Sell or Keep?

Question

Hi everyone!

My fiance and I own a property in south Everett WA. We purchased it in November 2020 right before the pandemic at a purchase price of $330,000, a 3 bed 2 bath with a detached garage that was converted into a small room. We have a 2.75% 30yr mortgage with a $1,880/mo payment. We are currently renting the house out by the room (furnished) and on average bringing in about $2,700/mo in revenue. The home is currently now worth about $525,000 due to the rapid appreciation we all encountered during the pandemic and we believe rent is pretty much capped for the area (class C area). We have started to think about selling the property and using the proceeds to buy another home in a more desirable area where we believe market and rent appreciation has greater potential for growth. Although the idea sounds great on paper, I can not get over the fact that the property is cash flowing so well even though market and rent appreciation has dramatically slowed.

Does anyone have any ideas on how I can run the numbers on this option so that when a decision is made, it is backed up by numbers? We currently do not have a home selected IF we were to sell but we are thinking the Lake Stevens/Snohomish or Cashmere/Peshastin area if possible. Any help would be appreciated. Thank you so much!

Michael Haas · Answer

Debt is tax free, sale proceeds are not. If the property is cash flowing, why not pull a HELOC on the property to fund your next purchase rather than sell it? You could pull out $150,000 via a HELOC at 8% interest (about market rate right now) and the monthly interest only payment would be $1,000. That would make the property neutral cashflow.It sounds like you don't want to sacrifice your 3% interest rate but do want to pull some cash out of the property for other purchases, so the HELOC is potentially the best of both worlds there.

Michael Haas · Answer

Here’s a list of good HELOC providers, in no order. Sometimes there’s discounts and benefits if it’s a bank that you use for checking or savings, so if you have banking relationships with any of the companies below I would start there!

Umpqua Bank:

Seattle Credit Union:

Keybank:

Bank of the West:

Banner Bank:

BECU:

First Tech Credit Union:

PenFed Credit Union:

OBee Credit Union:

First Security Bank of WA

Figure:

Basit Siddiqi · Answer

You want to do a return on equity(current in 2024) to evaluate it as an investment.Return = Annual Cash-Flow and appreciationEquity = FMV less debtThen compare this to what your required return of an investment is along with returns you can get on other investments.If your return is 6% but you can get 8% somewhere else, you may want to consider selling it.Best of luck.

Lindsey Mannix · Answer

Hi Alvaro,

I have found myself in this same situation as well. What I come back to is what are my goals? Here are some questions I ask myself:

- Does having this property cause me stress?

- Do I need the cash to invest in something else right now or on the near horizon?

- Is the cash flow needed for income to live my life or going to savings for something I want/need?

Take a look at the return on equity calculation. It sounds like yours is around 5% (net income/equity) which could suggest selling. But again, I go through the questions about and decide based on the level of stress/work, cash flow utilization and my overall goal for that rental and make my decision. Having a low return on equity, especially for those of us that bought right before the big boom, doesn't always mean sell.

Best of luck,

Lindsey

JD Martin · Answer

Did you ever live in the house for at least 2 years? If so it sounds like a good house to just sell and make some tax-free capital gains.

Madyson Arthur · Answer

Hello Alvaro- I sent you a connection request detailing some helpful info!

Erik Browning · Answer

Compare selling vs keeping side by side in an excel file.

Whichever one makes you sleep better at night, choose that one. You are the only one that can make this decision. Best to use actual numbers that you put together so you can make an educated choice.

April Patterson · Answer

Good morning, Alvaro. I am curious what part of Everett your property is in. New laws in Washington state allow for substantial growth potential. Is your property capable of supporting an DADU/ADU (attached or detached)? The fact that the property is cash flowing so well IS hard to get over!

I am also curious if you have considered Skagit County? There is a lot of growth happening in Skagit. In fact, Burlington permitted over 900 new housing units over the last year(that's 10% of their population)! And the price point is a bit lower than surrounding areas. There is also Island County (Oak Harbor) that has a great rental market, partially due to the military population.

Sell or Keep?

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