How to Avoid Getting Stuck with a Rental Property Dud
There comes a time in every rental property investor’s career where the cash flow isn’t as positive as they’d like it to be. Sometimes the property just doesn’t work out because it’s on the edge of two neighborhoods, and you’re only able to charge the lower value of rent per month, or the upgrades that would allow you to set a higher price aren’t there. Whatever the reason is, you should ask yourself the following questions:
- Is this cash flow temporary?
- Is the cash flow fixable?
- Is the cash flow tolerable?
Is this cash flow temporary?
We are currently dealing with effects from the novel coronavirus outbreak, and many states are passing legislation deferring rent payments. This economic point in our history is hopefully temporary, and if you’re dealing with the fallout from it in the form of missed rent payments, you know that these are challenging times for everyone.
As the rental property owner, you need to ask yourself - can the property cash flow positively under normal circumstances? To follow up, how long are you able to continue with current losses, considering no one is sure when this will be over.
If the rental property was cash flowing positively before, it will likely go back after things go back to “normal.”
Is this cash flow fixable?
Sometimes a rental property that doesn’t have positive cash flow might not be stuck. If you’ve bought the rental property and only upgraded the kitchen, but the bathroom is still from a few decades ago, you might be able to get back into positive cash flow by upgrading the rest of it.
If there are no more upgrades that can be done, consider other renting options. Can the rental property be used by students at a higher monthly rate? Or military or corporate housing? Is it possible to turn the property into a duplex or subdivide the back lot and sell it separately?
Is this cash flow tolerable?
Since you already own the rental property, you might think that negative cash flow shouldn’t be tolerated. If your portfolio is pretty big, it could make more sense for you to hold instead of selling it. But the market, which is unstable at the moment, is what you should base that decision on.
How do you move forward?
While negative cash flow isn’t ideal, there are so many possibilities to consider when deciding what to do with your rental property. Depending on your circumstance, determining the best course of action could be easy. Refinancing your way to positive cash flow or selling could be options for you. Contact Renovo today, where you can work with one of our dedicated loan officers to make the decision best suited for your needs.