Sell or hold?

Question

Looking for advice on wether to hold or sell a duplex in Franklin Wisconsin.

duplex: 5/2 currently z estimate = 455k

owe: 384k on the property. We put zero down.

currebt rents are 1850 and 1800 with room to go up this year.

we would like to sell but had thought it would have sold for more than the z estimate... ChatGPT gives it a 540k sell price. but, ChatGPT is usually bias to what I want lol...

looking for advice and thoughts.

thank you.

Abel Curiel · Answer

Hello Phillip and welcome to BiggerPockets!

Zillow and ChatGPT are surprisingly accurate from time to time but not consistently enough for me.

I'd recommend speaking with local agents, some can be found here, to find out what range you're likely to sell for. You can also do independent research to look into comps that are similar to the subject property.

Zestimates and ChatGPT likely do not take into account:

- Absorption rate for the specific property type and location
- DOM trends, how fast are properties selling now vs. last year, last qtr, etc.
- ALL Comps: Off-market sales, Pending MLS sales, active listings, recently sold properties, expired/withdrawn listings, coming soon, temporarily off-market, etc.

Lastly, I would take into account all sales expenses before selling. For example, if you owe 384K and it sells for $455K, you'll have $71K before expenses.

Factoring 8-10% of sale price for selling expenses (title/attorney, transfer taxes, broker commissions, capital gains taxes, etc.) you might be making $26-37K after its all said and done. If you're currently cashflowing on the property AND you can't find better returns after re-investing the $26-37K net proceeds, I'd say its worth keeping the property.

It all depends on your goal... if the property has been a headache to manage/maintain, many owners would be happy to walk away with $30K and regain some peace of mind.

All the best!

Abel

Lindsay Davis · Answer

@Phillip Antony,

Like @Abel Curiel said, I wouldn’t rely on ChatGPT or even your Zestimate for this type of analysis.

Reach out to a real estate agent with local market expertise and see what they have to say. Or, get an appraisal from a licensed appraiser.

When selling, you’ll also want to account for selling costs, which can shave 6% to 10% off your purchase price (or even more if you need to make repairs before listing your property).

Matthew Bernal · Answer

In a lot of cases like this, I’ve seen people revisit the hold side by either increasing rents or restructuring the financing to improve cash flow instead of exiting too early.

I work with investors who go through this exact decision point, and sometimes a refi or different loan structure changes the picture quite a bit.

Do you have a rough idea what your monthly payment looks like right now and how much cash flow you’re actually netting?

Aaron Zimmerman · Answer

I'd be looking to ask a realtor what the sales price could be and a property manager what rents are.

conversely you could get the approximate sales price by looking at recent comps.

for rent, you could check out rentometer. To push rents, you'll want to be renting out during peak time of year (May - August).

Amber Stout · Answer

Hi Phillip, one metric that has helped me make the decision as to whether to buy or sell is return on equity. Very simple metric, take your net income from the property and divide by your total equity. $1850 + $1800 - expenses * 12 divided by $71,000 and you should get a number, that's your % of return on the equity. If that number is lower than the return you're seeking and you can get a higher return elsewhere, you can either sell or get a HELOC/cash out refi to take the equity and deploy.

Rick Albert · Answer

So I just ran ChatGPT on my house. The range was there but it didn't factor in things like pools, etc. That's the challenge. It doesn't know unless you go out of your way to tell it (which not everyone does).

In terms of selling, the better question isn't "should you sell?" it's "what would you do with the net proceeds?"

In your case, you might net around $43,000. Then what? Unless you house hack you won't be able to buy much and even then, the goal would be to scale up, not down.

Plus you would like do a 1031 Exchange, which puts you in a worse position because you need to spend the same amount you sell for (minus costs of selling, etc.), which means you likely won't net enough to get the job done of buying another property.

What am I missing?

Janice Carter · Answer

@Phillip Antony To get an accurate market value, it would be best to reach out to an experienced real estate agent to do a detailed market analysis.

Corina Eufinger · Answer

@Phillip Antony

Yes, ChatGPT assessment was incorrect, but I don't think it was blowing smoke for your ego. What I have noticed is that AI has a hard time designating properly what is a good comp.  Nuances of exterior type, sq ft, and condition sometimes get lost in their thinking.   In this case, Zillow is more reasonable, but I'm not sure it's accurate for a competitive price.

Franklin is large enough that one would need more info like the exact location, utilities split,  amenities to give you an accurate estimate on sale price.

Beyond that...is the market serving you as an investor? Seems like rents are going up, so that is good. Is the city a pain in the tush at all for you?  Citations, etc? Since it's close to Mke it's employment outlook is good.  Are you receiving a decent appreciation of the property?  You didn't mention when you bought it or any improvements you made to force appreciation. Are taxes reasonable with the increase?  Beyond the assessed value, has the mil rate gone up a bit?  Are the rumors from informed people (not media or scare-pandering people) that the mil rate may go up again? Have you found another market to be more profitable financially or otherwise?  Lots of things to consider.

I can help you with an estimate on the sale price if you DM.  I'm a licensed real estate broker with experience with rentals and the Milwaukee Co area.

Bryon Andrews · Answer

I would recommend connecting with a local real estate agent who knows your specific market and knows small multifamily very well. Every agent will tell you that they can do small multifamily, but make sure they actually know the space and even better, own small multifamily in your location. Secondly, I am a huge proponent of buying and holding. Sounds like you can make a decent return for putting no money down. What are your goals with selling? Is there a way that you can keep the property and still reach those goals?

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