Should I keep or sell my duplex?

Question

I would like to get your expert opinion as to whether I should keep or sell my duplex

The sale price, if I sell = $1.75m

Mortgage = $200k

Years left on mortgage = 7 years

Mortgage Interest: 7.25% (resets every year)

Rent - Expenses and Deductions = $20K/yr

Additional info: I am very close to retirement and the thinking process is to sell and payoff the mortgage on the primary residence.

Appreciate your feedback.

Thanks.

Jules Aton · Answer

Agree the interest rate is high. If you decide to keep the property I would pay that off. As I near retirement I'm also scaling back on the hassles of RE. What does your financial plan say about asset allocation? That will guide you when deciding what to do with the funds if you sell the duplex. I'm carrying a low interest mortgage into retirement and will keep a fairly high percent, for someone my age, in total stock market index funds in an effort to have true passive income and likely a reasonable return that ideally will offset inflation.

Basit Siddiqi · Answer

The above advice is just looking at it from a cash-flow perspetive.
What about the appreciation?
What are your thoughts on the San Jose Market going forward(Assuming this is where the property is located).

If you think the property will appreciate about 5% annually, it doesn't sound so bad when you add it with the return on cash-flow.

The other thing to consider is if you sell the property, you are likely paying for expenses(Cost to sell(Agent fees, transfer taxes, etc) and you also have to factor in taxes unless you do a 1031 exchage.)

Another thing is how would you apply the money once you have it - equities? bonds? notes?

If It were my decision, given that you are near retirement, I would want to gain access to as much time as possible. I would sell the property and put it into assets where you can ideally get a blended rate of 8%+ hopefully.

8% on $1,500,000 is $120,000. If you have no other income sources, assets, this should be a nice amount of money to live on(assumption)(I don't know your living standards).

Best of luck!

Isadore Swartz · Answer

So I did a 1031 on a Duplex in Santa Clara.  Bought 3 single family home in the Sacramento area.  Immediate income bump. Only really works if you plan to stay a landlord, otherwise do a DST exchange.  If you DM me I will give more details.

Eric Fernwood · Answer

Hello @Mark Vesu,

I propose a simple process for deciding whether to sell or hold a property. First, though, you need to define your goal. Is your goal short-term cash flow, or lifelong financial independence? For this post, I’ll assume your goal is lifelong financial independence.

Financial independence is not a one-time event or a fixed dollar amount. It means maintaining your standard of living throughout your lifetime. To achieve this, your rental income must:

• Increase faster than inflation
• Last for as long as you do

There are other requirements, but to keep this post short, I will skip the others.

To simplify the decision-making process, I created the following decision tree. If your only goal is short-term cash flow, this tool won’t be the best fit.

In Summary

Every property should be evaluated based on how they have performed towards meeting your goals.  For many, rents and prices have not outpaced inflation, and the only way to achieve financial independence is to sell the current property and buy a replacement in a location that will enable lifelong financial independence.

Live where you like but invest where you can achieve your goals.

Mark Vesu · Answer

Thanks, everyone, for taking the time to respond to my query—I really appreciate it.

Here’s my current thinking—please correct me if I’m wrong:

Unlike single-family homes, where emotions often influence buying decisions, duplexes are typically evaluated purely on ROI.

Property prices for duplexes likely won’t go that high because they need to make financial sense for a commercial buyer. Unless the buyer plans to live in one unit and rent out the other, the return on investment may not justify a higher purchase price.

Is my current-thinking right?

If I sell the duplex without 1031, I will hit with a 220k tax and the net will be around $1.2m (after everything) @6% return I will get around $75k/yr and after tax at 22% I will get around $58k/yr in cash.

Thanks in advance.

Jake Andronico · Answer

@Mark Vesu

Fantastic spot to be in! Congratulations.

If you were to sell and needed to 1031 exchange, you would need to replace the value of the sales price less closing costs (commissions, title fees, etc).

You could easily turn that into 5-6%, but let's use 5% to be conservative.

So if you sold, and you had around $1.5mil or so working for you at 5%, you should be able to net $75,000 per year passively.

There is some nuance to the 1031, so ALWAYS check with a CPA.

But congrats again, and I hope this helps!!

Aaron Zimmerman · Answer

Agreed on the decision to sell here. Return on equity is far too low and can definitely be deployed elsewhere.

There are obviously going to be some tax considerations that you'll want to run through with your cpa if you sell or 1031.

Wilson Lau · Answer

Hi @Mark Vesu, a $20k/year return seems low for a $1.75M property. Are the rents at market rate? Feel free to reach out if you like me to run some numbers on it.

Like many others suggested, I would recommend looking into an alternative asset that will give you higher ROI, whether is a 1031 exchange or notes/bonds, etc...or a mix of all to diversify risk (not financial advice)

Sultan Ali · Answer

Thanks for sharing the details, sounds like you’ve built a lot of equity in this property. A couple of things stand out to me: the cash flow is relatively small compared to the equity you have tied up, and the mortgage rate is pretty high at 7.25% (especially since it resets each year). On the flip side, holding long term could still provide appreciation and rental income, though it may not move the needle much on retirement cash flow.

Since you’re close to retirement, it might help to ask:
– Do you value more peace of mind by simplifying and paying off your primary home?
– Or do you prefer keeping the duplex as a long-term asset, even if it’s not producing a large return relative to its value?

Everyone’s risk tolerance and retirement goals look different, but framing it that way usually helps clarify the best move for your situation.

Should I keep or sell my duplex?

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