Losing money on rental property, any upside to this?

[vengie]

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This has been an interesting discussion. I’ve wanted to buy another rental property but I couldn’t make the numbers work. My current rental, I believe, has done well but now I ask the question when should I sell it?

We bought the property for $415,000 7 years ago and just had it appraised by the bank for $675,000, I believe that the value has increased greater then inflation. We have always been cash flow positive since moving out 4.5 years ago. We rent out the main level for $1200, basement for $725, half the garage for $320. House rental rates are down 30% from 2 years ago. Our mortgage was ~$1100/month before we pulled out the equity to pay down our primary residence and i’ll have to double check but I believe we’ll have our monthly mortgage go up to ~1800/month.

What does Beyond think? Keep it or dump it? The house is a teardown therefore upkeep on the house has been minimal over the years since we moved out. We’ve had one bad tenant that cost us ~$1200 over 7 years ago which is pretty good. I visit the property once a month and we usually do 2-3 days a year on yard work, gutter cleaning or preventative maintenance with plumbing etc. Overall low maintenance in my mind since the property is 5minutes from my house.

Keep renting it until you have the capital to build an infill duplex (assuming its zoned based on "tear down" statement).
Build duplex and sell both

[suntan]

Burn down house, collect insurance.

[Mys73ri0]

how are people counting their rental income at full value, if you're a beyond baller you're already making 150k+ on salary income. So isn't your rental income going to be taxed at the marginal rate? Or do writeoffs for rental costs offset that?

[holden]

I forgot about rental income tax in my previous calculation. Assuming a 40% marginal rate OP is losing about $1500-1600 per month. Since they are gaining about $1100 equity per month on each mortgage payment, they are losing about $400-500 per month total before maintenance costs. If we assume house prices will rise at around inflation say 2% (house prices in Calgary have only risen about 0.7% per year since peak in 2007) and it takes 1% a year to maintain the house, they are coming out at about dead even. So it's essentially the same as your down-payment sitting under your mattress. If house prices rise faster than inflation you will do slightly better (would probably still lag a balanced investment portfolio). If they rise slower than inflation you are essentially losing money owning the house.

[Buster]

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I forgot about rental income tax in my previous calculation. Assuming a 40% marginal rate OP is losing about $1500-1600 per month. Since they are gaining about $1100 equity per month on each mortgage payment, they are losing about $400-500 per month total before maintenance costs. If we assume house prices will rise at around inflation say 2% (house prices in Calgary have only risen about 0.7% per year since peak in 2007) and it takes 1% a year to maintain the house, they are coming out at about dead even. So it's essentially the same as your down-payment sitting under your mattress. If house prices rise faster than inflation you will do slightly better (would probably still lag a balanced investment portfolio). If they rise slower than inflation you are essentially losing money owning the house.

This is more or less what the long term data suggests on RE both as a market and as an investment.

Did I mentioned I hate direct residential RE ownership as an asset class? lol

[88CRX]

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Or do writeoffs for rental costs offset that?

You can write off lots (condo fee's, mortgage interest, property tax) but you cannot write off your time spent managing or time spend doing maintenance/work yourself.

[RX_EVOLV]

Wouldn't the mortgage interest cost + tax + insurance be tax deductible as the rental property is considered an investment?

This is probably over simplified but in OP's case:

Rental Income: $1950
Interest Cost (assume 50% of mortgage): $1114
Other cost (tax, insurance): $417
Total cost that is tax deductible: $1531
Income after tax (tax deduction, then 40% marginal tax rate): $1782
Net gain (loss): $252

So the OP is making a little bit of money or break even. Essentially the tenants are covering the cost of borrowing + maintenance while you wait for the property to appreciate in value?

This is probably not right. We don't have a rental property with outstanding mortgage so not 100% sure.

[max_boost]

If it's land then okay it can go up but condo is space in the sky lol tOtaL lifestyle choice.

If I kept my house it would still be the same price. Because I moved into a condo, even tho I own it, I basically paid rent for 3 years and lost the time value. Right now who knows how many months it's going to take to sell this damn place. As of this weekend I am moving home lol Never thought this day would come. I'll consult Buster on how to invest my condo proceeds once it finalizes

[88CRX]

Rental income is income.

Write off are mortgage interest, property tax, insurance, condo fees.

Difference between the two is taxed on your income tax.

EDIT:

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.

Revised numbers of $252/month net gain are correct. Had me confused haha

[RX_EVOLV]

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Revised numbers of $252/month net gain are correct. Had me confused haha

However getting a tenant to pay for 'maintenance' while they live there does not happen. Or their maintenance is ghetto fixes.

I forgot to add the deductible from the tax + insurance first time around hah.

I meant with the $252/month of net gain, maybe that goes to maintenance or lost rent during tenant transition, or even rising interest costs when the rates are up for renewal, etc.. which are all inevitable overtime. Since it's only ~$250/month, maybe the more realstic way to look at this is that OP is just breaking even with the current setup and the trigger to sell should be based mainly on the appreciation in property value, unless he can bring the rental rates up.

I guess at the same time his mortgage interest costs will also go down over time too, so it's a bit of an evolving scenario.

[90_Shelby]

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I'll consult Buster on how to invest my condo proceeds once it finalizes

I’m also interested to hear where Buster would invest. He appears to be doing well for himself and I don’t know where to put my money.

[Gestalt]

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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

Can you toss some renos in there and get more rent? We're getting $700 for an illegal bachelor in Dover.

[Buster]

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I’m also interested to hear where Buster would invest. He appears to be doing well for himself and I don’t know where to put my money.

First, and most importantly, my clients tonight introduced me to whiskey sours. I hate whiskey, but these things were legit, and things got out of hand. Caveat emptor.

Here goes:

I'm mostly the most boring investor you can imagine. I hate risk on my investments. As far as I can tell, @rage2 seems to nail most stock trading activity that I have seen here. I don't do any stock trading (maybe I should have some fun with some play money). But in terms of real capital, I simply do not put any of it at risk. Couch potato strategy or equivalent all the way. I'm not a wimp, I just trust the data. The PNW that I do have mostly is a result of my day-to-day work.

However: I do have some cash into some private investments that my day job allowed me to access and more importantly properly assess the risk. In other words I could "break" the risk/reward curve in those cases. But that's not exactly an investment strategy, that's more just professional advantage.

Anyway. I'm a believer in the risk/reward curve. More return = more risk. Very hard to avoid. My advice to my kids will be: try to work in a position that gives you coveted information that is financially beneficial. Learn as much as your can about what lawyers know and what accountants know, but try not to think how a lawyer or an accountant is trained to think.

[triplep]

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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

There are a number of factors that would need to be reviewed, but my guess would be that he would have a terminal loss and a capital loss.

[rx7boi]

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I’m also interested to hear where Buster would invest. He appears to be doing well for himself and I don’t know where to put my money.

This quote is hidden because you are ignoring this member. Show Quote

First, and most importantly, my clients tonight introduced me to whiskey sours. I hate whiskey, but these things were legit, and things got out of hand. Caveat emptor.

Here goes:

I'm mostly the most boring investor you can imagine. I hate risk on my investments. As far as I can tell, @rage2 seems to nail most stock trading activity that I have seen here. I don't do any stock trading (maybe I should have some fun with some play money). But in terms of real capital, I simply do not put any of it at risk. Couch potato strategy or equivalent all the way. I'm not a wimp, I just trust the data. The PNW that I do have mostly is a result of my day-to-day work.

However: I do have some cash into some private investments that my day job allowed me to access and more importantly properly assess the risk. In other words I could "break" the risk/reward curve in those cases. But that's not exactly an investment strategy, that's more just professional advantage.

Anyway. I'm a believer in the risk/reward curve. More return = more risk. Very hard to avoid. My advice to my kids will be: try to work in a position that gives you coveted information that is financially beneficial. Learn as much as your can about what lawyers know and what accountants know, but try not to think how a lawyer or an accountant is trained to think.

I'm a newbie but based on my research and reading experiences of others who have been successful, it seems that people aren't always asking the right question when they wonder where to put their money. People want to make money fast, but Buster's approach employs the luxury of time and patience to build wealth.

Since Buster has divulged he's a more conservative investor with a couch potato portfolio, I would say that he's got other valuable investor traits like patience, savings discipline and a long term investing strategy.

Some people naturally make more in their day job so there's more allocation available as well. Want to build more wealth? Get a better job.

JMHO, and I could be completely off-base

[realazy]

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Some people naturally make more in their day job so there's more allocation available as well. Want to build more wealth? Get a better job.

This is the single most important factor for most people.

[holden]

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I'm a newbie but based on my research and reading experiences of others who have been successful, it seems that people aren't always asking the right question when they wonder where to put their money. People want to make money fast, but Buster's approach employs the luxury of time and patience to build wealth.

Since Buster has divulged he's a more conservative investor with a couch potato portfolio, I would say that he's got other valuable investor traits like patience, savings discipline and a long term investing strategy.

Just look at the post count/views of the Short-term Investments and Crypto threads compared to the Long-term Investments thread. People want to make a quick buck but lose sight of the big picture.

[ercchry]

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Just look at the post count/views of the Short-term Investments and Crypto threads compared to the Long-term Investments thread. People want to make a quick buck but lose sight of the big picture.

He is also older, with family and responsibilities. If you’re going to take risk, do it young. No one to rely on you, and plenty of time to rebuild. Plus it takes time to build a substantial career, things gradually become more risk adverse as you move through life.

But one thing I can say for sure is i’ve never met someone that has amassed a collection of rentals ever complain about it in their later years

Especially when you hear stories from “the good old days” of people buying apartment buildings with credit card loans in TO...

[Buster]

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This is the single most important factor for most people.

Yes it is the single most important thing.

One of the reasons I'm a couch potato advocate is because I believe active investing in public securities to be a low return on time invested. Making money at that game takes a huge amount of time. Professionals working massive hours can barely beat the market on a risk adjusted basis. An amateur like me would spend a lot of time just spinning my wheels. Those hours put into a more "active" Form of income will yield much better results. Or learning a new skill. Or networking. Etc.

I have a similar view on the diminishing returns of reducing expenses. If it takes me a long time to figure out how to xxx dollars on insurance or something then it might be better to focus that time on my top line.

[RX_EVOLV]

My strategy is to always have 3 buckets of 'investment' on-going that will allow me to manage my risk exposure and generate income in the Short, Medium, and Long term

Short term: My full time job that pays me every 2 weeks

Medium term: equity investment, rental income, exiting my business,etc...

Long term: RRSP, properties, investing in startups, etc..

I don't think any one of those alone would make me rich, but hopefully all of them combined can provide a good lifestyle for me and my family