To hold or sell (4-plex) 1.5yr ownership

[Sung Yu]

Hello BP family, I currently own a fourplex in Lacey, Washington and I am looking for advice on whether to hold or sell. Here's a breakdown that may help paint the picture, thanks in advance! 

Short term goals: Accumulate 200k in cash ASAP 

Long term goal: 15k cash flow 

Numbers:

• -Bought in October 2020; VA loan; 2.75% (2.94% APR); $6.5k in closing cost
• -Purchase Price: $685k; after funding fee total loan: $701k; currently outstanding loan: $679k
• -Since then, increased total rent from $4,200 to $5,160
• -Operating expense: $1,650 (using $200 for routine repairs/maintenance cost)
• -NOI: $3,312 (using 4% for vacancy)
• -Mortgage (P+I): $2,861; Total mortgage payment: $3,505
• -Total monthly expenses: $4,967 (using 5% for cap ex…which is conservative as opposed to 10%)
• -Monthly cash flow: $193
• -Annual cash flow: $2,313

Reasons to hold: 

• -It is a stable, generally stress-free property. 3 of 4 units have been great long term tenants
• -Low interest rate at 2.75%
• -It is in a reliable area that will steadily appreciate  
• -I don’t necessarily need the capital right now. In another words, I don’t have a solid plan on how exactly I’m going to deploy the proceeds.
• -I am comfortable with where this property lies between the appreciation vs cash flow scale…currently breaking even and starting to see a small cash flow.

Reasons to sell:       

• -Take the gains and reinvest (~100k) 
• -I can avoid paying capital gains on the proceeds entirely due to tax-free income (military deployment 2022) 
• -It will free up all my VA loan entitlement allowing me to purchase a house hack at the next duty station
• -Protection in case there is a market correction.
• In my mind, the question comes down to whether building my immediate cash is more important than what the fourplex has to offer... Please let me know if there's anything else I should consider. 

[Bill B.]

You’ll want to talk to your cpa. I would assume you’ll owe 75% of the taxes for the part of the property that isn’t considered your primary. You should also assume you’ll owe the depreciation recapture and lose the $30k plus in closing costs. I would also assume your’e going to be borrowing at close to double he interest rate, I don’t think you could talk me in to giving up a 30 year year sub 3% mortgage. That savings alone may pay as much as another rental. 

You can’t say you’re going to save yourself from the 5% chance of a market correction by selling if the plan is then to immediately buy a more expensive property at a higher interest rate. You have to become a renter instead of a buyer at your new duty station if that’s a reason to sell. 

How long will it take for the new property you buy to make up the $30-$50k in taxes and costs you experience? Ps. That has to be income in excess to what the current property would have made if you didn’t sell, not just making $30-50k.