Should I sell or rent?

Question

Hi everyone, my name is Gillian - just turned 27 and I work in the architectural field, but looking to also move into real estate investing. I'm pretty much as green as they come, so I'm looking for some advice. I have relocated to Wilmington, NC and am renting an apartment here, but I currently own a townhouse in Raleigh, NC and have about 80k in equity. I did the rental calculator on bigger pockets and gave me the numbers below. Disclaimer - unsure of how accurate. So now that you have the back story... what's the best move? I want to sell it and use the money to help pay off debt and buy a property with more units that we can use as a rental, but my fiance thinks that long term it's a bad idea since the Raleigh market is only going to continue to grow. Any help is so so greatly appreciated! <3

Gillian Scott · Answer

@Basit Siddiqi thank you for the simple comparison. I have decided to keep it and turn it into an Airbnb. It was on the market only 48 hours before my first booking! At 95% occupancy for what was available in January and at 72% right now for February. I’m looking now to figure out the best course of action as I try to accumulate more properties. Looking at putting the title into a land trust. Do you have any advice or thoughts about something like this?

Chad Gray · Answer

@Gillian Scott

I agree with Jason, analyze the ROE. Based on the numbers you provided above, you're sitting around 1% ROE for the year.

There's a number of different ways you can go about looking at this but if I were you, I would take a look at how much in interest you would save my paying off the debts you're referring to, and then line that up with your cash flow from the townhouse.

Also, when you calc'd your expenses, did you include things like repairs and vacancies and what not? If not, one vacant month could wipe out your cash flow for the year plus some.

Personally from the little bit you shared, I would lean towards selling. Yes the Raleigh market is growing, but so is Wilmington's. The numbers you shared aren't great from a cash flow standpoint (no offense) and I think if your plan is to unlock the equity you have by selling, pay off debts, and buy a multi to house hack, that would be a better long term approach then hanging on to the townhouse.

Jason Velie · Answer

@Gillian Scott

Hey Gillian, I’m an investor in Wilmington as well.

Calculate your ROE (Return on Equity), and your answer will be clear as day.

Feel free to reach out any time!

Basit Siddiqi · Answer

@Gillian ScottItems to consider when selling a houseYou may pay around 7% to 9% of the value of the home in fees(Realtor Commissions, Title costs, Title Insurance, Stamps etc).The sale may also result in taxes(Federal taxes + State Taxes).You might be able to avoid taxes by doing a 1031 exchange or QOF Fund.You no longer have an asset that can potentially provide you cash-flow / appreciation.Do you think you can make up the 7% - 9% in fees + Taxes over time by buying another property?Items to consider when you rent the homeYou will collect gross rental income and pay for expenses(Insurance, RE Taxes, Interest, Repairs, etc). Hopefully you are cash-flow positive on the property.The property will gain or lose value over time.Are you happy with the cash-flow and appreciation? Keep itDo you think you can find another property that will Cash-flow / appreciate better and also cover the 7% - 9% fees described above? Sell it

Don Gouge · Answer

How long was the  the townhouse your principal residence?  If at least two years you can sell and take a tax free capital gain.

Brandon Beatty · Answer

I recommend buying a duplex or fouplex and house hacking for 1 year and then repeating again. You could potentially refinance you current property to have equity to buy the next one. Having more units definitely helps!

Gillian Scott · Answer

@Chad Gray thanks for the feedback Chad!! Definitely some great points I’m keeping in mind as I try to navigate and define my overall goals

Danielle Jackson · Answer

Great advice from @Chad Gray. Cash flows do seem a bit low, and selling provides you the opportunity to pay of your debt (a clearly stated goal).

Should I sell or rent?

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