Why shouldn't I sell???
Happy Thanksgiving BP! I've been tossing an idea around and I'm hoping to receive some feedback.
Little background info: Our objective is to continue building a portfolio of passive income rentals. We've done pretty well thus far, only purchasing 2% deals or better. These are mostly in the small multifamily niche. The long-term goal is to move into apartment complexes.
Recently, I've been throwing around the idea of selling these and taking profits(we forced appreciation through raised rents and/or rehab). I've run all the numbers(I live and die by the excel sheet) and here's the long story short: we could sell our properties, net some cash, put that cash down on a larger property(hopefully 2% deal like we've been doing), and cash flow 60% more than we were on our previous holdings!
Quick hypothetical in case that the last paragraph didn't make sense:
- Purchase property at 50k
- It rents for $1000/mo
- It cash flows $300/mo
- Sell it for 75k because it's appreciated
- Net a 25k profit(we wouldn't actually, with commissions, closings, taxes etc, but I'm keeping this simple)
- Now we can put 25% down on a 100k property
- It will gross $2000/mo(2% rule)
- Now we net $600/mo cash flow.
- Our cash flow has doubled because of the snowballing!
So BP, poke holes in this plan please!! Is there any reason not to start snowballing now? Has anyone else been doing this? My biggest concern is selling these solid, cash flowing properties and then not finding that next larger property. On the other hand, maybe we locate it first and then 1031 exchange the older properties, increasing our new cash flow even more if we don't have to pay capital gains, affording us a larger property. I guess I'm thinking out loud at this point, but I'd love to hear your thoughts!