Rent or sell

10 Replies

Hi,

I am a long distance landlord located in Boise ID. I have a property SFR in Phoenix area which is currently rented out. It cash flows $450 per month after management, mortgage, taxes, insurance but excluding maintenance & vacancy.  Since the prices in Phoenix have risen quite a bit, I was wondering if it would make sense to sell the property and take the cash to invest locally here in Boise.  Any advice or further questions?  Thanks.

@Madhan S.  

Have you run the numbers to see how things would cash flow here in Boise? That would be my personal first step. Perhaps a duplex or four plex depending on your goals. Properties have spiked here as well but rents have too and the vacancy rate is low. Not sure how property taxes work in Phoenix compared to Boise. My non owner occupied rate is about 1.5% of assessed value. If you look at any of the multi family that are part of an HOA be sure to check the HOA fees as some can run quite high, especially those with a pool and club house.

@Madhan S. if you do sell, consider a 1031 exchange. This declaration needs to be made in advance of the close. Any of your cap gains can be deferred so you can use that tax "savings" as additional money for your new purchase(s).

I thought I would jump in here to clarify.  The 1031 Exchange must be set-up and in place prior to any closing.  The 1031 Exchange documents must be drafted and executed prior to any closing.  It is more than a declaration that you are structuring a 1031 Exchange. 

@Madhan S. , If you need a candid opinion of value for your Phoenix property, reach out to Patrick O'Sullivan from Cap Core real estate.  He is as honorable as you will find in the business.  

Originally posted by Account Closed:

@Madhan Sitar 

Have you run the numbers to see how things would cash flow here in Boise? That would be my personal first step. Perhaps a duplex or four plex depending on your goals. Properties have spiked here as well but rents have too and the vacancy rate is low. Not sure how property taxes work in Phoenix compared to Boise. My non owner occupied rate is about 1.5% of assessed value. If you look at any of the multi family that are part of an HOA be sure to check the HOA fees as some can run quite high, especially those with a pool and club house.

Hi Tom,

Thanks for your guidance. I did the math assuming 1031 exchange. For SFR, I will have similar cash flow in Boise assuming NO monthly property management. But I will be at close proximity (no need to fly) to the property so have better control during tenant turn over/vacancies. I don't have numbers for duplex or 4-plex. Do u know someone for that?

BTW, is 1031 going to survive?  I heard Congress plans plans to remove it.

@Madhan S.  

I would reach out to @Jonna Weber who is an agent and very active on BP and an REI club here in Boise.

From what I see the cap rates on nice four plex units are running 5% to 6% (assuming 40% to 50% expenses, which should include CAPEX accruals) and by nice I mean there would only be minor differed maintenance and those could probably be remedied before closing at the seller's expense. However, depending on how much one puts down the cash-on-cash return might be decent. The one I own is in a small seven building community. Our HOA is low, $158 per month and that covers, landscaping, watering, trash, and snow removal. I've seen where some of the larger communities can have HOAs that run $250 to $400 per month, especially if they have a club and a pool and an onsite management office, etc. Also, my community allows the owner to self-manage and some communities dictate the property management company. I know one large community where the majority-owner of the complex also owns the PM company, which I would not like because I feel they would be inclined to get their units rented first as vacancies come up.

@Madhan S.

There are currently three (3) threats to Section 1031 Exchange.  The proposals vary from eliminating the strategy to limiting the amount of gain that you could defer through the 1031 Exchange. 

There is a coalition of numerous industry trade groups that have been banned together to educate Congress and the administration on what would happen to the economy if Section 1031 were to be eliminated.  In fact, there was a study performed by one of the Big 4 accounting firms that clearly demonstrates there would be a reduction in GDP if Section 1031 were to be eliminated. 

It is important that each of us take the time to contact our local U.S. House of Representatives and Senators to let them know what a horrible impact eliminating the 1031 Exchange would have on the economy, the real estate industry and your own individual operation.  We should be able to save the strategy IF enough people come forward to express their opinion against eliminating or restricting it. 

Please feel free to contact me if you would like help in how/who to contact.

Hi Jonna, 

Let me know if you have those numbers for duplex/4-plex.  Thanks!

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