Losing money on rental property, any upside to this?

[cidley69]

I have a knack for picking the top of real estate market, and buying right at top. Did it in 2007 and again in 2014, LOL, FML.

Anyways, i have a rental property that is underwater, and cashflow negative. Are there any accounting/tax tricks to minimizing the shittyness of this situation?

Like somehow booking the loss against my income, to lessen my personal income tax? Or can the rental loss be used to negate some stock earnings (although these were within a TFSA, so these earning would not be taxed?)?

Selling the house now for a loss seems like worst choice, would like to at least hold on for a year and hope the housing market or rental market improves.

Any thoughts on dealing with situation like this?

[Buster]

Thanks for being honest. Most people pretend their losses don't exist.

Also insert here my rant about how much I hate owner rented residential real estate as an asset class.

[mr2mike]

Subscribed. Sorry to hear.
Also curious how people are picking up rentals in the last 2+ years and actually making them cashflow positive unless they've got 80% down on the home.
General trend is rents are low and costs are up substantially thanks to Nenshi and friends (Prop tax and Util service fees).

[jwslam]

Answering some questions to the best of my knowledge

Like somehow booking the loss against my income, to lessen my personal income tax?
Not possible unless you're at an income net-loss, which is unlikely. If your rental income isn't even enough to spill into paying mortgage principal after expenses then your situation is really bad.

Or can the rental loss be used to negate some stock earnings (although these were within a TFSA, so these earning would not be taxed?)?
The losses can negate capital gains. Capital gains are sheltered within TFSA (those are not taxed anyways).

Selling the house now for a loss seems like worst choice, would like to at least hold on for a year and hope the housing market or rental market improves.
Would be very dependent on factors like:
-where you are going financially
-your personal risk tolerance
-the property: location, condition, comparables

[ercchry]

So it is just negative cash flow? Or is it an actual loss? You’d need to have such little cash flow that you’re topping up the principal portion of your mortgage to not actually owe any taxes on it

[Manhattan]

If you lived in Van or TO you'd be doing extremely well. Look very closely at cap rates and price to rent ratios before buying. Just because you're cashflow negative doesn't mean you can claim a loss against your income because the rental income is (hopefully) paying down your mortgage principal and you most likely still have a positive net income at the end of the year. IMO housing in this city is still a bit overvalued and higher interest rates might take prices lower instead of seeing a recovery. Not knowing the specifics I'd say you could sell at a loss and claim the significant selling fees and capital loss against your income and stock capital gains (doesn't include TFSA), respectively. Or you could spiffy up the place and market it at a higher rent to try to make it cashflow positive or break even.

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Also insert here my rant about how much I hate owner rented residential real estate as an asset class.

It's definitely not for everyone but if you know how to pick an appropriate rental property and the right tenants then it can be a very steady and well paying income stream even in today's market. I used to think it was a pretty crappy asset also until I understood the business more with some experience. How you buy, manage, and market the property has an effect on the bottom line. It's a lot closer to running your business than holding a dividend paying stock.

[msommers]

Same situation. Was taking a hit while I was in another city going to school and still am negative cashflow albeit less than before --- it fucking sucks and makes me die inside a little every time I think about it. Never had an empty month but renting this place, and it's subsequent plummet in value, feels anything but an investment -- it feels like the worst purchase decision I've ever made and also the most expensive.

A landlord called me about a referral and after talking about the tenant for all of a minute (because she was great), we chatted rentals for awhile. Well turns out this lady is/was part of some investment rental association where you pay to meet every month and they look for properties. Her advice for me was to hang onto it as long as I could because the market will come back and their model is to buy properties just like mine because they end up turning the best profit.

Real Estate agent friends I've spoke with said unless renting is causing me a lot of stress or financially unable to continue, the hit is too great. Things are starting to flat-line and looking more positive than the last few years. Rental prices are increasing very slightly as well. A friend of mine has a business flipping and renting houses. Between him and his cronies, they're feeling better about the market. They couldn't point to the jobs and why people are coming here again, but in their opinion things are looking better than the last 3-4 years.

So while this is all word-of-mouth data, it's something.

[HiTempguy1]

I think as others have mentioned it really depends on if you are just talking negative cash flow or actual loss.

I've been cashflow negative on one of my properties for a bit, but that's after all expenses related to the property included. But looking at the equity that is getting built in the unit by me essentially having put a downpayment on the place and paying that very small amount per month to cover the negative cash flow, I can't think of an easier way to be building that equity. Get good renters in and away you go.

As long as the value of the property isn't dropping, the $/hr return on it seems very high to me. Yea, I guess I could have put the downpayment and the negative cash flow cover into stocks, but my family has done real estate since I was born, and they've been fucked six ways from Sunday by the stock market and RE has generated their fairly substantial wealth.

So I don't know. Rental prices are definitely up from even a year ago. Then again, my opinion is Edmonton based, and the stats just came out saying that the Alberta gov has added 70k jobs since the NDP came in but private sector has lost 45k jobs... so it might not be so good in Calgary.

One of the final things I have to say is know when to fold. At some point, its better to take the loss, deal with it, and move on. It gives you flexibility for other opportunities. That is truly the biggest problem with real estate, its not a very liquid asset at all (which we all know, obviously).

[vengie]

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Same situation. Was taking a hit while I was in another city going to school and still am negative cashflow albeit less than before --- it fucking sucks and makes me die inside a little every time I think about it. Never had an empty month but renting this place, and it's subsequent plummet in value, feels anything but an investment -- it feels like the worst purchase decision I've ever made and also the most expensive.

A landlord called me about a referral and after talking about the tenant for all of a minute (because she was great), we chatted rentals for awhile. Well turns out this lady is/was part of some investment rental association where you pay to meet every month and they look for properties. Her advice for me was to hang onto it as long as I could because the market will come back and their model is to buy properties just like mine because they end up turning the best profit.

Real Estate agent friends I've spoke with said unless renting is causing me a lot of stress or financially unable to continue, the hit is too great. Things are starting to flat-line and looking more positive than the last few years. Rental prices are increasing very slightly as well. A friend of mine has a business flipping and renting houses. Between him and his cronies, they're feeling better about the market. They couldn't point to the jobs and why people are coming here again, but in their opinion things are looking better than the last 3-4 years.

So while this is all word-of-mouth data, it's something.

She is likely part of REIN (Real Estate Investment Network)

I was a member for a couple years as well.
They have a very strict/ regimented method/ formula to determine if a property is a good investment or not.
One of the best pieces of advice I learned was once you are no longer cash flow positive, the unit is listed and sold. It completely takes the emotion out of your decision.

Part of the issue with Calgary's current market is everyone bought a rental property downtown when things were booming and as soon as the economy went to shit they all attempted to dump them which completely tanked the market. I was lucky to get out of my unit when I did... Not to mention the continued development has completely saturated the DT market.

My personal prediction is I don't see DT condo prices coming back to where they were for 3-5 years.

IF capital is available now is a fantastic time to buy.

[Buster]

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It's definitely not for everyone but if you know how to pick an appropriate rental property and the right tenants then it can be a very steady and well paying income stream even in today's market. I used to think it was a pretty crappy asset also until I understood the business more with some experience. How you buy, manage, and market the property has an effect on the bottom line. It's a lot closer to running your business than holding a dividend paying stock.

These are some of the reasons I hate it. Your first "if" is a big one. The stock market is great, too, if you pick undervalued stocks. Easier said than done.

The second part is another reason I hate it. It's not really an "investment asset class", it's a job. (In my view a shitty one, but YMMV).

Add in that it's almost unavoidable to be leveraged past what any average dude should be on an investment. (Although people don't think about it like this, I think it's the reason they are so popular. There is no where else that will allow you to add this much leverage to an investment - and take on all of the risk that implies.)

Also add in that they are very il-liquid compared to other asset classes.

Oh yeah, and transaction prices relative to your capital gain is just bonkers.

No, I hate res real estate.

[Rarasaurus]

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These are some of the reasons I hate it. Your first "if" is a big one. The stock market is great, too, if you pick undervalued stocks. Easier said than done.

The second part is another reason I hate it. It's not really an "investment asset class", it's a job. (In my view a shitty one, but YMMV).

Add in that it's almost unavoidable to be leveraged past what any average dude should be on an investment. (Although people don't think about it like this, I think it's the reason they are so popular. There is no where else that will allow you to add this much leverage to an investment - and take on all of the risk that implies.)

Also add in that they are very il-liquid compared to other asset classes.

Oh yeah, and transaction prices relative to your capital gain is just bonkers.

No, I hate res real estate.

So with 20 to 100g where should it go rather than Res RE?

[roopi]

Sell the house at a loss and you can claim it as a capital loss against capital gains. TFSA isn't taxed so there are no capital gains. You can carry the capital loss forward on to future years to offset gains.

[88CRX]

Rental properties suck IMO.

When you have good tenants its great to earn all that extra equity and over the long run I suppose it usually works out OK but I had purchased mine at a high point in the market 2007 so i had to rent it out for a couple years just to make back the equity that I lost due to the value of it going down.

I also had one not great tenant a couple years back and it was a colossal pain the ass. Like having a second job (mentioned above) dealing with all that shit. Never again. Glad Jordan helped sell mine a couple months back, took that money and ran!

[dandia89]

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Same situation. Was taking a hit while I was in another city going to school and still am negative cashflow albeit less than before --- it fucking sucks and makes me die inside a little every time I think about it. Never had an empty month but renting this place, and it's subsequent plummet in value, feels anything but an investment -- it feels like the worst purchase decision I've ever made and also the most expensive.

A landlord called me about a referral and after talking about the tenant for all of a minute (because she was great), we chatted rentals for awhile. Well turns out this lady is/was part of some investment rental association where you pay to meet every month and they look for properties. Her advice for me was to hang onto it as long as I could because the market will come back and their model is to buy properties just like mine because they end up turning the best profit.

Real Estate agent friends I've spoke with said unless renting is causing me a lot of stress or financially unable to continue, the hit is too great. Things are starting to flat-line and looking more positive than the last few years. Rental prices are increasing very slightly as well. A friend of mine has a business flipping and renting houses. Between him and his cronies, they're feeling better about the market. They couldn't point to the jobs and why people are coming here again, but in their opinion things are looking better than the last 3-4 years.

Where is your property at? I'm DT but i don't see a lot of reason for the property value to increase

[ercchry]

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These are some of the reasons I hate it. Your first "if" is a big one. The stock market is great, too, if you pick undervalued stocks. Easier said than done.

The second part is another reason I hate it. It's not really an "investment asset class", it's a job. (In my view a shitty one, but YMMV).

Add in that it's almost unavoidable to be leveraged past what any average dude should be on an investment. (Although people don't think about it like this, I think it's the reason they are so popular. There is no where else that will allow you to add this much leverage to an investment - and take on all of the risk that implies.)

Also add in that they are very il-liquid compared to other asset classes.

Oh yeah, and transaction prices relative to your capital gain is just bonkers.

No, I hate res real estate.

name one leveraged investment where you can walk away and not pay back any of the leverage... welcome to alberta. rentals are not insurable loans

[msommers]

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Sell the house at a loss and you can claim it as a capital loss against capital gains. TFSA isn't taxed so there are no capital gains. You can carry the capital loss forward on to future years to offset gains.

I'm a total noob here and don't fully appreciate this advice. Can you reword?

[ercchry]

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I'm a total noob here and don't fully appreciate this advice. Can you reword?

Rental is an investment, if you’ve been claiming it as such then if you liquidate the investment, and there is a loss then it’s a cap loss. If you have other investments that have gained a positive return then you can offset those cap gain taxes with your cap losses. If these two things are unable to happen within the same calendar year, then they can roll over to the next year. I believe there is a limit to this, and I want to say two years

[realazy]

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I believe there is a limit to this, and I want to say two years

Incorrect, capital losses can be carried forward indefinitely.

Capital losses can be carried backwards for 2 years, I think that's what you were thinking.

[cidley69]

House is in Rosscarock, on a 60ft R2 lot, across from a park. There are many infills in the area, closest one is 2 doors east. Original plan was to develop as infills, ran out of capital.

Interest Rate 2.89
Maturity Date 1-Aug-19
Remaining Amortization 26 years
Principle and Interest 2227
Monthly Payment 2227
Principle Balance (Jan 2018) 497000

Monthly Expenses
Rossmere Mortgage 2227
Rossmere Tax 329
Rossmere Insurance 88
Total 2644

Montly Revenue
Upstairs 1250
Downstairs 700
Total 1950

Net Monthly Revenue -694

[Buster]

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name one leveraged investment where you can walk away and not pay back any of the leverage... welcome to alberta. rentals are not insurable loans

I dont really consider non recourse mortgages to be a free lunch