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Selling Rental Property...Even If It's Making Money

The common advice given when considering selling rental property is to consider whether the property is producing positive monthly cash flow or not. You obviously want to get rid of a looser but what about if it’s making money, should you sell? The answer for me was YES!

I had written in the blog about having to evict the tenant. No that the property was vacant, this served as an opportunity for me to reconsider my goals for this property based on the results I had gotten with it.

If you want some background, you can see all the details of how I bought this house and what I had to do to get it rent ready in a multi part series that I wrote on buying foreclosures.

But you might be wondering why I decided to sell it. After all the house has been cashflow positive every month I’ve had a tenant in it for the last 4 years.

selling rental property

So that I can answer that let me first give you some facts so you can do the same if you are considering selling rental property:

  • Date of purchase: August 2008
  • Purchase amount: $117,000
  • Financing type: Cash at purchase then cash out refi to 30 year fixed
  • Monthly payments: Started at $1,071/month down to $950/month (after refinancing to a lower rate)
  • Cash on Cash Return: Who cares! You’ll see why below…
  • Monthly rental income: $1,225-1,290
  • Sale price in 2013: $131,000

But here are the more important numbers:

Not good, huh?...Still wondering why I decided to sell it?…

It’s important to understand these numbers better so you can see what led to them:

2008 – This was the year of purchase so those expenses include the rehab that I did to get it rent ready. Also, for that year I only collected about 3 months of rent since the property went on the market on September of that year. Most importantly is that I did a cash out refinance that year where I got back all the costs of the rehab. So I got back the $6,095 that you see in the Difference column.

2009 – Includes a vacancy of one month for which I made the mortgage payment from the reserves I had built up with the monthly cash flow. However that year I decided to do some siding repairs and paint the entire exterior of the house (which was nice but not necessary) to the tune of about $3,000. So the net effect was that had I not done the exterior paint I would have been positive that year.

2010 and 2011 – At least these were positive years…there were no vacancies on these years but still maintenance and other costs of owning rental property do not stop.

2012 – This was the year of repairs including a new AC system, plumbing repairs and to top it all off the tenant skipped rent the last month of the year so I had to make that mortgage payment plus incur eviction costs. Again, those costs were paid from the reserves built with the cash flow plus the security deposit that the tenant forfeited by being evicted.

So when all is said and done I lost about $6,000 with this house plus a couple of hundred hours of my time even though the house was cash flow positive every month.

On the positive side (yes, there is one) I was able to sell for more than what I owed on the loan. Basically I had some equity on the house which is a rare luxury these days. But more important since I never had to give a down payment on this house, I never had to put any of my own money on it and did not have to bring a check to the closing table either.

Also, I was able to sell very easily. From the time we listed it to the time of closing was less than 14 days. Selling rental property is usually not easy. I have known landlords that have struggled for months to sell rental properties only to sell at a loss or worst yet get foreclosed on.

So the bottom line is that even though on paper this house was cash flow
positive overall it was not making money. Throw in there the “pain in the

neck” factor of dealing with tenants and maintaining a property and you now understand why I sold it.

In the second part of this post I will go into the lessons learned and the factors you must consider if you are thinking about owning or selling rental property.

Go to part 2, Before Purchasing Rental Property >>>

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