Sorry if I didn't didn't explain it very clearly in a previous post but with all expenses I've put into the house including down payments,no paying renters, repairs, taxes, insurance and any other cost have been about $14k in 2 years while making about $900 a month or about $11k a year so does that technically made it a pretty great investment??? but that was with renting out 6 bedrooms. However I found out I can only rent out 4 bedrooms now because of coding in the city which would only bring in about 1200 a year now. Does that still technically make a worthwhile rental to hold onto since I've surpassed my all in costs? Just wondering if I should ultimately sell it or keep it. Below is some more info. Thanks again!

3000 Sq ft

5 bed 3. 5 bath

Market value 260k

Purchased 220k

Remaining 200k

5% down

28 yrs left on loan

4% on loan

Mortgage 1400

Yeah, that doesn't sound too good. You make money when you buy it right, and it sounds like you did not. BUT now you have it, so.... Now how to survive until you can get out from under it.

Are you / can you live in the 5th bedroom? Do you have any paying renters now - or can get some month-to-month, until it is sold?

Since it has a good Bedroom/bathroom ratio, it may sell well to an owner-occupant.

That's good. Most Realtors will "make" you do upgrades before listing-that's bad, when you have no money.

I recommend finding a Realtor who is also an investor, and focus on looking for a buyer who wants to earn their own sweat equity and will take it in its current condition. They will pay less, but you won't need to shell out (as much) more $, up front and stop the bleeding. Of course, if your tenants have treated it gently, and it's already updated - great!

BTW: It seems you can see the potential for investing in rental properties. Don't let this stop you! Keep coming back here, study the law and figure out how to do it better next time.

Even with the numbers, it's not very clear what's going on...

$400 utilities? Monthly/quarterly/yearly?

The way to evaluate an investment is like any other:

Add up all the income.

Add up all the expenses. Be sure to include an amount for DIY maintenance and property management, even if you don't pay anyone. This is how a professional would evaluate this an as investment, so 'free' labor must be taken into account if you're going to compare it to a 100% hands-off investment like an S&P 500 mutual fund.

The calculate the bottom line. Compare the return to other investment choice. Does it make you smile or go "Ugh?"

I estimate 50% of gross potential rent goes to cover ALL expenses - including the 'freebies' like maintenance and property management that mom and pop investors often do and maintaining savings for capital expenses.

Most investment properties that fall below the 2% rule do not return any sizable cash flow to the investor until they are paid off, so returns end up being appreciation and amortization only (aka "Equity). The trouble is equity can be wiped out in a down turn, and on a 30-year note like you have it takes a long time for amortization to make any kind of dent in the loan amount. Basically, the first 18 years of the loan only yield about a 20% pay down. If the market drops 20%, 18 years of equity disappears overnight. Granted, it can and should come back eventually, but if you need to sell in a down market....

My market (Mid-West, Class C units) sees little to no appreciation, so I'm a cash flow investor. I want INCOME from my income properties. The 2% rule (Monthly rent is 2% or more of the "all in" purchase + closing + rehab) means I typically get between $150-$200 per door per month net profit in my pocket after all expenses, set asides, vacancy, etc. This allows me to recover my entire capital investment in 7 years or less.

Others measure their properties differently, but this is how it has to work for me to consider it a "good" investment.

I goofed. Re-ran my numbers and it's 10-12 years on a 30-year loan yield about a 20% pay down. Depends on the interest rate, but you get the idea. 30 years loans = very little equity until almost 1/3 of the way thru.

I'm sure it's a fine house, and I can tell you're very fond of it, but with no job, and no paying renters, all the numbers are imaginary potential--- except for the $1400/month mortgage (+$400/month utilities), which is very, very real

Have you fallen in love with your own house? Remember that it's an investment. You need to be able to start looking at your houses with the eye of an investor.

You'll quickly realize that the best houses in your stable aren't going to be the huge, fancy mansions (McMansions?) in the best neighborhoods with the best neighbors. The best ones are going to be anonymous workhorses in undistinguished neighborhoods that you got for a great price and rent to humble, hardworking people.

If you really wanted to keep it, you might see if there was a way to legally transform it into a duplex, and raise the basement ceiling 3 inches to turn it into a three-unit. But that would involve a lot more $$ than you have at your disposal right now, so it's a very unrealistic thing.

Likewise, if I wanted to keep it, I'd look into moving into the too-short basement myself, and renting out the upper rooms, presuming there were no boarding house ordinances I'd be running afoul of.

Are you saying the city has told you that you can't rent 6 bedrooms because of some "code" they have imposed?

What about "taking your property without compensation"?

Even if they exempted themselves from lawsuits on this, how about restraint of trade?

On a different track, why not just remove a part of a couple walls and make 6 bedrooms into 4 bedrooms? A couple would be "big", but is there a code saying what maximum size a bedroom must be? Tenants would likely erect temporary dividing partitions on their own. Temporary partitions are not walls are they? Walls cannot be taken down. Temporary partitions can. Think about office partitions. Now you only have 4 bedrooms.

Still, in a place that wants to micromanage you like that, I'd sell and find a better place.

@Richard, it's common in urban areas for cities to have ordinances that restrict the number of unrelated occupants in a house. It started off as a way to crack down on boarding houses in residential areas, but really gets taken even further in areas close to university campuses, to crack down on too many students living in residential areas off-campus.

So, for example, I used to live in Fort Worth. The ordinance there says, "No more than five unrelated people can live in one sfh". However, in areas close to the TCU campus, that five- person limit becomes a three-person limit.

So, imagining there was such a thing for sale in the TCU campus area, suppose I went and bought a 5/4 house. I figured I would rent it double-occupancy to 10 students. Except... I can't, because I'm limited to 3 unrelated people. So I'm stuck with a super-expensive mistake, because I didn't check the ordinances to make sure I could do what I planned on doing.

I'm feeling that's what's happening here. I don't know if it's a state law, or a municipal ordinance, or if it's just part of a district that's extra-restricted, but he's not able to rent out all 6 bedrooms-- he can only rent out 4.

Just like neighbors can fill out of a form to report your long grass, or watering on the wrong day, there's forms and hotlines for neighbors to report too many occupants to Code Enforcement or the Housing Department or whoever takes care of it in any given municipality. And the more upscale the neighborhood, the more likely you are to run into neighbors who won't turn a blind eye...

It becomes more complicated in municipalities that have additional layers of bureaucracy-- licenses and certificates of occupancy and stuff.

Such bull. "Non-related" occupants. Do they count kids under 18? Discrimination. 5 people can't live in a 5 bedroom house? Ridiculous.

@George-- they're starting to cover that as well.

So, going back to my Fort Worth example, they've started referring to things as "household units" rather than "families". And they define "household units" by their stability (ie, the same household unit that is here this year is made of the same people that were here last year), by their residency (everyone counts this address as their primary address; they don't get their mail sent to other places as well; it's where they're registered to vote; it's the address on their driver's license), and by the fact that there's no deadbolts or other kinds of locking mechanisms associated with exterior doors on the interior doors.