Why I'm Happy Losing Money as a Landlord

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Worried woman cash in hand and model house
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I have a confession to make: I lose money on my rental property every month. But I'm OK with that. I've got a long-term plan. Or I'm still delusional and hoping for a turnaround in the housing market. Either way, I stubbornly refuse to lose $30,000 in home equity by selling. I'd rather pay $300 a month out of my pocket in the hopes of hanging on to what little equity I have left.

It's a Renters Market Out There

Much like a home buyer, a renter has a lot of purchasing power. It's a pure case of supply and demand if there ever was one. There are simply more homes on the market for rent in many parts of the country than there are renters. Renters have pricing power to force homeowners to lower the price of rent they pay each month, and as a landlord this causes me to personally lose about $300 a month.

But I'm fine with losing $300 a month. In fact, I'm actually happy about it. Let me tell you why you should be, too, if you're ever in the same situation.

My Tenants' Rent Doesn't Cover My Mortgage

Like many accidental landlords, I found myself stuck with a house a few years ago that I couldn't sell. Or, if I really wanted to sell it, I would've had to at a steep markdown from what I'd bought it for just six years ago during the housing market boom.

After a few tenant turnovers, I lowered the rent in order to find a new renter. (There were simply too many homes on the market. I couldn't compete.) The problem is that my lowered rent didn't cover my mortgage payment. In fact, after taxes, insurance, and private mortgage insurance, I pay about $300 out of my own pocket, in addition to my tenant's rent payment every month, just to pay my mortgage.

But I'm happy to continue taking a loss every month.

Should I take a $30,000 Loss Now or $300 a Month?

My wife and I bought our house in the Southeast at the height of the housing boom. We paid top dollar for our three-bedroom, 2.5-bath home. Today our home would sell for almost $25,000 less than what we paid for it. And we're one of the lucky ones. If we had to sell and take a loss, we'd be out of our entire equity because we placed a large down payment on the house.

At least we wouldn't owe any money out of pocket even after paying for closing costs.
But I dread the idea of watching $30,000 in equity evaporate overnight. So that's why I'd rather hold on to the house and pay $300 out of my own pocket every month instead of taking the huge bite all at once.

I've Got 8 years to Wait for a Turnaround

In the end, being a homeowner comes down to what your long-term goals are. Why did you buy the house in the first place? Was it simply a place to live? Or did you dream it would provide you with a passive income in retirement after you paid off your mortgage?

I've got a long-term outlook on housing in America. I think that prices will eventually stabilize, and we're seeing that now in many parts of the country. Because I'm paying $300 a month (or $3,600 a year) out of pocket to keep my home, I figure that I have about eight years before I hit that $30,000 mark that I would've lost selling the home right away. So I've got some time on my hands. Surely I can close the gap between the rent I receive and my mortgage payment by then.

I think that home prices will eventually increase on pace with inflation. And if that's the case, it wouldn't be unusual to see the price of rent rise like inflation, as well. So, for example, a landlord with a home that rents for $1,000 a month could see a rent increase to $1,450 a month, assuming 2 percent annual inflation. Of course, your mortgage will remain the same, and you can once again reap a profit from your rental.

Like most investors, I'm not a big fan of taking a loss. But for many accidental landlords, the choice comes down to whether you want to take a large loss now or small ones for years in the hopes of a housing rebound. I'll choose the latter.

Have you ever taken a loss on an investment during the short-term hoping for a long-term gain? How do you know when it's time to throw in the towel?


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106 Comments

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acmeme

reverse morgage does not cover mobile homes

January 20 2014 at 12:13 PM Report abuse rate up rate down Reply
y2kprotocol

NAME: Fesum T. Michael DOB: 6/1/1957
Social Security Number: 043-72-3188 address: 95-05 124
street South Richmond
Hill, NY - 11419

January 13 2014 at 6:37 PM Report abuse rate up rate down Reply
y2kprotocol

WORSE TENANT:

NAME: Fesum T. Michael DOB: 6/1/1957
Social Security Number: 043-72-3188
address: 95-05 124 street South Richmond
Hill, NY - 11419

January 13 2014 at 6:37 PM Report abuse rate up rate down Reply
vlady1000

Ask yourself one question. Would I buy that place to become a landlord (if u did not already own it)? If the answer is "no", then sell. A " sunk cost " is no reason to do ( or continue to do ) something you would not normally do. BTW landlord rule 101- never consider any property that has a negative cash flow.

December 30 2013 at 10:14 PM Report abuse rate up rate down Reply
Jose Ahmed

If your tenant decide he will not pay any more rent, it will cost you dearly to evict and pay sheriff office to remove that person,and then repair all the damage the tenat did to the unit, big lost and it could happen again. difficult market right now.

December 30 2013 at 7:34 PM Report abuse rate up rate down Reply
1 reply to Jose Ahmed's comment
y2kprotocol

i already have an issue like that with a tenant by the name of Fesum T Michael. Ape looking bastardd guy. I did get him evicted. I may have taken a hit, but he is living almost homeless now...its good to know that animals belong in jungle and not in good housing. so thats what i did. i put him out. his daughter Stephanie Michael is suckking deeqs for dollars now..hahaha it feels good... and his son turned gay so he can sell his asss for some money. LOLOL

January 13 2014 at 6:36 PM Report abuse rate up rate down Reply
ecpropllc

Don't know what part of the country this person is from but in the Northeast section of the country, namely Boston proper, it is most definitely not a renter's market. Rents have increased tremendously over the last two to three years in this area. The supply is low and demand is high. To add to the increases in rents is also property taxes and in the case of condos, maintenance fees have for the most part increased which leads to needing to get a higher rental price. My advice to him also about losing $30K in selling. Take the loss and move on. It doesn't seem like where this person is from that selling prices are going to increase for a while. If it is income property which it appears to be then he has a loss to write off if he takes a small hit in selling.

December 30 2013 at 1:21 PM Report abuse rate up rate down Reply
y2kprotocol

life is full of loss and gain...at the end if you are satisfied with what you get, you are good...be content...
i have properties, i got violations, i got bad tenants...at once entire building was empty...had to run the mortgage on my own...but you know what? praise be to the One God..the true God almighty..im still running it...either it will pay off 20+ yrs from now...or ill sell it and walk away with whatever cash I can. and if I am meant to loose money, maybe it will burn to the ground...who knows...im still game...keeping on my plan...whatever happens..all I know is that I tried for the best...
may God almighty bless all the good landlords.
and remember if a tenant starts to be problematic, file eviction right away...

never put your eyes down on your enemies or your tenants...

Peace be upon ya' all...

December 30 2013 at 11:38 AM Report abuse rate up rate down Reply
obrienal

You failed to factor in opportunity cost in your analysis. The stock market has doubled from the lows. You are losing way more than $300 a month. Folks, real estate is NOT a good investment, especially in the long run.

December 30 2013 at 10:45 AM Report abuse rate up rate down Reply
starla

This story reminds me of my grandparents when they purchased an 8 unit apartment house in Brooklyn, NY some fifty odd years ago. Most of the apartments were under Rent Control. The rents were so low, they couldn\'t pay for the building\'s expenses. Even as recently as 1985 when they finally sold the building, two apartment\'s rents were still less than $100 a month.

December 30 2013 at 1:39 AM Report abuse rate up rate down Reply
SANDMAN

That's not including the unpredictability of renters, you can be one bad renter away from being bankrupt, my parents have rentals and one time they had a renter plug all the drains in the house and turn on the water because they were upset about being evicted for not paying rent, caused 15k in damage not to mention lost rent the insurance covered some but not all of their losses. Sometimes it's better to take the smaller loss and sell then a total loss if you dont have the resources to handle more then just part of the mortgage.

December 29 2013 at 6:05 PM Report abuse +1 rate up rate down Reply