I have a confession to make: I lose money on my rental property every month. But I’m OK with that. I’ve got a long-term plan. Or I’m still delusional and hoping for a turnaround in the housing market. Either way, I stubbornly refuse to lose $30,000 in home equity by selling. I’d rather pay $300 a month out of my pocket in the hopes of hanging on to what little equity I have left.
It’s a Renters Market Out There
Much like a home buyer, a renter has a lot of purchasing power. It’s a pure case of supply and demand if there ever was one.
There are simply more homes on the market for rent in many parts of the country than there are renters. Renters have pricing power to force homeowners to lower the price of rent they pay each month, and as a landlord this causes me to personally lose about $300 a month.
But I’m fine with losing $300 a month. In fact, I’m actually happy about it. Let me tell you why you should be, too, if you’re ever in the same situation.
My Tenants’ Rent Doesn’t Cover My Mortgage
Like many accidental landlords, I found myself stuck with a house a few years ago that I couldn’t sell. Or, if I really wanted to sell it, I would’ve had to at a steep markdown from what I’d bought it for just six years ago during the housing market boom.
After a few tenant turnovers, I lowered the rent in order to find a new renter. (There were simply too many homes on the market. I couldn’t compete.) The problem is that my lowered rent didn’t cover my mortgage payment. In fact, after taxes, insurance, and private mortgage insurance, I pay about $300 out of my own pocket, in addition to my tenant’s rent payment every month, just to pay my mortgage. But I’m happy to continue taking a loss every month.
Should I take a $30,000 Loss Now or $300 a Month?
My wife and I bought our house in the Southeast at the height of the housing boom. We paid top dollar for our three-bedroom, 2.5-bath home. Today our home would sell for almost $25,000 less than what we paid for it. And we’re one of the lucky ones. If we had to sell and take a loss, we’d be out of our entire equity because we placed a large down payment on the house.
Note: This article originally appeared on AOL Daily Finance and is reprinted with permission. See the full article on AOL Daily Finance.
Thanks for sharing this! I’ve been thinking about becoming a renter lately too. I own a condo that will be paid in full in a few years and then I’d like to rent it out. My plan is to wait until it’s paid for so I’m not stressing about losing money each month.
Interesting point. Spreading out whatever loss must be taken is better than all at once. I don’t think most people think of it with that perspective. Thanks for sharing
Yup. I’ve definitely been stuck there for months at a time. Often, it definitely makes sense to take the 2nd-worst option when the only other possibility is the worst option. That said, I still hope things get better for you and your property