Renting at a Negative Cash Flow vs. Selling at a Loss

In an ideal world, your rental property would produce positive cash flow and pay you every month. And when you decided to sell it, you’d take home a handsome profit in addition to all the money you’d earned while renting the property out.

But as you likely know, the real estate world is in perpetual flux. Even if you purchase a rental property that starts off with positive cash flow, that doesn’t necessarily mean it’ll continue paying you like clockwork. And although you likely purchased your rental property with high hopes it would appreciate, the market fluctuates constantly. Ultimately, there’s no guarantee you’ll profit or, at the very least, break even on the sale.

If you own a rental property that’s producing negative cash flow and will likely sell for less than you bought it for, our team at Beard Bros Buy Houses Cash is ready to help. Read on to learn about the factors you should consider when determining whether to continue renting the property or sell it at a loss.

When Should You Continue Renting at a Negative Cash Flow?

What might make a negative-cash-flow property worth keeping? If any of the following factors apply to your rental home, it may be in your best interest to hang on to the house and continue renting it out.

The Property Is Poised for a Value Increase

Is your property located in a growing or desirable area? If so, there’s a good chance it’ll increase in value over the coming years. And although you might be losing money now, that doesn’t necessarily mean that trend will continue in the future. Just because your property is producing negative cash flow at present does not mean it was a bad investment.

As your property appreciates, you can raise your rental rate to either break even or make a profit. And ultimately, you may be able to sell the property for a much larger sum than what it’s worth right now.

The Real Estate Market Is Growing

Even if you don’t think your property is in a growing or up-and-coming area, if the real estate market is exploding, location matters less. Why? Because it’s all about supply and demand at that point.

Properties in highly desirable areas will sell first, but when those dry up, buyers and investors will be looking for almost anything they can get their hands on. And as supply dwindles and demand stays high, property prices inevitably increase because so many buyers are vying for the limited number of properties on the market.

If you anticipate growth in the local real estate market in general, it may be in your best interest to continue renting out your negative-cash-flow property until growth spikes. At that point, your rental house will likely experience a surge in value, so you may be able to sell it for a profit rather than a loss.

The Local Rental Market Is Growing

What does the rental demand look like in your area? Are there lots of folks looking for rental homes? Do you anticipate the demand will increase? Then you may want to hold your property and see what happens.

As rental demand goes up, not only will you be able to increase your monthly rental rate, but you’ll also have more interested renters lining up to take a look at your property. Again, negative cash flow today isn’t necessarily indicative of negative cash flow forever.

Pay attention to what your local rental and sale markets are doing and make your decision based on that information. 

When Should You Consider Selling Your Rental at a Loss?

In certain situations, selling a rental property that produces negative cash flow may be in your best interest. If any of the following situations apply to you, it may be time to consider selling.

You Can’t Afford to Take Long-Term Monthly Losses

How much money are you currently losing each month? Can you afford to sustain those losses for the foreseeable future? If not, it’s time to sell.

Generally speaking, you can expect property taxes and maintenance expenses to increase over time. If you can’t afford your current losses, and you don’t anticipate a property value increase in the near future, chances are you can’t afford to continue absorbing growing losses long term.

Your Rental Needs Lots of Work

If you own an older rental property that could use some serious renovations or repairs and can’t afford to take on those expenses, you may want to sell it for a loss. Otherwise, you’ll be stuck with a continually deteriorating home that may experience further decreases in value.

If you hold a property like this, not only might you continue taking a monthly loss, but you might also end up taking a greater loss on the sale when you do choose to sell.

Your Portfolio Needs Diversification

If you have tons of money tied up in a negative-cash-flow rental, and the market suddenly bottoms out, your financial health could be in trouble. If you’re already in a tight spot now, or your investments need more diversification, it may be better to take a loss now than to hang on to the property and potentially take a much greater loss in the future.

The Real Estate Market Is Predicted to Level Off or Crash

If experts are forecasting a rough real estate market in the coming months, you’ll want to get ahead of that as soon as you possibly can. Otherwise, you’ll risk losing even more money than you’re already worried about losing.

Sell Your House Fast With Beard Bros Buy Houses Cash

If you’re interested in selling your Omaha-area home and would like to do so quickly and conveniently, get in touch with our team at Beard Bros Buy Houses Cash! We buy houses throughout the Omaha metro area and will pay you cash at closing. We buy houses in any condition, so no matter how old, ugly, or deteriorated your property is, we’re ready to make you an offer to take it off your hands!

Curious how we can help you sell your house fast? Give us a call today at 402-810-8091 or contact us online to request a no-obligation offer, and we’ll get in touch right away.