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Renting at a Negative Cash Flow Vs Selling For a Loss
So you own a rental property that’s currently producing negative cash flow? Then you’ve likely wondered whether you should hang onto it even though you’re losing money or sell the place. But that can be a tough question to answer, especially if the property hasn’t yet appreciated and you’ll end up selling it for a loss.
Although conventional wisdom would tell you that your rental property should be paying you money every month, when it comes to real estate investing, things aren’t always so cut and dry. So how do you determine if you should continue renting a negative cash flow property or sell that property for a loss? Read on to learn about the factors you’ll need to consider.
Rent Trends in the Area
Is rent increasing or decreasing in the area where you own the property? If rent is currently increasing, and the trend looks like it will continue for the foreseeable future, it may be in your best interest to hang onto the property if selling would mean you’d take a loss.
As rent continues to increase, your negative cash flow rental could end up transforming into a positive cash flow rental over time.
Property Value Trends in the Area
What does the real estate market look like right now? Is it on an upward trajectory? If you’d end up taking a loss by selling the property right now, it may be a good idea to hang onto the home for a bit while you watch the market.
When market values look like they’ll increase considerably, waiting to sell could allow you to end up breaking even on the property. If you’re really lucky, you may even end up netting a small profit if the home appreciates considerably in a relatively short period.
Long-Term Value of Rental Income
Generally, significant rental property returns happen when you continue to collect rent over many years. If you believe you stand to start making a profit off the property as the rental market increases, you may want to hang onto the home. Even if you’re only making a couple hundred dollars profit per month, you can reinvest that money at a decent compounding return and after 10–15 years, those profits will really add up.
Projected Long-Term Value of the Property
While there’s no crystal ball that’ll tell you what your rental property will be worth several years from now, you can look at historic trends to get an idea of the long-term value of the home.
If the neighborhood has gone up in value, or there’s economic development nearby, it’s likely that property values in the area will continue to increase over time. If that’s your situation, it’s probably a good idea to hold onto the home and wait for additional appreciation before you sell.
If, on the other hand, it appears that the area is experiencing a bit of a downturn — both in value and surrounding development — you’ll probably want to unload the property before its value decreases.
Whether You’re Willing to Invest More Time and Stress
Aside from determining whether the property is likely to appreciate and what its long-term value and long-term rental income value might look like, consider yourself too.
Do you want to invest more of your time into managing the property? Do you want to invest more of your money into ongoing maintenance repairs? If you’re out of state, do you want to continue paying a property management company to handle things for you?
If you’re not keen on being a landlord anymore, it may be in your best interest to sell the property and take the loss. Yes, you got into real estate investing to make money, but ask yourself — is it worth sacrificing your peace of mind?
Want to Sell Your House Fast? We Buy Houses for Cash!
If you own a rental property in the Austin area, and you’re currently operating at a loss, selling your house fast for cash may be in your best interest. At We Buy Austin Houses, we buy houses in any condition, pay you cash at closing, and don’t charge any commission fees whatsoever.
To learn more about how we can help you sell your house fast, give us a call today at 512-598-9341 or request a no-obligation cash offer, and we’ll get in touch right away!
