Need help with 40+ cap property

1 Reply

Hello again BiggerPockets, I have a Dilemma I would love to get some input on.

I purchased a condo in June of 2017.

All in with rehab, the cost was $75k (including furnishings).

It has been on Airbnb for nearly 2 years now.

After all expenses, (including management) the property nets around $3k/month (hands free) consistently.

It is a condo that has proven nearly impossible to (re)finance (due to mostly investor ownership in the community).

Now it has a market value of roughly $150k+. Even with the new valuation the property is still preforming at a 20% plus cap rate.

I would love buy 20+ caps (B class properties) all day, but the lack of leverage presents a problem when one is trying to scale.

I have however, been able to reinvest the cash flow directly into a couple small multi family deals.

On the other hand, In my market the extra $ down (from sale or refi) can absolutely get me a larger multi family deal (which is my desired trajectory).

so, the question is:

(A) Sell a 45+ %+ cap rate property (which truthfully makes me cringe), take the double up on investment and 1031 to a bigger deal.

(B) Keep property and scale accordingly via reinvesting cash flow + savings.

Or,

(C) Something I may be unaware of.

Any/all input would be greatly appreciated.

Originally posted by @Sharee Paulino :

Hello again BiggerPockets, I have a Dilemma I would love to get some input on.

I purchased a condo in June of 2017.

All in with rehab, the cost was $75k (including furnishings).

It has been on Airbnb for nearly 2 years now.

After all expenses, (including management) the property nets around $3k/month (hands free) consistently.

It is a condo that has proven nearly impossible to (re)finance (due to mostly investor ownership in the community).

Now it has a market value of roughly $150k+. Even with the new valuation the property is still preforming at a 20% plus cap rate.

I would love buy 20+ caps (B class properties) all day, but the lack of leverage presents a problem when one is trying to scale.

I have however, been able to reinvest the cash flow directly into a couple small multi family deals.

On the other hand, In my market the extra $ down (from sale or refi) can absolutely get me a larger multi family deal (which is my desired trajectory).

so, the question is:

(A) Sell a 45+ %+ cap rate property (which truthfully makes me cringe), take the double up on investment and 1031 to a bigger deal.

(B) Keep property and scale accordingly via reinvesting cash flow + savings.

Or,

(C) Something I may be unaware of.

Any/all input would be greatly appreciated.

It sounds like your condo is non warrantable which means that Fannie and Freddie won't buy the loan on the secondary market. Lender's will do this deal, but the rates will be a bit higher. In your case it's well worth it to tape some equity and still maintain a nice profit margin.

I hope this helps.