Re: 1st & HELOC; + cash flow rental? - Posted by John Corey
Posted by John Corey on April 15, 2006 at 08:43:55:
You have been on the market 1 month. Hence there is little to learn so far. Unless you are seriously underpricing the market having no sale after 30 days would be ‘normal’ in traditional (non bubble) markets.
Why even keep the place? What are you expecting to happen in the future? If you are considering a negative cash flow situation you are implying that you think you will make it up in the future.
Why not drop the price to something below the market and complete a sale. I did not see any comments about what you purchased the place for. It might have been worth $500K in the past but that does not make it worth that now if the market has gone down. Even if it is worth $500K in theory, having it sold at $475K might be better than feeding it every month as a rental.
If you hold a negative cash flow rental you are speculating on the future value. Such speculation can get expensive and you get a reminder every month. You can never tell exactly what a property is worth until you sell. On the other side you have a painful reminder of the negative cash flow is rather mentally draining.
Not all properties make good rentals. Not all owners will make good landlord and investors (more so when the property is a long distance away). Think carefully about what the future could look like (the best and the worst scenarios) and then decide if holding is a good plan. One crude way to reduce the negative cash flow is to pay down the mortgage. Brian has suggested a second idea. There are lease/option deals and other ways to boost the cash flow. There are limits to what a renter will pay extra each month. If you enter a L/O deal (or similar) you are also capping your upside so run the numbers.
Note Brian’s comments about the 1 off tax benefit if you sell and report a profit.