Accidental Landlord

[Bdsinden]

Hi, new to the forum a quick background I have had a reasonable income of about $220K for awhile, but years of over spending before I finally "woke up" in 2013 and realized i had over $100K in credit card debt and an unsustainable lifestyle of spending.  In May of this year I finished paying off the credit card debt.  On to my question, fortunately (I think) part of my out of control spending was on buying houses.  I never had any real intention of being a landlord and never looked at the numbers I just bought things that interested me.  So now that I am continue to become more mustacheian I am a bit stuck on do I keep the collection of houses because I already have them or to I try to sell them all and start again and look for houses with better

SFH #1 -walkable neighborhood
Principle. $390    
Interest   $875    
Escrow    $344
Hoa         $-      
Loan.      $215,824       
Value.     $253,752       
Interest   4.9%        
Rent       $1,800
Property management  $75

Town Home #1 -Ski Town        
Principle    $175    
Interest.    $409    
Escrow.     $55   
Hoa.         $300    
Loan.        $81,913           
Value.       $125,000         
Interest    6.0%        
Rent.        $850    
Property management  $125

Town Home #2 -5 miles Downtown   
Principle  $640   
Interest   $443
Escrow.   $73   
Hoa.        $277    
Loan.      $165,800      
Value.     $200,330         
Interest.   2.6%        
Rent.      $1,500    
Property management  $75
      
SFH #2 -New Build
Principle $674    
Interest  $1,247    
Escrow.  $520   
Hoa.      $140    
Loan.     $386,238    
Value     $509,240         
Interest  3.9%        
Rent.     $2,800    
Property $75

I would love any thoughts you all have.
 

[Bdsinden]

I just realized my formatting didn't work does anyone have a suggestion for how to format in a more readable form

[iamlindoro]

As I read it, you are not taking into account vacancy, repairs, or tenant placement costs for any of these.  Bearing that in mind, all outgoing numbers are impossibly low, as eventually all of those things will occur.  So, we'll keep that in mind when we look at each:

SFH #1:
Outgoing Min: $1684
Incoming: $1800
Difference: $116
After figuring in bare minimum vacancy, repairs over time, tenant placement, property will be badly cashflow negative.  Should sell.

Town Home #1:
Outgoing Min: $1064
Incoming: $850
Difference: -$214
Property is badly cashflow negative without even factoring in vacancy/repairs/tenant placement.  Should sell.

Town Home #2:
Outgoing Min: $1507
Incoming: $1500
Difference: -$7
Property is slightly cashflow negative without even factoring in vacancy/repairs/tenant placement. Should sell.

SFH #2:
Outgoing Min: $2656
Incoming: $2800
Difference: $144
After figuring in bare minimum vacancy, repairs over time, tenant placement, property will be badly cashflow negative. Should sell.

The short answer is that to varying extents, these are all costing you money over time.  Unfortunately, I don't think you did yourself any favors by buying any of these.  Were it me, bearing in mind that buying and hoping for appreciation is a suckers bet, and that you should therefore be buying for cashflow, I'd sell them all as soon as feasible and start doing a very critical analysis every time if you decide to go back into real estate again.

PS, $220K is "reasonable?"

[cchrissyy]

Wow, that's a lot to buy without a real analysis and plan!

Like the poster above, I think you should sell them all. If this generates a little or a lot of extra cash, whatever you do, don't rush to put it in a new property or any other investment. Take your time to become really well-informed about what is the wisest path forward for your situation.

[Another Reader]

You have an expensive hobby, but real estate is a business. 

In your shoes, I would sit down and analyze these properties with an eye to what the implications are of selling them.  Do you have capital gains or losses after selling expenses?  At your income level, you probably have a lot of accrued depreciation that you have not been able to use.  Can you use these carryover operating losses to offset depreciation recapture and any capital gains?  My objective in your situation would be to minimize taxes while correcting the cash flow situation. 

[Ricky]

Ouch. Those are pretty bad numbers for cash flow. If they were paid off, of course you would be making some money, although still a pretty poor return on that much cash invested. I don't think the tax benefits are going to be worth keeping (considering you're paying to keep these and you could be making money elsewhere), although AR is right, you should consult a tax pro and go over the numbers.

[Bdsinden]

Thanks for the feedback and I agree cash flow is negative when I look back at the last 7 years the 4 houses combined have cost me $500-$600 per month.  However they were bought for little to nothing down ($25k out of pocket for all 4).  Assuming I had not bought and instead invested in the stock market using an investment calculator with a starting balance of 25k and contributions of $600 per month for 7 years @6.5% rate of return I would have $95k. Selling all of the houses today would net me ~$195k assuming 15% transaction costs.  Some of this appreciation and some is principle pay down

I also appreciate the tax thought sounds like I need to talk to a tax professional