The house I currently own/owe on is in Madison TN. I came into it knowing it needed work but the price was right (156k). I've put about 10k into it and quite a bit of sweat equity since purchase. The house looks great now. Not just my opinion, I've had realtors walk through. It's gone up in value almost 86k at this time but my mortgage is only 1,030.00 a month including taxes. I'm throwing these numbers out because I have a dilemma. We are planning on moving to Austin, TX in the near future and I don't know if I should sell or rent? If I sell there's no capital gains tax, if I rent I could get around 1560 a month but it will need a new roof and a/c units. It's a 3 bed 2 bath with easy access to amenities.
So numbers wise:
156k purchase price
244k current value but I was told because of proximity to downtown more like 250k
1030.00 mortgage subject to change if not primary household
1560.00 estimated monthly rent
12k new roof and split a/c units
3 bed 2 bath 1700 sq. ft.
Couldn't think of a better place to ask this question!
Hello Joey! My suggestion to sell in this market because you might at the peak of the cycle and it may be more profit than you thought when you purchased it. You can forget about maintain the home if you rent including the possible capital expense items that may happen before you raise your reserve account used to save part of your rental fees plus you will eleminate travel expenses to keep up with its maintenance and possible capital expense repairs. No matter what happens a one unit rental unit is not a good idea. If you want to be into rentals know how to raise money legally and form Partnerships so you can invest in apartment complexes.
Once you start buying a minimum of a 32 unit apartment complexes you'll be able to hire a Property Management Company to take care of the daily operations including the maintenance and tenant screening and still make a positive cash flow. One vacancy is not as painful either.
@Michael Lee , thanks for the input. My investing goals are multi-family only. I was curious if the couple hundred a month would be worth the headache. I'm the shoes off at the door type so I would probably lose my mind anyways. There's definitely a lot of concern that we are at the peak of the market right now. Do you do any investing in the Austin area? We'll hopefully be calling that home in a year or so.
I would take the tax free gains on that property and reinvest that in a more productive asset. You don't really want to be in the boat of managing one SFR from a thousand miles away (it may different if you had a few), and then have your section 121 exemption "expire", and have to pay taxes on the gain. It also sounds like your goals (multifamily) don't align with holding on to that property.
Also, you don't need 32 units for professional property management - 1 unit is sufficient. I have never managed any of my properties.
Hello again Joey! Right now I do not do work anywhere because of my medical problems. I have several friends that live in Austin but I live just outside of Dallas, Texas. I am currently working on being involved in REI. i would love to help y'all in anyway I can.
Hey Joey -
I would suggest taking the money you could make in the sale of the property and reinvesting it into another closer to you, where you'll be able to manage it more easily. This way you have all the money now to invest and make more now rather than later. 'stepping over quarters to pick up pennies'
If your concern is to defer any capital gains tax dependent on how long you've owned, usually 2 years or less, look into a 1031 exchange. This could be of help for you.
Also, I use to live in Austin and know people that could possibly help you out with investments there. They're doing their own development type deals, but I'm sure they'd be happy to help.
Good luck with it!
Sell, take the money with you to TX.
Lets say it's 245k.
7% closing costs
You are in it for 166k. You've paid down some of that, but I'm going to stick to 166k
You walk away with $61850. TAX FREE bc it was a primary
1560 less 10% mgt fee bc you will be out of state: $1404
Sounds like you have some capex on the horizon. Insurance, maint, vacancy etc=25%
You have: $1014 left.
Your mortgage and tax is 1030/month. You are losing money.
Even if you were making $200/month in cash flow (Which you're not) - it will take 309 months of cash flow to get to 61850. That obviously doesn't include debt pay down, etc. But still.
It sounds like a no brainer to me. Sell and find a better rental.
@Joey Tuckey I am actually going to be the devil's advocate on this one. Yes, Nashville might be in a peak, it might not be. Certain areas have regressed but certain areas are still blowing and going. Madison is one of the last affordable frontiers left for Nashville. It's located within 10 miles of downtown, has the commercial imprint that most urban areas lack right now, Madison Square is being redone, it's up and down Gallatin Rd which is the number 1 priority for transit in Metro's eyes.
In my mind, you would be a fool to sell in Madison. I love Madison long term. East Nashville has made it very hard for the people who want to buy in that area and who need the 250,000-300,000 home. East is already provided upward pressure on Madison, hence the appreciation you are seeing.
Ride the way my friend, don't sell
If you need management, let me know! We have units in Madison already