Take Cash & Run

9 Replies

So, I purchase a property back in 2012 for $80K cash in Vegas, put $10K into it and rented for $1100 a month.

My yearly cashflow is $9K, sorry 50% rule.
I would be making $60K minus capital gains taxes & selling fees.

It would take me 6.5 years to make that up if I kept the rental, and of course the time being a landlord.

The property is worth $150K all day "today", based on sold comps.

  • Should I take the cash & run or keep it as a long term cash cow?
  • Goal is to have 10 free & clear properties to cash flow long term in about 10 years. Currently have 3.
  • Thoughts? Market is definitive slowing down.

Hi Bruce,

it's hard to advise you not knowing what your full financial situation is, but personally, I would take the cash and run. My threshold is basically if capital gains exceeds 5 years rent, i cut out, the reason being that the odds of seeing one real estate boom bust cycle is high.

The only exception I use is for very high quality real estate where in a down cycle, you will not see much for sale. for example I am currently holding onto a SFR rental walking distance to beach which meets my 5 year rule, but i'm not selling due to the rarity of finding real estate walking distance to beach. In that case, I will normally use a 8 or 10 year capital gain in place of rent before I will sell.

@Bruce L.

Hi Bruce,

I wish we could keep every single house we buy but in order to keep the business ticking over we have to sell.

We do hold every 4-5 property for cashflow.

I believe you will get to your goal quicker if you keep turn over the cash by selling and re-investing and just repeating the process.

Just my opinion.

Thanks

Your math is different from mine. I don't see a $60K profit. You sell for $150K and you're all in for $90K. That's $60K minus $10K in selling costs, minus capital gains. That's less than $40K.

What am I missing?

Originally posted by Kristine Marie Poe:
Your math is different from mine. I don't see a $60K profit. You sell for $150K and you're all in for $90K. That's $60K minus $10K in selling costs, minus capital gains. That's less than $40K.

What am I missing?

"I would be making $60K minus capital gains taxes & selling fees."

I use a discount realtor service that only charges 4% to sell my properties. Keep in mine that the capital gains 15% tax would be less than my rental income based on my tax bracket.

Is there a high likelihood of finding another good investment to put this money into soon?

You could always refinance some of that money out, which may be the way to go if your plan is to continue building a portfolio in Vegas. That would bypass the capital gains and sellers fees but you would have to leave 25% equity in it.

Personally I'm just scared of Vegas (no real estate experience there), I always take the cash and run.

Originally posted by @Bruce L. :
Originally posted by @K. Marie Poe:
Your math is different from mine. I don't see a $60K profit. You sell for $150K and you're all in for $90K. That's $60K minus $10K in selling costs, minus capital gains. That's less than $40K.
What am I missing?

"I would be making $60K minus capital gains taxes & selling fees."

I use a discount realtor service that only charges 4% to sell my properties. Keep in mine that the capital gains 15% tax would be less than my rental income based on my tax bracket.

But then you go on to say it would take you 6.5 years at 9K/yr cash-flow to make the same amount. 6.5 years at $9K is $58.5K. So it looked to me like you planned on profiting $58.5K.

If it's located in a very desirable part of the city, I would be more inclined to hold it. If it's in an area that experiences a lot of vacancy, it'd likely sell off to reinvest elsewhere.

I think the questions people should be asking you is:

What are your restraint(s) to get to 10 free and clear properties (time, cash-on-hand, deal flow)?

If your restraint is time, I would keep it.

If your restraint is cash-on-hand, I would sell it.

If you restraint is deal flow, I would keep it and concentrate on increasing the deal flow.

Another option to think about is a cash-out refinance. You could probably get 90-100k out of it at 6% or less (depending on your taxes and financial situation). Does that put you in a position closer to your goal?

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.