I bought in a neighborhood I know well and now I am not sure the rents support moving out on schedule

Question

Acquisition was $187,000 in Albuquerque's South Valley, 3.5 down, FHA, closed in February. At the time Zillow and Rentometer were both showing comparable 3-beds renting between $1,450 and $1,600 a month. I did the math on $1,500 and it worked, barely, about $60 positive after PITI and a vacancy reserve. I told myself I'd improve it over the occupancy year and push rents closer to $1,600. What actually happened is that I did some cosmetic work, repainted, replaced the kitchen faucet, nothing that changes what the house is worth to a renter. I've been checking actuals on Facebook Marketplace and a couple of the local property management listings over the past three months and I'm seeing 3-beds in this corridor renting for $1,300 to $1,380. A few at $1,400 if they have a garage, which I do, so maybe I land at $1,400 on a good day. At $1,400 I'm $160 negative before I factor in any maintenance. I'm ten months in. My own rent when I move into the next place is going to be around $1,100 for a room in a house share while I save for the next down payment, so cash flow out of pocket every month on this one would be around $260 combined. I can probably carry that for a while but it is not the plan I sold myself on. Thinking about whether to push the move-out to month 18 or 20 and keep watching rents, or just convert on schedule and accept the negative carry while I set up property two.

yolanda_pressley · Answer

Zillow and Rentometer lag actuals by six to nine months in soft Albuquerque corridors, that gap is what bit you.

kvolkova · Answer

$260 out of pocket while you're building toward property two is not that bad if your income can absorb it without stress. The garage is real differentiation in South Valley, I'd price at $1,425, not $1,400, and see who bites before you decide anything.

Waiting to month 18 or 20 just to watch rents drift further is the move that actually costs you, because you're delaying the savings run for down payment two while paying your own rent anyway.

abena_mensah · Answer

The garage is doing more work than you are giving it credit for, but only if you are listing it as the headline, not the footnote. Listed price and placed price in a softening pocket are two different numbers, and I would want to know what local PMs are actually closing leases at right now, not what Facebook Marketplace is showing as asking. The $160 negative at $1,400 is real but it is also static, meaning you have not built in what a 24-month lease at $1,400 looks like if that corridor recovers even modestly by month 14. South Valley has been lumpy, not in freefall, from what I have seen in comparable Albuquerque submarkets. The one thing I would want nailed down before you decide anything is what your servicer's written interpretation of the FHA owner-occupancy requirement actually says, because some lenders are loose on month 12 and some are not, and you want that answer in writing before you hand over keys to a tenant.

I bought in a neighborhood I know well and now I am not sure the rents support moving out on schedule

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