Should I sell? My property has appreciated +$90K...

Real Estate Agent · San Antonio, TX · Member since 2017 · 814 posts · 466 votes

I want to move to a different nerby city (Austin), debating on rent or sale. My propery is in San Antonio, Texas, in a very desirable neighborhood. If I sell now, I should get easely 90K in profit after all expenses. Rent is about average for this type of property in a desirable neighborhood ($2,500/month). So I can refinince to 30 years and rent and get some cash flow (guessing $200 after all good stuff)... Should I sell or rent? My concern of renting is maintenance stuff, like pool, yard, etc. and people not taking care of basic stuff... HOA is hardcore and I suspect I will be getting mail letters and fixing issues more than often.

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Ron Flatt

Investor · Hillsboro, TX · Member since 2017 · 358 posts · 245 votes

Based on your discussion. I would definitely sell. San Antonio is certainly hot, my daughter is getting ready to sell her home since the Air Force is transferring her to Germany.

The concern with Pool and the HOA is the biggest flags for me.

If you have found a property already in Austin, you might want to do a 1031 exchange. You will be able to roll your equity into the next property without the capital gains hit and you should be able to find a great property. The kicker is the timelines to find and close on the next property.

Good luck

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Ron Flatt
Investor · Hillsboro, TX · Member since 2017 · 358 posts · 245 votes
9y
Based on your discussion. I would definitely sell. San Antonio is certainly hot, my daughter is getting ready to sell her home since the Air Force is transferring her to Germany.
The concern with Pool and the HOA is the biggest flags for me.
If you have found a property already in Austin, you might want to do a 1031 exchange. You will be able to roll your equity into the next property without the capital gains hit and you should be able to find a great property. The kicker is the timelines to find and close on the next property.
Good luck
7 Reply
Ben Wilkins
Rental Property Investor · York, PA · Member since 2017 · 377 posts · 315 votes
9y
@Josue Vargas - you had me at "pool": sell.
I strongly dislike having pools on my rental properties - too much maintenance.
The real answer lies in the question: which investment gives you more returns? To leverage your property and invest the cash from the refi, or to sell and purchase properties with the cash from the sale?
How much can you cash out with a refi? How much money will you have if you sell? Which route gives you more income?
4 Reply
Josue Vargas
OP
Real Estate Agent · San Antonio, TX · Member since 2017 · 814 posts · 466 votes
9y
@Ron Flatt,
San Antonio is hot, no doubt about it, I'm just starting to look, and I probably rent in Austin until become very familiar with the market... Yes an investor renting, odd but that's how I do it... It looks like prices are getting every time a little bit steep, good for selling, so I'm in no rush, until the peak (suspect on winter time).
I'm going to Ramstein on September for a company trip for the Air Force... Guten Tag.
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Ron Flatt
Investor · Hillsboro, TX · Member since 2017 · 358 posts · 245 votes
9y
That is where my Baby Girl is heading in February, for a 4 year tour.
Can I recommend expanding to the outskirts of Austin. My sister and brother-in-law, have rentals in Temple. But I know there are some even closer to Austin that will really give you a better return on cash than Austin.
I still use the 2% rule on SFR, I prefer multifamily but let I let the 16 unit i had in Bryan I let slip away. They offered too much cash, for me to turn down.
1 Reply
Kevin Wang
Real Estate Agent · Plano, TX · Member since 2013 · 106 posts · 54 votes
9y
Hi Josue
I would keep and rent it if it's less trouble than what its worth. Second is the property will probably be worth more a few years later. If it's worth more usually you can charge a higher rent as your expenses are also increasing. If you're using a property manager It's going to come down to trust with your property manager in handling HOA related issues. If you have a good pm then he/she should be able to screen and get a tenant that at least take care of the basic stuff, usually in a desirable neighborhood this is the case. It's going to be a lot of time spent communicating with the PM. Another thing you mentioned is the pool, I would get protected with insurance if you haven't already. But if it takes more time than you're expecting then I would sell the property.
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Josue Vargas
OP
Real Estate Agent · San Antonio, TX · Member since 2017 · 814 posts · 466 votes
9y
@Ben Lemieux,
Main reason I want to sell is the pool, I could include the pool maintenance in the rent, still give me about $100 cash flow, but that's borderline for me. In reality, the cash for selling gives me the big return. But he location of the property.., I know it will be rented out in no time. If I refi, I can get another $200/month, so in reality about $300 per month including the pool maintenance. I'm skeptical about renting this house, its a 3,000 sqft with pool...
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Josue Vargas
OP
Real Estate Agent · San Antonio, TX · Member since 2017 · 814 posts · 466 votes
9y
@Kevin Wang,
I appreciate your comments. My pool have a "child fence" well made with a 30-yr warranty, so it adds value and protection.
As far as renters go, this is not the "normal average house". This is a $2,500 -$2,700 monthly rent. My main concern is the pool, most people doesn't have an idea what a pool maintenance is like, and if they don't do it frequently, its a mess to deal with it. And if I'll be 1.5 hours away from the house, I will definitively not have time for pool maintenance classes.
I thought about a PM... but at that price, thanks but no thanks, I can scrutinize, and from my experience, these sort of people that have income to rent a $2500/month property are good enough to pay you on time, for the most part. My only concern, again is the pool and HOA. Even me dealing with the HOA for minor stuff is just a pain.
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Ben Wilkins
Rental Property Investor · York, PA · Member since 2017 · 377 posts · 315 votes
9y
@Kevin Wang - be careful playing the speculation game. There is no guarantee that the property value will go up over a few years, especially if you put renters into the property. If anything, tenants usually bring down the value of a property.
Great point about the insurance
1 Reply
Marian Smith
Real Estate Investor · Williamson County, TX · Member since 2011 · 1k+ posts · 961 votes
9y
If this is your family home being converted to your first rental property, and your house is market ready. I would recommend selling. Reasons: no taxes on capital gain, pool, rents could easily slip 10% and then no cash flow, out of town rental hassle or pm costs. Is the potential appreciation and principal paydown worth risking a portion of the 90k?
6 Reply
Kevin Wang
Real Estate Agent · Plano, TX · Member since 2013 · 106 posts · 54 votes
9y
@Ben Wilkins
I don't see why the property can't go up in value if it's in a good location based on fundamentals with low unemployment, nearby amenities, aesthetic appeal etc.. Unless employers moves out and the place becomes like Detroit as Ron said San Antonio is hot. Josue said it will be rented out in no time. Also the type of property in a neighborhood will determine whether you can attract either a good tenant that will take care of the house versus a bad tenant that trashes one.
1 Reply
Ben Wilkins
Rental Property Investor · York, PA · Member since 2017 · 377 posts · 315 votes
9y
@Kevin Wang - I'm not saying that it can't go up, and I'm not saying that it won't go up.
What I am saying is to be careful playing the speculation game. It's tough to guess what the market will do in a few years, and it's impossible to say that the property will appreciate since we don't know.
There's nothing wrong with speculating, and there's nothing wrong with holding on to a property for a possible gain if it appreciates and you sell down the road. However, a lot of data points toward us being near the peak of the housing bubble - I can't advise someone to hold on to a property to gain more profit due to appreciation when I don't know that it will appreciate.
I will always advocate cash flow: cash flow is now, and has no speculation. If I can increase my cash flow now, I will do that over holding on to a property that I think might appreciate in a few years.
Forcing short term appreciation through a fix and flip is a little different, since you are calculating the appreciation in a stable, short-term market rather than a long-term appreciation.
Again - nothing wrong with buying and holding based on appreciation. I'm just warning the original poster that appreciation is speculation and has some uncertainty.
But hey - that's part of investing ;). There are many paths to travel on.
2 Reply
Karen O.
NYC, NY · Member since 2016 · 617 posts · 456 votes
9y
If primary residence, you would likely have a capital gain exclusion so there'd be no tax.
If you figure the move is permanent, sell and put the funds to work in a new primary residence or investment closer to your new hometown.
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Joe Scaparra
Investor · Austin, TX · Member since 2013 · 662 posts · 1k+ votes
9y
@Marian Smith, @Josue Vargas. I took a look at your profile Josue and it appears that Marian nailed it. This is your primary residence, so you would absolutely have no capital gains on the sale of your property. Ask yourself this one question: "If I was looking to buy an investment property to rent out would I buy this one"? If the answer is no then you should sell.
There are too many reason to sell. Renting a nice upscale home with a pool is risky. Not only from a liability point of view but from possible destruction from your renter. Renting a home for $2500 vs a duplex unit for $1000 is a huge difference. From the perspective of an economic standpoint, it is far easier to rent the lower cost unit than the house. HOA hassles, and the prospects of having an empty home between renters is a big deterrence. Can you have some of the same issues with a duplex....possibly, but duplex renter is not expecting a highly finished home that you might expect with a $2500 rent house. Fixing dry wall is easier, replacing appliances are cheaper, and finding a replacement tenant is easier with a lower quality home.
I have many, many, many rentals and I have a nice upscale home I live in. I would not think about renting out my personal residence to intentionally make money from it as an investment. The only reason i would possibly think about renting it out is if I knew I was going to move back a few years later and I had to HAVE the same home moving back to San Antonio. I would trust no tenant to keep a nice $2500/mo home with a pool in excellent shape.
For ALL of these reasons it would be an easy decision for me to sell.
3 Reply
Ian R.
Real Estate Investor · San Antonio, TX · Member since 2016 · 143 posts · 167 votes
9y
Josue Vargas As a few others have mentioned, if this is your primary residence, I would definitely sell and take advantage of the capital gains tax exclusion. Redeploy that $90k into multiple rentals in your new area. P.S. If you do decide to sell and you need a referral for a great realtor that can get you top dollar, I have a contact for you. Feel free to DM me.
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Dan BurstainBusiness Member
Real Estate Agent · Austin, TX · Member since 2014 · 360 posts · 331 votes
9y
If you have lived in the house 2 of the last 5 years you should sell it and avoid capital gains. Then go buy a place or even two places or a multi-family and leverage while money is cheap (4-5%) and prices still are relatively low to other top populated cities. Also, I may be a bit bias, but I like Austin's long-term growth over San Antonio's. There are still some great up and coming areas around the Austin area.
[email protected]512-588-3260
Dan Burstain, Investment Realtor51 Review
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Michael Noto
Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
9y
@Josue Vargas Sell. Easy decision.
1 Reply
Matthew A.
New Haven, CT · Member since 2016 · 90 posts · 99 votes
9y
$90,000 in tax free money today or potentially $200-300 a month in cashflow AFTER a refinance. It's an easy decision. I can hear Cramer hitting the sell sell sell button.
realized gains are much more fun than unrealized gains :).
reinvest and keep the mula flowing. Just don't do it with 4% annual returns, because that's what $300 a month out of 90,000 gets you. Might as well buy bonds, and be the definition of passive income.
GL!
5 Reply
Joe SplitrockPro Member
Moderator
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
9y
Originally posted by @Josue Vargas:

@Ben Lemieux,
Main reason I want to sell is the pool, I could include the pool maintenance in the rent, still give me about $100 cash flow, but that's borderline for me. In reality, the cash for selling gives me the big return. But he location of the property.., I know it will be rented out in no time. If I refi, I can get another $200/month, so in reality about $300 per month including the pool maintenance. I'm skeptical about renting this house, its a 3,000 sqft with pool...
It is not just pool maintenance, but also liability that is a problem.
Also, HOA in are a headache for landlords. They don't like renters because it brings the property values down, so they try to make it difficult on a landlord. Expect them to be twice as picky if you are renting it out.
1 Reply
Dalton Osmanski
Real Estate Agent · Phoenix, AZ · Member since 2017 · 57 posts · 20 votes
9y
In my personal opinion I think it would be best to sell your property, given the circumstances you have discussed in your post. Your property has appreciated significantly and you can use that equity for either a nice down payment or split it and buy a new residence and a inexpensive rental. The HOA and the pool are the largest red flags to me and I personally wouldn't want to deal with those issues being far from the property and the potential liability of them.
1 Reply
Josue Vargas
OP
Real Estate Agent · San Antonio, TX · Member since 2017 · 814 posts · 466 votes
9y
@Joe Scaparra
It is my primary residence.
"If I was looking to buy an investment property to rent out would I buy this one"?
The answer is NO.
Thanks!
1 Reply
Clayton MobleyPro Member
Birmingham, AL · Member since 2014 · 875 posts · 947 votes
9y
@Josue Vargas I guess there's almost no point in chiming in but, as just one more experienced investor I have to agree with everyone here: SELL.
The pool and the HOA are just too much money down the drain - the HOA especially. At least the pool adds value, but still there's maintenance and insurance issues there, and your money could be put to better use elsewhere. Frankly, for only $100-200 in cash flow per month, your equity isn't working hard enough for you. If that's your flow WITHOUT a PM, then it becomes a no-brainer. Given the HOA and pool, and inevitable maintenance those require, a PM would really be in your best interest. But, a PM will take 8-10% leaving you with...a waste of capital.
As others have said, since it's your primary residence you can exclude up to $250k of capital gain if you're single, or $500k if you're married filing jointly, so selling would likely net you a good chunk of tax-free cash. The basic requirements are that you have to have lived there for at least 24 months (non consecutive) out of the past five years, it can't be a property that was acquired in a 1031 exchange, and you can't have taken this same tax exemption on another property within the past two years (for obvious reasons, because that would mean you're claiming multiple primary residences).
If you don't meet the two year rule, you could qualify for a partial exemption in certain circumstances but I won't delve into that unless that's a concern you have.
I also agree with @Ben Wilkins, while appreciation is great (amazing in fact) holding onto something that isn't particularly profitable just in case it increases in value is a dangerous game. If there is a lot of maintenance, or something happens with the pool, you're just a couple bad months from negative flow. You'd very likely recover, but what's the point of clawing back that $100-200 a month when you could use your 90k to generate $1000 a month or more in flow from a handful of managed rentals elsewhere? Of course, in some situations, holding on for appreciation can make sense, but it's usually in pricey markets like CA - where people bought property in the mid 2000s, have seen the values skyrocket and can get crazy rents. Those people are truly blessed, but alas we can't all be in that particular moneyboat. Your property doesn't provide the margin necessary to hedge a bet on further appreciation.
Luckily, you've got options. With 90k to play with, you could easily start a tidy little portfolio of financed turnkeys in other areas in the South or Midwest. If you have other capital to draw from, so much the better. You'd end up with a more diversified portfolio, more cash flow, and far less headache. Of course, you have to do your research and vet thoroughly - but you can do that from anywhere, unlike pool maintenance.
All in all you're in a pretty great position to lock in gains on a prop that should be easy to sell, freeing you up to move where you want and start building a portfolio of passive income producing investments. Not too shabby at all.
2 Reply
Eric Moore
Lender · San Antonio, TX · Member since 2013 · 88 posts · 21 votes
9y
@Josue Vargas Have you considered using this property as a vacation rental? Short term renters typically are better and you could potentially earn much more income via Air B&B. Just a thought :).
1 Reply
Alex Chau
Daly City, CA · Member since 2016 · 29 posts · 14 votes
9y
@Josue Vargas Have you considered refinancing less out as to increase cash flow unless you need that full amount to relocate.
0 Reply
Kristina Heimstaedt
Real Estate Agent · Newport Beach, CA · Member since 2017 · 259 posts · 293 votes
9y
Take the money and house hack in your new location!!! Managing at a distance can be a major pain especially if you want to do it yourself in place of hiring a property manager. Buy a duplex in your new town and rent the other unit. Maybe you will decrease your costs so much over time such that you can begin to fund a future location. Get the snowball rolling!!!
1 Reply
Josue Vargas
OP
Real Estate Agent · San Antonio, TX · Member since 2017 · 814 posts · 466 votes
9y
@Eric Moore
Short term rent for me would not work, I think. We will be about 1.5 hrs away and short term rentals require way more attention and are time-consuming (constant set-up, cleaning, deposits, etc.) I own a rental beach apartment in Puerto Rico and sometimes between turnovers, I rented out as a vacation rental... A nightmare depending on the guests...
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