Sell or Keep Investment Property before Recession (Belmont NC)

[Spencer Dalzell]

Hi Everyone, 

I'm new to Bigger Pockets, but excited to be a part of the community!  My wife and I are in ongoing discussions on what to do with our only investment property at the moment.  We currently own a townhouse in Belmont, North Carolina which is a massively growing area outside of Charlotte.  We have it rented out to some close friends that pay rent on time, but unsure if we should raise or sell it to take advantage of the current sellers market before the recession. 

Rental Situation - 
Expenses (Mortgage + HOA) comes out to $1,568 per month
We are currently renting it out for $1,750 per month, but have seen recent rentals in the community going anywhere from $2,000-2,500 per month.  I charged a less at the time because of close reliable friends, and not having to use a property management company for the time being.  
Currently locked in at a 2.625% 30 YR fixed.  

Selling Situation - 
Bought for $245,000 back in November, 2019 and the current loan we have left is $234,000.  Recently sold homes are selling for about $360,000.  So we have about $126,000 in equity before realtor fees and taxes.  

As a beginner, I'm not exactly sure what to do here.  My wife has a lot of fear that home prices will go down drastically, and we will lose our opportunity to make a quick buck right now, than buy back in when the market drops.  Or to keep our rental property and increase the rent by a few hundred dollars per month.  She also worries that rent will go down with the market and we won't have any surplus on our expenses.  

I'm not sure if there is a correct answer here, or if we did sell it - what we should do with all of this cash rather than just sitting on it with the current inflation.  

Really appreciate any advise!  Thanks! 

[Joel Case]

Look at home values historically. You will see overall a nice gradual increase with some downturns sprinkled in. I don't buy into the argument that home prices will decrease due to the recession. If I were in your position I would keep the unit, bring it up to market rents, maybe a little less for the friend, and keep building that equity. You always have the option to do a cash out refinance or a HELOC if you want to access some of that equity. Also if you were to sell and buy something else you are at a much higher interest rate currently. That would also dissuade me from selling.

[Drew Sygit]

@Spencer Dalzell every investor wants to perfectly time whatever market they invest in!

Rarely possible:(

Real estate has some additional challenges to market timing, namely closing costs.

How much will it cost you to sell this property and then buy it back? 

6% real estate commission on the sale at $360k would be $21k. And there are usually more costs with title, legal, recording etc.

If it drops 20% and you buy it back for $288k, factored into that price will be more closing costs, starting with a 6% real estate commission of $17k.

So, you're at least at $21k + $17k = $38k in costs, probably more like $43k, to get that 20% drop = $72k. Potentially $29k.

BUT - where are you going to invest the money from the sale until the market changes and you make a new purchase?

How much in potential rent and principal reduction of the mortgage are you giving up during the waiting time?

How much will be the interest rate when you dip back into the market for a purchase? How close to the 2.625% you have now? What will be the extra cost of the higher interest rate of the time you own the new purchase?

Just things to think about...

[Rick Albert]

Keep in mind if everyone has the same mentality that "we should sell before a recession" that would increase supply and could affect home prices.

All you have to do is answer this question: "What would you do with the money?"

Depending on what you do will give you the answer. If you are thinking of just putting it in the bank and sit on it, you are probably better off keeping the rental. If your thought is to reinvest the money into a better rental, then it makes sense to sell. It all depends. 

[Carlos Ptriawan]

-home price doesn't need to fall if there's less number of folks willing to sell
-even if it goes down by 10 percent it almost always go up again in 6-10 years timeframe
-at one point of time, the Fed has to restart QE again anyway. It's not like they can increase rate forever because that action will trigger hard landing
-not selling house is the biggest inflation-hedge

[Don Harris]

There is no sure answer. You can cash the equity and sit on it and potentially redeploy back into other property   Personally, as a Realtor in the Charlotte market, The thought is that price increase may slow down but not go backwards  imho  

If you want me to run comps for you, please reach back

Best, Don 

[Jack Delligatti]

Hey Spencer! If it helps ease your fears, home prices have actually appreciated in four of the last six recessions. Likewise, increasing loan rates and rising home prices have made housing unaffordable for many, steering lots of potential home buyers back into rentals. 

Rental vacancies are actually at a 38-year low, pushing rents up as demand increases. With the growth happening in Charlotte, I think it would be a safe bet to hold on to your investment property in Belmont and continue to rent it out. Hope this helps!

[Darren Redfearn]

Amazing question, I was wondering how other ppl felt about this myself. I think you are doing great  with that property, the only fear I would actually have with a looming recession is what does my cash reserves look like, and how recession proof is your job. If you feel confident with your personal finances I wouldn't worry too much about an appreciating asset ( especially one that is at that low of an interest rate). However if you still want to sell Id definitely buy it from you, lol.