Where would you live? Is $2400 the current payment or after a refinance? I think your interest rate for a cash-out refinance seems low right now, but not sure what they look like in other states.
Those rates are great. Unless you plan to move out of the area you could use your equity as a downpayment on a rental property, and you would avoid incurring capital gains. Part of it is a lifestyle question too, would you want to move to a less expensive home, or is your family happy where they are now, etc.
Originally posted by @Bryce Penner :
@Gretchen Place Live in BC, Canada. $2400 is our current monthly payment.
I'd sell. Vancouver is going to take a big hit. I know a big developer in Vancouver who is not buying new property until March 2019 at the earliest.
I'd either sell it or get a HELOC and use the equity to buy more properties.
Renting out a $850k property for $3,500/month is not the highest and best use of the capital.
@Bryce Penner I would analyze the spread you are making on the money that is being loaned to you. It appears you have a very low rate and it would be expensive to replace the debt at that interest rate. So, calculate the current cap rate based upon the rents you would be getting and then see what your cash on cash return would be with your current loan. Once you have that number you will see if it makes sense to sell because if you can't get a higher return investing in something else with the proceeds then I would say keep the house and take advantage of the low rates you have locked in. Then as @Brian Garrett mentions use a HELOC to tap the equity when you find something that will expand your cash on cash returns. I think a lot of folks are understimating the value in the the low rates they are locked into, but if you do the math it makes the decision much easier.
I would also sell the property and use the proceeds to acquire properties that would have a better rate of return.
Unless you're planning on living there for awhile, I would probably sell. Normally, I almost always believe it makes more sense to hold. But thats because most houses make decent rentals. When you start to get into that kind of price point (850k), then they no longer make sense as investment properties.
However, if you sell, are you going to turn around and buy another 850k house? If so, then that makes little sense either.
But if you plan on buying saying a 400k to 500k house, then yes, sell it and grab the equity now.
You basically have a 450k mortgage now. So if you buy even a 550k to 600k house, you'll have roughly the same mortgage if you use some of your profits from your house to buy it down and that will then leave you with 300k to 400k to invest in other properties.
But if you're going to turn around and buy another 850k house, then stay where you're at and get a heloc on your house and use that money to invest in more real estate.
To me, it all comes down to - if you sell, what price point will you be looking at for buying your next home? If your standard of living requires spending 750k to 850k on your next house, then stay and get a heloc to use that equity for investing. If you can find something to your liking in the 450k to 550k range, then sell and grab that money now for investing.
But either way, congratulations on your gain. In just over 3 years or so, you've managed to gain 400k in equity. That is truly amazing!
Assuming you can rent a place for 2400 or so that's equally as nice as where you are I'd sell it. I'd take the tax free money and run lol. Maybe wait a bit till you find the ideal rental or whatever, but that's quite a nice profit.
Where I am, I can rent far cheaper then I can buy for similar properties all day long. It also wouldn't take much for me to offset or completely wipe out my rent w/ investment properties...
But if you sell the house you're living in so you can tap into that equity to use to get this rental property, you're going to need a new house for yourself. What kind of price point will you be able to buy a replacement home for yourself that will be acceptable?
Ultimately, it makes little sense to sell the house you're in now for 850k if you're going to have to turn around and buy a house for you to live in at say 750k to 850k because thats where the price point is in your area for a home that you will be satisfied with.
Your best bet then would be to stay where you're at and get a heloc and use that bo buy the 280k rental property. Now if you can buy another house for say 450k for yourself and then buy the 280k rental property, then I would do that.
Sounds like you hit the jackpot for appreciation. Maybe that means it's time to sell? Does a lot of the pumped-up RE economy in BC depend on Chinese investment, and can that be counted on? Not claiming to know, just asking questions here.
Cash flow before expenses = $1200 means depending on condition of house, real cash flow could be a whole lot less. And $1200/mo already is not much for the $400k tied up in this property.
Seems to me the answer to your question also depends on a lot of things we don't know about: can you take that $400k and leverage it into several properties in your area, one acceptable to live in, the others as investments? Are you willing to relocate? There are places where $400k would get you a home AND a good start on a rental portfolio.