Author Topic: Tough Time Finding a Tenant - Decision to Make  (Read 3784 times)

mastrr

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Tough Time Finding a Tenant - Decision to Make
« on: July 08, 2017, 08:59:12 PM »
Posting to review my situation and receive some advice.  Let me preface this by mentioning that I believe that a lot of this comes down to personal preference.  That being said, I'm interested if anyone has been in a similar or situation or would like to shed some light on my situation.  I want to act on logic not rush to a emotional conclusion because I'm facing some adversity.

Backstory: I'm a late 20's male purchased a rental property in 2014 and rented it for 2.5 years.  Over that period of time I cash flowed +$4,700 after all expenses with very little issue

Situation: Currently the unit has been vacant going on 4 months as July is my 4th month.  The property took a month to get in rentable condition so I've not been able to find a qualified tenant for 2 months.  I put $3k in repairs into the property and all fixed costs (mortgage & tax) are around $900 per month.  So basically right now I've cash flowed -$1k on the property in total and my profits have been wiped away.  I'm getting interest from tenants and have had two make it to the background / credit check stage and averaging 2 showings per week.

Thoughts: I don't see myself being a landlord long-term I'm still not in an ideal situation lifestyle wise even if I rent the property tomorrow.  I'm still stuck with repeating this process when the next vacancy occurs.  I currently rent an apartment for my primary residence ($850 / month) and have the option to move into the property I'm renting and sell.  This is an legit option for me as it would not impede on much as I'm still close to work etc.  I would take a definite loss if I sold but my current stat of mind is I just want to get it off my hands.  I currently have a NW around $200k and if I took a $10-15k loss it would be a drop in the bucket long term.  Am I overthinking this?

« Last Edit: July 08, 2017, 09:00:54 PM by mastrr »

former player

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Re: Tough Time Finding a Tenant - Decision to Make
« Reply #1 on: July 09, 2017, 02:46:12 AM »
You seem to be in a good financial position, which gives you choices.  Landlording is not for everyone, and I suspect from your post it may not be for you.  What are your priorities?   Will they be different if one of your current applicants turns out to be a good long-term tenant?

When faced with a difficult decision, one of my factors is "what will I regret the least?"

Linea_Norway

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Re: Tough Time Finding a Tenant - Decision to Make
« Reply #2 on: July 09, 2017, 04:12:42 AM »
I have heard several mustachians here and in podcasts say that selling the too big house, even with a loss, was a very good decision for them. Just to get rid of worries. If you don't want to be worried with owning a rental propery, then sell it or go live in it yourself. Then go investing in something more passive, like index funds.

mastrr

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Re: Tough Time Finding a Tenant - Decision to Make
« Reply #3 on: July 09, 2017, 12:17:55 PM »
You seem to be in a good financial position, which gives you choices.  Landlording is not for everyone, and I suspect from your post it may not be for you.  What are your priorities?   Will they be different if one of your current applicants turns out to be a good long-term tenant?

When faced with a difficult decision, one of my factors is "what will I regret the least?"

If I can find a good qualified tenant than I'm fine renting it out.  I'm just not willing to compromise and accept a tenant who doesn't meet my qualifications.  I'm in a stable job in this area and my initial thought was to keep it at least 5-7 years because that's when the math starts making sense to sell.  That's what I read at least...

What scares me though is that the market is cold where I am.  It is a higher end area but home values when down slightly and there are similar properties on the market that have been sitting for awhile.  Not sure how the market being cold should affect my decision because I see pro's and cons on both keep renting it and moving in to sell.

mastrr

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Re: Tough Time Finding a Tenant - Decision to Make
« Reply #4 on: July 09, 2017, 12:24:14 PM »
I have heard several mustachians here and in podcasts say that selling the too big house, even with a loss, was a very good decision for them. Just to get rid of worries. If you don't want to be worried with owning a rental propery, then sell it or go live in it yourself. Then go investing in something more passive, like index funds.

That's a good point and it would feel good to get rid of it.  Right now I'm thinking of giving myself a deadline such as if it doesn't rent by end of August I will move in and I may push up that date.

lifeofourown

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Re: Tough Time Finding a Tenant - Decision to Make
« Reply #5 on: July 09, 2017, 01:04:33 PM »
If your mortgage/taxes/insurance is $900 and your rent is $850, couldn't you just move into your rental and at least pay down your own mortgage instead of your current landlord's? That way, you would have a little more time to make a decision on what to do. You have to live somewhere, you might as well be advancing your own net worth with your living expenses, than someone else's.

You only lose money on a house that's underwater if you sell it. If you think you'll take a capital loss, but you also think you're going to stay in the area for a while, I don't see how it could hurt you to move into your rental.

The risk here, is that the housing market in your area could continue to go down, and you would lose more money in the future. But, like the stock market, the housing market has historically been on an upward climb forever, so you could always wait it out.

Housing is tough! It can definitely feel like gambling sometimes. Best of luck to you!

waltworks

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Re: Tough Time Finding a Tenant - Decision to Make
« Reply #6 on: July 09, 2017, 06:29:03 PM »
But, like the stock market, the housing market has historically been on an upward climb forever, so you could always wait it out.

Hahahaha!!!

This is hilarious. No, sorry, housing has not, in fact, been on an upward climb forever - unless you consider an "upward climb" to be just barely matching inflation.

There are reasons to invest in RE. Long term appreciation, in general, is not one of them unless you know something specific (and are willing to bet big on it) in a specific market.

-W

NoNonsenseLandlord

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Re: Tough Time Finding a Tenant - Decision to Make
« Reply #7 on: July 09, 2017, 10:35:08 PM »
Lower your price.

You can always increase demand by lowering price.  Or sell it.  If you have been vacant that long, you are over-priced or under marketing.  I have done about a dozen turns and no vacancy in the past two years.

Here is a post hay may help.
http://www.nononsenselandlord.com/2015/01/get-the-best-tenants-into-your-rental-property/

waltworks

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Re: Tough Time Finding a Tenant - Decision to Make
« Reply #8 on: July 10, 2017, 01:57:00 AM »
It's worth noting here that you have cashflowed *zero* at this point. It's almost certain that you should sell the property, but providing some basic numbers (see the forum sticky) might help.

-W

srad

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Re: Tough Time Finding a Tenant - Decision to Make
« Reply #9 on: July 10, 2017, 10:21:32 AM »
You have a few options, easiest one is to lower the price.  I had a unit where I tried to eek out a few more dollars than I knew I could get, got nothing but crickets for two weeks.  Dropped the price by $50 and literally had it rented that day.   How are you marketing it?   

Hire a property management firm, perhaps there is something you are doing wrong?  But I always say, if you only have a few rentals and they are in the town you live in, you need to manage it yourself.  You give away too much of your profit to a PM.  But being a LL isn't for everyone, and PM's can help a lot.

And the Move back in or sell options. 

mastrr

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Re: Tough Time Finding a Tenant - Decision to Make
« Reply #10 on: July 10, 2017, 11:15:46 PM »
I've done some deep thinking and I've determined that I want out.  This means that I'm leaning towards moving into it to sell even though it sounds crazy because this situation came up so fast.  I just don't see a good way to sell this in the future even if I do rent it out for the time being.  I'd rather move in now which isn't too drastic of a lifestyle change and get rid of it.  The only downsides to moving into it are the moving costs, couple hundred dollars more per month for mortgage & utilities,  transportation (farther from work), and maybe some overlapping charges such as gym memberships in both areas.

That being said I think lowering the price is the best financial move and I appreciate everyone advice.  It just doesn't line up with my long-term goals.  I've done the worst case scenario which is selling at 15% less than what I purchased it for with 6% selling fees I lose around 1 year of savings in net worth and this is something that I'm okay with doing. 





Car Jack

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Re: Tough Time Finding a Tenant - Decision to Make
« Reply #11 on: July 14, 2017, 12:23:35 PM »
Let me outline several options.

1) Sell.  Tough market, the combination of making zero from the rental and costs to sell, the entire thing could end up costing you money.  It might be a good lesson going forward.  When someone tries to rope you into buying another rental, think back on how you worked for several years to essentially lose money.

2) Rent.  You said the first tenants were great.  What if you get the tenants from hell next.  Say they move in, trash the place, never pay the rent and make you evict them.  Here you're paying to have serious stress in your life.

3)  Live.  You said you could exit the rental where you're living.  Do that and move into your rental property.  This gives you options going forward and minimizes losses or puts them in your control.  After moving in, you could live there for 2 years and then put it up for sale.  Besides taken depreciation, you sell tax free and then either buy or rent where you want.  No tenant issues.  No worry about lost rent.  No longer paying rent yourself.

I will admit that having rented a house myself and seeing what my dad put up with renting several multi-unit buildings, I'm very focused on the downside.  Did I tell you about the friend who started eviction proceedings and the tenants turned on all the faucets in the house 24/7 costing him $1000 a month in water bills and because it's a health issue, you can't turn off the water?

mastrr

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Re: Tough Time Finding a Tenant - Decision to Make
« Reply #12 on: July 23, 2017, 03:04:43 PM »
Let me outline several options.

1) Sell.  Tough market, the combination of making zero from the rental and costs to sell, the entire thing could end up costing you money.  It might be a good lesson going forward.  When someone tries to rope you into buying another rental, think back on how you worked for several years to essentially lose money.

2) Rent.  You said the first tenants were great.  What if you get the tenants from hell next.  Say they move in, trash the place, never pay the rent and make you evict them.  Here you're paying to have serious stress in your life.

3)  Live.  You said you could exit the rental where you're living.  Do that and move into your rental property.  This gives you options going forward and minimizes losses or puts them in your control.  After moving in, you could live there for 2 years and then put it up for sale.  Besides taken depreciation, you sell tax free and then either buy or rent where you want.  No tenant issues.  No worry about lost rent.  No longer paying rent yourself.

I will admit that having rented a house myself and seeing what my dad put up with renting several multi-unit buildings, I'm very focused on the downside.  Did I tell you about the friend who started eviction proceedings and the tenants turned on all the faucets in the house 24/7 costing him $1000 a month in water bills and because it's a health issue, you can't turn off the water?

I chose option 3 and am now physically in my rental.  I made a very quick decision to pull the trigger to move and am very happy with my decision.  It is a huge weight off my shoulders and I like the area.  My plan at first was to to sell it, now I'm leaning towards not putting it on the market and see how I like living here once I get in a routine etc.  I also like the thought of getting some value for the money I put into the property.  If I sold, I wouldn't recoup the full monetary value that I put into it fixing it up.

The studio apartment was a tremendous value in a C+ neighborhood / apartment complex for $850 month with all utilities included.  My now primary residence (previous rental) 2br/2ba is $900 fixed expenses before utilities is in a A- neighborhood. 

hucktard

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Re: Tough Time Finding a Tenant - Decision to Make
« Reply #13 on: July 27, 2017, 11:17:31 AM »
But, like the stock market, the housing market has historically been on an upward climb forever, so you could always wait it out.

Hahahaha!!!

This is hilarious. No, sorry, housing has not, in fact, been on an upward climb forever - unless you consider an "upward climb" to be just barely matching inflation.

There are reasons to invest in RE. Long term appreciation, in general, is not one of them unless you know something specific (and are willing to bet big on it) in a specific market.

-W

Walt, I am curious what data you are basing that on. From everything I have read and experienced, real estate has gone up faster than inflation. Keep in mind that a house is not real estate, land is real estate. If you consider the fact that the amount of land that each house sits on has in general gotten smaller over the years, then the value of the land has increased. In order to determine the rate of real estate appreciation you really need to compare the prices of individual plots of land over time, or individual houses on plots of land over time. It gets very complicated when you are just looking at housing prices in general, when the plots of land have gotten smaller, but the houses have gotten bigger. And then of course there is LOCATION LOCATION LOCATION. Some areas have seen appreciation far outpace inflation while others haven't so you can always find an example to suit your narrative. In addition, most people buy real estate with leverage, so even if appreciation just matches inflation, you still make money long term. So "waiting it out" does in fact work in many situations. Also, you make kick ass bikes, my neighbor in Boulder just got his hands on a bike you made a while back, he said he knows you. I need to replace my Reeb hardtail soon...but I will probably get a longer travel full suspension bike.

waltworks

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Re: Tough Time Finding a Tenant - Decision to Make
« Reply #14 on: July 27, 2017, 01:15:27 PM »


http://ritholtz.com/wp-content/uploads/2011/04/2011-Case-SHiller-updated.png

There are some ways to quibble with how Schiller did this, and some quick googling will turn up those quibbles. But nobody in their right mind will argue that housing appreciates anywhere near any other (including your most conservative low-risk bonds) asset class.

That's not to say you should not buy a house. But you should temper your expectations of getting rich quick by doing so.

-W

hucktard

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Re: Tough Time Finding a Tenant - Decision to Make
« Reply #15 on: July 28, 2017, 02:29:31 PM »


http://ritholtz.com/wp-content/uploads/2011/04/2011-Case-SHiller-updated.png

There are some ways to quibble with how Schiller did this, and some quick googling will turn up those quibbles. But nobody in their right mind will argue that housing appreciates anywhere near any other (including your most conservative low-risk bonds) asset class.

That's not to say you should not buy a house. But you should temper your expectations of getting rich quick by doing so.

-W

Walt, thanks for the info! I like how they compared the value of existing houses. It does look pretty solid and I also think that it makes sense that real estate could not keep appreciating faster than inflation forever or else nobody but the ultra rich could afford to buy a house (which could happen I guess). So you are correct if you look at the country as a whole over very long time periods. You are technically correct and that is the best type of correct. There are of course certain areas and certain time periods where real estate appreciation predictably beats inflation (In growing desirable areas with solid employment). However, I wouldn't count on high appreciation in most mid west areas, or really anywhere at this point in 2017 as we have seen double digit appreciation in the last few years. I guess the problem arises when people say "real estate appreciation doesn't even beat inflation therefore you won't make money off of buying a house". Which isn't true because most people put 20% or less down on a house, so when it appreciates by 3% your equity just increased by 12%, and that doesn't even include principle pay down. Or when somebody concludes that stocks are a better investment because historical stock market returns beat the rate of real estate appreciation.

SuperSecretName

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Re: Tough Time Finding a Tenant - Decision to Make
« Reply #16 on: July 28, 2017, 02:52:04 PM »
1 - lower the asking price

2 - how are you advertising?  Craigslist?  Private realtor?  Although it sucks to pay 1 months rent to find a tenant, you gotta do something different and fast.


adamcollin

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Re: Tough Time Finding a Tenant - Decision to Make
« Reply #17 on: July 29, 2017, 01:11:42 AM »
You can hire a real estate company to find quality tenants. He will surely work fast and will conduct a proper tenant screening.