You Invest In Real Estate for Profits Not To Lose Money
Everyone who studies Real Estate and rental property (passive income) knows that you rent property to make money, not to lose it.
You don’t rent property for ‘tax breaks’ either – that gets you nowhere! Unless you are profitable on your rental, then it can be a ‘bonus’.
My Story
So here is my story on how I screwed up on my (first ever) rental property and why it happened this way.
First of all, I lived in this property for 11 years.
The mortgage still has a fair amount to go and that is part of the reason that I’m not profitable on this property.
This is a condominium so I also pay a monthly maintenance fee. This fee has more than doubled since the time I moved in.
This is the danger with condominiums, the monthly maintenance and ‘other’ fees and assessments tend to increase over time.
I also pay a management company because I moved far enough away that I cannot manage this property myself. Nor would I want to even if I was nearby, truth be told.
The Management company takes an 8% fee for themselves monthly plus 100% of the first months rent.
At the end of the day, all of this ads up and points to the reality that I do not make any money on this property at all!
In fact, I estimate that I lose about $200 per month on it.
Yes, I knew this ahead of time. But I was losing more than that on a monthly basis by leaving it empty.
The point of renting it was to stop the loses from mounting.
I did not consider selling an option because the market is ‘so bad’ at the moment.
I was told that it would be a lot easier to rent than to sell.
I was afraid that it would sit empty for many months before selling and that I would lose even more money for a longer period of time. In addition, leaving it empty would have mandated a return of at least twice-per-year (see below for explanation).
The advice I got appears to be accurate, we got a renter almost immediately.
Selling it, I figured, would take about 6 months or more in this market.
So now you know my story on my first rental property.
Additional Costs That Hit Me
To get the place ready to rent out, I spent an additional 3,000 dollars.
This three thousand was for new carpet and new vinyl in the bathroom and kitchen, painting of one room and some other work that needed to be done. (looks good btw – too bad I don’t get to live there now)
2 Weeks after the renter moved in the refrigerator which was about 11 years old went out. Compressor was kaput.
The replacement and installation plus the initial service call was about $740 more dollars.
So, I’m closer to about $4000 invested in just the last two months.
In the end. I’ve spent a lot and all that I managed to do was decrease my monthly expenses. But with the refrigerator going, that obviously increased my monthly expenses.
This is a losing situation all the way around.
Had I sold the property ‘as is”, even if it took several months, I might have done better. I would not have had the 4K investment. But against that would be the monthly losses of letting it sit empty until it sold.
Additional Info On This Losing Investment
I had to move away. I have left this place empty for 3 to 6 month stretches of time over the last 2 years anyway.
Insurance required that I be there physically at least once every 6 months.
Because I was traveling a long distance, the cost of air travel has also been very high.
I thought that renting would help in 2 ways.
1. I would not have the requirement to come back every six months
2. I would earn a little on the property while I am away.
However, no matter how you cut it, I am still losing money.
The Questions Are:
1. Should I cut my losses and try to sell it before the lease comes due again, effectively taking advantage of that time. Or, should I hold on to it and continue to allow it to lose money for me?
2 I am now living outside the area where my condo is and have now lost my right to vote in the local area. Since I don’t live at that address anymore, the state / township wants a physical address for me in exchange for the right to vote.
They will not accept the UPS box in the area where all of my mail is being forwarded too. What can I do to be able to vote? I don’t care about the local elections too much, but I do care about State Senator / Reps and of course, the presidential election.
Your Thoughts
This is where I am at now (at the time of this writing) and would like to hear your thoughts, comments, ideas or questions on this matter – comment below.
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