'm 65 or whenever I want to tap into it. So cash flow is more important to me than increasing my net worth. However, I'm not saying that perspective is the right one. I'm open to thinking differently if I should be.

Taxes are going up from 5122 to 8634 this year, an increase of nearly 69%! I'm fighting the increase, of course, but that likely means it only comes down a smidge from 8634. The monthly increase is $293, and I'm already short on cash flow by $96/month, so I'll be short $389/mo unless I can increase rent.

At current rent of $1625/mo., my annual revenue on this property is $19,500.

Total expenses with the new tax increase per month is $2014 or $24,170.

A cashflow loss of $4,670 for 2023.

This leads me back to the question, do I take option 1, 2 or 3 or some other option/perspective I haven't considered? I do have another rental property that is doing well and can cover this gap. Maybe option #1 (subsidize it) is best and I need to turn my attention to finding better cash-flowing properties.

Is that typical in Texas? A house that only rents for $1700 has taxes of $8600???

Really? How can you make any money in Texas? It would take almost 5 months of rent just to cover insurance?? Are you sure that’s right? In AZ it’s about a months worth of rent to pay for an entire year of property taxes.

Hello, Albert. Yes, really! You said it would take 5 months of rent to cover insurance, but I think you meant taxes. The proposed taxes for 2023 are $8634. At $1625/month in rent, it takes me over 5 months to cover the taxes, and less than a month to cover insurance ($1320/yr).

That leaves principle and interest at nearly 9 months to cover. So, the rental income runs out before the obligations to PITI. There's nothing left for CapEx and routine maintenance, among other things.

So, I have to either:

1. raise rent / generate more rent or deal with it

2. make a large payment against my mortgage to recast my monthly payment

3. sell

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Quote from @John Mullen:

Quote from @Richard Rohrbough:

Quote from @Rick Albert:

How much equity do you have in the property?

What are your long term goals?

Can you refinance?

I haven't heard of a lender willing to redo the payments unless it is a full on refinance.

As mentioned before, you are actually in the hole more than the $150 once you factor in repairs, cap ex, and vacancy.

Is there a way to increase revenue for the property? For example coin laundry, passing on gardener fees to the tenants, etc.?

If you sell, what would you buy?

If you convert this to a STR or MTR, does that change anything?

I know this doesn't give you a straight answer, but I think there are more questions that need to be addressed before making a move. On the surface unless there is a long term play of adding value (such as adding another unit), selling may be the best option. You are not in the business of losing money.

Good questions, Rick.

This was supposed to be a cash-flow property, so selling might be best. However, I appreciate other people's perspective in taking a longer-term look at this and considering broader factors than simply cash-flow.

It's a 2/1, so I could add on (i.e., invest more) and make it a 3/2. Or I could take that same money and pay down the mortgage and have the payment recast or I could sell and invest in something that cash-flows better. I guess it's an opportunity cost question.

STR isn't possible due to current city regulations. There's already a STR next door, so my property can't be one as well. Like a STR, a MTR would take an investment to furnish my house. Just don't know enough about that space to know if the cash-flow would be improved.

Hey there @Richard Rohrbough. Have you researched comparable MTR rates for nearby similar properties (eg, scrolled FurnishedFinder)? If you have time and ability to furnish the unit yourself (keeping costs down by FB marketplace thrifting), and if the house is near a medical center or hospital, your 2/1 could be an ideal travel nurse MTR. Not always applicable but could save your cashflow if it works out. Good luck!

Thanks, John. I'll check out FF. Sounds promising.

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Quote from @Bill B.:

The property taxes are killing you. $8k/yr might cover a $1.5-$2million home in vegas. Might be time to lo and find a different state if all of Texas is like that.

Agreed. Like Nevada, Texas doesn't have a state income tax, so that helps, but the property taxes are high!

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I have tenants who are nearing the end of their 6-month lease which expires July 31.

They are smoking in my rental in violation of the lease agreement.

They are also paying $1625 for my 2/1 SFH which is at the top end of the spectrum for rent in my neighborhood/area.

What would you do?

1. Bump the rent way up (like $300/mo.) if they want to renew, alter the lease agreement and say, "smoke away?"

2. Not renew the lease and take chances finding a non-smoking tenant(s) who will pay about the same $1625?

3. End the lease by end of month and take my chances finding a non-smoking tenant(s) who will pay about the same $1625?

4. Evict due to the lease violation and try to find a non-smoking tenant(s) who will pay about the same $1625?

5. Something else?

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Quote from @Luka Milicevic:

Eh... I mean we are in a period right now where it's cheaper to rent than it is to buy.

Folks on here giving advice on just flat out selling don't really know the full picture here with the limited information.

Cash flow right now is really, really difficult on long term rentals.

I think this comes down to the market you're in too.

It also depends on how much you have invested into the property. If you put down 20% and you're still not cash flowing that's different than if you have $0 invested and you're not cash flowing.

The 3rd option you listed begs the question where and how? How are you going to make a better purchase next time and where will you do it? Does your market allow for a better purchase? Do you work full time and you're not able to put in the work to find a better deal?

There are a lot of variables here for someone to just flat out say sell....

Your cash flow is going to be a lot worse than -300/month once you factor in vacancy, capex, repairs, etc

I'm not really giving advice here, but just opening up a few additional things for you to think about.

Good things to ponder, Luka.

I put 20% down and it isn't cash flowing. I could put more down, of course, to bring the monthly payment below current rent. It would make me feel better, but I don't know that it's a good idea.

And how am I going to find something better? I have learned so much over the last year that I would hope that I make better decisions this time around. I think I'm better at hunting, running the numbers and more disciplined now than a year ago. Yes, the market turn hurt me last year, but I likely hurt myself more. The question is, can I take all this learning and do better? I hope so.

Selling seems like giving up on a property, but I also need to know when to cut my losses. I'm just not sure yet which path to take, but I appreciate what the board has taught me in this thread.

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Quote from @Dave Skow:

@Richard Rohrbough- thanks 1) if the property has a good track record of decent apprecaition - and the future looks equally as promisiing - you might consider holding it absorbing the negative 2) if not a decent future appreciation property - sell it as your negative position is likely a lot more than $300 / month after factoring in all the other issues like vacancies / repairs / upgrades etc ....3) refinancing the loan- this is likely not viable because of rates being high now but woth mentioning 4) have you tried renting it at the higher price yet? if not - you might try it and try to upgrade it somehow to justify it being a bit more expensive ? 5) if you sell - consult with a tax person in order to get the details on reinvesting it / 1031 exchanges and any other tips for selling an investment property

Thanks for your response, Dave.

Re: 4), I listed the house at $1800 last fall and finally got a tenant 3 months later at $1600. That seems to be the top end for a 2/1 in my neighborhood/area. It looks like 3/2's would bring in about $2000-$2400, but I'd have to make a large investment to add that extra bedroom and bathroom.

Re: 5), will do. I don't anticipate a capital gain on this as I've only had the house one year, so I'm not sure a 1031 comes into play, but I'll make sure.

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Quote from @Matt Devincenzo:

@Richard Rohrbough then before doing anything, reconsider the thought process and steps involved in buying. What was the reason, does that still hold true? How much in buy/sell costs would you eat if you sold today?

As mentioned above with the principal paydown and deductions etc, you're probably achieving some benefit even if it isn't a great return. So if you'd lose $15K in transaction costs your nominal $3,600/yr loss would take a little over four years to achieve. Game out a four year sale, would the rents and prices increase enough to warrant selling then? It's anyone's guess but time heals a lot of wounds in buying RE...I bought my first 'flip' in March of 2008 and rode the value down over $150K, lost easily $10K on rent learning to be a LL and eventually sold that home around 10 years later for just about what I originally purchased it for. Holding that dog of an initial buy absolutely 100% was the best choice....I learned a lot, stuck through the hard decisions and eventually made money, not much but it was something.

Interesting perspective, Matt. I appreciate you sharing it. And that's a good story too! I would bet that if I held onto this property for 10 years, that things would actually work out nicely for me. It's the cash-flow I need/want now that has me considering selling. If I had a bunch of other properties cash-flowing nicely, then I probably wouldn't consider selling this property. But I only have one other property current. It's doing very well and covers this property. So from a "portfolio" perspective, I have positive cash-flow. I'm just trying to figure out my next best move and the board has given me a lot to think about.

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Quote from @Theresa Harris:

Option 1 or 3. When is the lease up, what is the current rent vs market rent, can you increase the rent?

Hello, Theresa.

The lease is up at the end of July. The current rent is at the top of the range for a 2/1 in my neighborhood/area ($1625). I could increase rent some, but not enough to overcome the current gap ($96) + the new gap that is coming with a large tax increase ($293). Asking my tenants to pay $389 more per month, just to get me to break-even in cash flow, is likely to leave me with no renters.

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Quote from @Shafi Noss:

Your specific question is whether there are other options besides the three you've listed. I assume you're trying to see if there is a #4 you haven't thought of rather than asking other people what you should do.

If that's the case the only thing I would add is that you can dispute your property taxes and perhaps get them lowered, making all 3 options more attractive.

You're exactly right, Shafi! I'm looking for other options I hadn't considered or didn't know about, so #4, or new ways to think about #1-#3. So, I guess it was kind of both.

And I am disputing the taxes. I'm just not hopeful it will amount to much.

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All Forum Posts by: Richard Rohrbough

Richard Rohrbough has started 2 posts and replied 36 times.

Post: Monthly mortgage is greater than rent - What to do?

Post: Monthly mortgage is greater than rent - What to do?

Post: Monthly mortgage is greater than rent - What to do?

Post: Monthly mortgage is greater than rent - What to do?

Post: What would you do?

Post: Monthly mortgage is greater than rent - What to do?

Post: Monthly mortgage is greater than rent - What to do?

Post: Monthly mortgage is greater than rent - What to do?

Post: Monthly mortgage is greater than rent - What to do?

Post: Monthly mortgage is greater than rent - What to do?