I am going crazy thinking about what to do with my rental. I am hoping some of you may help me see the light. Here is my situation:
I have a SFH in Fremont. Elementary school is good but middle and high school are not. I bought it about 8 months ago and spent 60K remodeling it. It’s a 3 bed 2 bath (area 1100 sq ft) on a 6000 sq ft lot. It’s on a busy street called Stevenson blvd with an access road; so not exactly on the main road but sort of. I may get a rent of about $3000 a month. My cost is about $3700 a month. I took a 30 year loan with 3.5% interest. My personal financial situation changed last month. My future pay may not be as high as I thought it would be. Given that I would be losing about $8K to $10K a year until rents go up, do you think there are any good reasons for me to hold on to my rental? Just for the info, it already appreciated about 8% in the last few months and I may get a profit of about $20K if I sell it now.
I think of holding it for a few years but I worry about what happens if my cash flow reduces in the next couple of years. I may or may not be able to sell it at that time due to market conditions and the fact that it’s on a busy street. Please help me get some clarity.
Thanks for responding. My primary home is in Santa Clara. I wanted to move to the new house in Fremont in 3 years and rent my current primary. The rent on my primary would break even with the costs. But now with the change in my life situation I don’t think I can move to Fremont. I am 52 years old and can’t take a lot of risks with the cash that I have. Hence I don’t know if I can tolerate negative cash flow for 10 years unless there is some assured positive outcome. I am not able to think through the various possibilities and am losing my sleep over it. I appreciate any clarity you can provide.
There are reserves needed for a ten year hold for vacancies roof paint appliances. Maybe another $10k per year. Take the profit. Lesson learned. Don’t go negative if the $20k will make you loose sleep.
Roof, paint, and appliances are all brand new. That’s what we did as part of remodeling.
I am wondering if there is any reason to hold it for appreciation. That’s my only chance to leave something to my kids. Is there any way to predict when the rents will reach about 4K a month for that area?
As I had mentioned I bought the home 8 months ago and got it remodeled after renting it out for a short time. The PITI numbers are real. I have not yet rented it after remodeling but the rent numbers are from a property manager. They told me they would charge 6% for maintenance and a one time fee of $1200 for finding the tenant. I also have earth quake insurance on the property. The total insurance numbers are approximately 200 dollars per month. Not sure which part of the details are not in line. Please let me know and I can provide more info. Thanks again.
Exactly, the insurance part was making me think. I have never heard of fire insurance more than $600/year for old homes around 1100 sqft. If EQ insurance included $200/month is correct and in line.
As I said already, it is too greedy to expect $4000/month rent for 1100 sqft home in near future. Unless entire market is up, it is too hard to get such level.
Now itself, the rents are sky high and people are Struggling to pay rent. My friends are daily lamenting about the rent.
If economy goes south, likely chances rent may go down. You must be prepared to hold it when there is a 20% rent drop.
Like I said, principal portion is your forced savings and should not be accounted in your profit and loss, but it is a cash flow out.
If you are not ready to face 20% rent drop and not comfortable with higher cash flow out, and when you see selling home is profitable, I would suggest to sell it after 2-4 months. I give you 2-4 months as you may pay less tax (Long term capital gain) when you sell it after 12 months.
Hello, being an investor, one needs to look deep into the future as opposed to the present. After all, investing is all about sacrificing today for a brighter future tomorrow. Therefore, don’t think too much about the negative cash flow at this moment as long as you can come up with the money to even it out. Your sacrifice will eventually pay off in the future and you’ll be glad that you have held on.
Some properties are good flips some good for cash flow.
This one won’t cash flow for ten years. Sell it.
First get rid of earthquake insurance and the property manager and make tenant do the gardening.
Im with wqj. He is mentioning 10k being negative annually, while it is a lot of money jn general, it is not a big deal in most bay area professions.
Are you a swe/tech employee? Did you go work for a start up or a more established company? Your comp moght have taken a short term hit due to vesting schedules and lack of overlapping vests yet, but that is temporary.
Age, above 50, is the biggest factor…here. Even in tech, people try to hire young professionals than aged. Plenty of disadvantages over age, health, travel, lack of flexibility, memory…etc. After 50s, focus is on health and financial safety.