Should I sell or continue to rent it out

Buying & Selling Real Estate
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Should I sell or continue to rent it out

Ivo Draginov
Flipper/Rehabber · Glendale, AZ · Member since 2015 · 89 posts · 33 votes

Looking for some feedback and what you guys will do in my situation. I bought a house in 2012 in Phoenix for $55k which I have rented out for 4 years now ($900 rental income). The house is now worth roughly 160k. I did a cash out refi 2 years ago and got 78k which I have been using for fix/flips. Since tenants vacated, I can sell the house for 160k and after commissions and mortgage pay off will net about 75k on it. Since I don't think the house will go up in value much more than it already has in the next 5-7 years, I was wondering what you guys think of weather I should sell it and use the proceeds to buy another rental property which will go up in value through forced appreciation or continue to rent it out. Renting brings in about $370 monthly after all payments. 

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Robert Lorenz
Phoenix, AZ · Member since 2016 · 208 posts · 76 votes
10y

Keep it and squeeze the equity out as needed, no reason to sell it IMO. Stick renters in (or tenant/buyers) ASAP and keep on cashflowing.

If it was renting for 900 four years ago, it should be marketable for 12-1300 today.

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  • Robert Lorenz
    Phoenix, AZ · Member since 2016 · 208 posts · 76 votes
    10y

    Keep it and squeeze the equity out as needed, no reason to sell it IMO. Stick renters in (or tenant/buyers) ASAP and keep on cashflowing.

    If it was renting for 900 four years ago, it should be marketable for 12-1300 today.

    3Reply
  • Evan Wiesner
    Flipper/Rehabber · Portland, OR · Member since 2014 · 120 posts · 80 votes
    10y
    I completely agree with Robert. Good deals like that are not always easy to find. Sounds like you've got a peach and if I were in your shoes I would keep it as a rental. It's long odds you would be able to reuse the money right now for such a good investment so everything else is a risk. Even if the value drops 15-20% (not likely) you would still be in good shape.
    0Reply
  • Ivo Draginov
    OP
    Flipper/Rehabber · Glendale, AZ · Member since 2015 · 89 posts · 33 votes
    10y

    Thanks. I can rent it for 1050 currently as I have increased the rent several times since I've owned it. The other reason why I considered selling it is because the house was built in 1960 and I can get a newer house and still make about the same return on equity if not better. 

    0Reply
  • David Schwan
    Manchester, TN · Member since 2016 · 67 posts · 9 votes
    10y
    I agree keep it and let the mailbox money keep rolling
    2Reply
  • Charlie Fitzgerald
    Lender · Las Vegas, NV · Member since 2015 · 2k+ posts · 1k+ votes
    10y

    It's a positive asset and there is no reason to sell it.  Strip the equity in it down to 25% if you can and redeploy that into another rental asset if you can.  Put a new tenant in the existing one at 1100 a month and keep on going.

    1Reply
  • Ivo Draginov
    OP
    Flipper/Rehabber · Glendale, AZ · Member since 2015 · 89 posts · 33 votes
    10y

    Thanks to all for the replies. 

    0Reply
  • Mario F.
    Los Angeles, CA · Member since 2016 · 160 posts · 21 votes
    10y

    That's pretty inspiring. I would love to be in your situation right now!  Haha.  I'm looking to buy my first rental property  in Arizona and am wondering if the market is a good one to get into right now. Or, have I missed the opportunity?  Sounds like you got in at the right time!  

    I'm seeing properties for 180k that seem to to rent for around 1400 a month. Is that a decent deal? 

    Thanks and good luck!

    0Reply
  • Account Closed
    Real Estate Agent · Cave Creek, AZ · Member since 2016 · 12 posts · 3 votes
    10y

    I say sell it and move on to the next. 

    0Reply
  • George DespotopoulosBusiness Member
    Lender · New York, NY · Member since 2016 · 936 posts · 287 votes
    10y

    @Ivo Draginov. Market is getting more competitive. Continue renting it out, you are just collecting cash every month. If you are seeing a pick up on your fix/flips and want to use the cash to do more flips that may be a good idea but I dont think the additional $75k will really make the difference here. 

    Congrats on a great deal and good luck.

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  • Ivo Draginov
    OP
    Flipper/Rehabber · Glendale, AZ · Member since 2015 · 89 posts · 33 votes
    10y

    I am still finding deals although it is become harder. I'm almost up to my limit of 10 FHA loans but once I purchase a fixer upper for around 120-150k, do all the necessary repairs, and refinance it with a 30 year loan, I am netting about $300-$450 per month. Not as good as before but the math still works for me at the moment for some deals.

    0Reply
  • Hersh M.
    Engineer · Carlsbad/San Diego · Member since 2014 · 285 posts · 97 votes
    10y

    @Ivo Draginov Congrats on a great find! I guess one option is move into MF if you decide to sell since you are reaching 10 properties, that would be the way to add more units/cashflow with limited loans, right? 

    BTW, which class is this 55k property in? B/C? And are you seeing any multifamily deals there?  

    0Reply
  • Ivo Draginov
    OP
    Flipper/Rehabber · Glendale, AZ · Member since 2015 · 89 posts · 33 votes
    10y

    it's a C class property. I've been looking into multifamily but havent been able to find any value add deals. I've been doing some financing under my wife's name as well which allows us to go beyond the 10. 

    0Reply
  • Stephen Seaberry
    Woodbridge, VA · Member since 2015 · 44 posts · 7 votes
    10y

    When you say your want to buy another rental, do you mean you intend to upgrade to a MFR? Do you already have the next purchase in mind, do the numbers suggest a better return on investment? I'm sure you've asked yourself all of these questions. Its more for me to get a more complete understanding of how people already making deals work through their investment decisions.

    Edit: Just saw that you are looking for MFRs, but can't find any. Why sell if you aren't trading up?

    0Reply
  • Tanya Smith
    Real Estate Agent · Saint George, UT · Member since 2016 · 33 posts · 14 votes
    10y
    Originally posted by @Ivo Draginov:

    I am still finding deals although it is become harder. I'm almost up to my limit of 10 FHA loans but once I purchase a fixer upper for around 120-150k, do all the necessary repairs, and refinance it with a 30 year loan, I am netting about $300-$450 per month. Not as good as before but the math still works for me at the moment for some deals.

    How did you get 10 FHA loans? My Mortgage officer has told me I have to have 20% down for any investment property. This may be a totally dumb question... but i'm still learning

    0Reply
  • Ivo Draginov
    OP
    Flipper/Rehabber · Glendale, AZ · Member since 2015 · 89 posts · 33 votes
    10y

    The lender can finance up to 10 fha loans at around 70 loan to value. The first 4 I believe were 75%ltv. I do have roughly 30k equity in any single house that is financed. 

    0Reply
  • Nicholas W.
    Investor · Germantown, WI · Member since 2012 · 206 posts · 364 votes
    10y
    Originally posted by @Ivo Draginov:

    The lender can finance up to 10 fha loans at around 70 loan to value. The first 4 I believe were 75%ltv. I do have roughly 30k equity in any single house that is financed. 

    I think what you mean is Fannie/Freddie loans seeing as FHA loans require you to occupy the property.

    0Reply
  • David Faulkner
    Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
    10y

    I agree with most who say keep it IF AND ONLY IF it is producing good, steady cash flow for you ... I was in almost the exact same situation as you, but I am out of state and could not crack the property management code, which resulted in unsteady and low cash flow, so I sold ... if the cash flow had of been reliable, I would've gladly held on. I still tripled up my money in ~5 years, so don't shed a tear for me :)

    Personally, I don't feel that this is the right time in the RE cycle to hop on the multi-family bandwagon ... it appears to me that particular wagon is getting loaded up and crowded with dumb money at the moment, which means that lots of good deals may be on the horizon, but not today.

    0Reply
  • Edward Rhoads
    Rental Property Investor · Indianapolis, IN · Member since 2016 · 200 posts · 87 votes
    10y

    If I had that house in Indianapolis I would sell it and buy a couple with the money I get from the sale, but Arizona sounds like a very different market than Indy.  

    The decision should be based on this, which will give you better cash flow, you current property, or two properties worth 80k each?

    If it is the first, keep it, and flip to self, and if it is the second, sell.

    Another thing to consider is what you are getting.

    From what you said you would get about 80k cash out.  At 1050 a month you should be getting about 200 a month cash flow, correct?  That would not be a lot of cash flow as 2400 a year on 80k cash you  could have.  That is only 3% of the cash you could get.  From that perspective, you might be better off selling and using the money to grind the machine.

    (tax 250-300, insurance 100, maintenance 100, mortgage 400?)

    1Reply
  • Ivo Draginov
    OP
    Flipper/Rehabber · Glendale, AZ · Member since 2015 · 89 posts · 33 votes
    10y

    I am not particularly looking into multifamily at the moment but this something I am exploring. I currently have four fix and flips going on so I'm still finding decent deals. The cash flow will be about 500 once I raise the rent because my mortgage taxes and insurance is only around $530. Mark Ferguson from invest four more podcast went through similar calculation several months back as he was comparing his return on equity. I may have to find that podcast episode and relisten to it once more. In my case the return on Equity will be 8%. $500x12/75000. Recently I've been getting about 12-14% ROI when I use the BRRR strategy. That does not take into account the forced appreciation that I will be getting by fixing up the house and increasing its value right away. I remember listening to another podcast I think on Bigger Pockets about an investor who would put the house up for sale and rent at the same time and depending on which he was leaning towards more, would overprice either the sale price or the rental amount in which case he would be okay with doing either.

    0Reply
  • Tony SanFilippo
    Real Estate Investor · Littleton, CO · Member since 2013 · 197 posts · 77 votes
    10y

    I have a rental in West Phoenix and I say keep it for now.  I am have others in CO and the Denver market has been booming due to the MMJ industry.  I have heard that AZ has recreational on the ballot and if it passes, phoenix may be the new Denver. We will see in NOV.

    You have to look at taxes too, but it sounds like you will be able to so a 1031 if you can buy a BRRR and move the equity into that property if you would like a better part of town or up & coming area.

    1Reply
  • Julie MarquezPro Member
    Investor · Skagit County, WA · Member since 2016 · 1k+ posts · 807 votes
    10y

    @Ivo Draginov My dad just asked me the same question, but he's in a little different situation. He's and older gentleman and has this one house, all paid off, and the tenant is moving and just doesn't want to do the work anymore. Since the market is so great, he's thought about selling it. With the money he would just pay off his other buildings. Since this house has no mortgage payments, I told him to keep it and have a property manager manage it for him.

    As a younger person myself, I tend to always go with the hold option, because in 15 or 30 years, the home will be all paid off and the passive income will be awesome! You got a great deal, hold on to it!

    0Reply
  • Matthew Berry
    Investor · Big Lake, MN · Member since 2014 · 160 posts · 26 votes
    10y
    I only own one property at this time so be gentle. If you're cash flowing on the property, wouldn't it be better to keep it? That way you can continue to use the rental income when you go to finance other properties. If you sell the property, that rental income will sooner or later disappear and your ability to leverage will decrease.
    0Reply
  • Edward Rhoads
    Rental Property Investor · Indianapolis, IN · Member since 2016 · 200 posts · 87 votes
    10y

    Matthew it really depends on the amount of cash flow and the return you are getting as a result.

    Hypothetically lets say you had a 1 million dollar home and had a positive cash flow of $100 a month.  Would you really want to keep that asset?

    1k a month can look like a lot, but it is on a half mill asset.  You can do a lot better with that half mil I advised to sell.  If you are not making at least 8% from the cash flow (well 8% from cash flow plus increase in equity) then you are better off putting the money in stocks long term.

    0Reply
  • Christopher Smith
    Investor · brentwood, CA · Member since 2016 · 1k+ posts · 730 votes
    10y

    Basic Answer: Can you earn more from the freed up capital in another investment of comparable risk than you expect to earn going forward in your current rental? (of course taking into account taxes, selling expenses etc. - if the alternate investment is real estate 1031 might help you eliminate any immediate tax drain). 

    0Reply
  • Tiffany Hoffman
    Real Estate Agent · San Diego, CA · Member since 2016 · 52 posts · 29 votes
    10y

    Take your $75K and 1031 exchange (no tax) it into a duplex/triplex/fourplex rental property. That way when you look to do rental increases in the future, you now have more units to collect from. Good Luck! 

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