Sell and Reinvest or Hold Long Term?

16 Replies

Hi all, question about what to do with current property. I’ve got a duplex that cash flows about $1,000/mo. I could potentially sell it and walk away with about $40k in cash after realtor fees, taxes, and paying off loan. If I sold I’d be looking to implement BRRRR strategy so I’d be able to pull the capital back out. If successful I could buy many properties with that same capital. But the risk is giving up my solid cash flowing property. The other issue is I recently moved out of state and am working on getting another job. Because of this I’m depleting my savings and won’t be able to qualify for loan. I figure I could flip a house or 2 in the meantime until I get started in my new job. If not, I can keep the current rental for the income and then save up capital once I start working again. Thanks in advance, and let me know if I can provide any clarifying info.

Cash flow of $1000.00 bucks a month or $40K to play with? I don't see any legitimate argument for selling in order to free up $40k when you are pulling $1k monthly. If you are burning through cash reserves right now whatever you do don't get rid of $1k worth of passive income! Repeat what you did to get that duplex that cash flows at $1K a month. Good luck.

@William B. If I’m using brrrr strategy I can use the same capital to buy multiple properties though and ultimately make more than $1,000/mo. I’m going to be applying to my state’s electrician apprenticeship program but I have to wait until November. I have enough savings and other sources of income to get me through to that point. Plus I’ll be earning rent while my property is listed and going through the selling process which takes several months.
@Jake Thompson . Judging from your second comment it sounds like you want to sell. And try to BRRR. So if that’s the case go do that. Unfortunately I won’t be suggesting you do that. You have good cash flow. Don’t mess with that. You aren’t gonna try to BrRr long distance right? Don’t forget about the refinance part as that’s sometimes tricky. Also don’t forget to find a good contractor who doesn’t rip you off, AND stays on budget AND on time. Which is difficult. Point is you’re gonna need a lot of things to go right for this to work OR you could do nothing and just leave something that’s going well alone.
@Caleb Heimsoth I am leaning towards selling, but only if that makes the most sense. I’ll be doing it locally (I just moved to Oregon) so I’ll be able to keep a closer eye on things. But, contractors, budgets, timelines, etc. are definitely unknowns that play into risk. I may end up flipping the first deal or 2 until my income is solid and I can actually qualify for loans when I refinance too... But the thought of giving up the $1,000/mo for unknowns is tough. The long term goal is $5,000/mo in passive rental income, so it seems counterintuitive to sell my only property. But if I can take the capital and use BRRRR to get more cash flow then I will...
Originally posted by @Jake Thompson :
@Caleb Heimsoth I am leaning towards selling, but only if that makes the most sense. I’ll be doing it locally (I just moved to Oregon) so I’ll be able to keep a closer eye on things. But, contractors, budgets, timelines, etc. are definitely unknowns that play into risk. I may end up flipping the first deal or 2 until my income is solid and I can actually qualify for loans when I refinance too... But the thought of giving up the $1,000/mo for unknowns is tough. The long term goal is $5,000/mo in passive rental income, so it seems counterintuitive to sell my only property. But if I can take the capital and use BRRRR to get more cash flow then I will...

I think you’re looking at this with rose colored glasses some.  First off don’t has generic goals like 5k a month.  Just have simple 6-12 month goals.  Like buy a house or sell one.  Why would you want to sell now while you can’t refinance?  

BRRR is not as easy as a lot of people think. It's gonna be a lot of work

@Caleb Heimsoth The goals are more in depth than that, I was just letting you know that ultimately I want the passive income to reach FI. But I get your point. As for why I’d want to sell now, it’s because the market seems to be shifting. Also by the time the sale actually goes through, I plan to be working. Then by the time I find the next property and get it rehabbed and ready to refi, it shouldn’t be an issue qualifying. I don’t know, maybe I’m just overly optimistic, but I feel like the BRRRR strategy offers such amazing returns that it’s worth taking some calculated risk. But, I wanted some other opinions, which is why I came here. Wondering if there’s something I’m not thinking about or being unrealistic about. Thanks for your honesty!
Originally posted by @Jake Thompson :
@Caleb Heimsoth The goals are more in depth than that, I was just letting you know that ultimately I want the passive income to reach FI. But I get your point.

As for why I’d want to sell now, it’s because the market seems to be shifting. Also by the time the sale actually goes through, I plan to be working. Then by the time I find the next property and get it rehabbed and ready to refi, it shouldn’t be an issue qualifying.

I don't know, maybe I'm just overly optimistic, but I feel like the BRRRR strategy offers such amazing returns that it's worth taking some calculated risk.

But, I wanted some other opinions, which is why I came here. Wondering if there’s something I’m not thinking about or being unrealistic about. Thanks for your honesty!

I tend to come across as overly pessimistic sometimes so don't take this all to mean it won't work. BRRR can be a great strategy, I just am not sure it's the right strategy with your current situation. I would keep the other property and just save money to then BRRR. How much of that 40k is capital gains?

Something is distracting you from reality as an investor, any investor would salivate to have 1k passive income from a piece of real estate if this is truly cash flowing at 1k net cash flow per month you would be absolutely bonkers to sell it to free up 40K. If you want to give me 1K a month to have access to 40K I will give you a personal line of credit for a 1k per month payment. 

@Jake Thompson

Keep the property until you get a job, save up and do one BRRR strategy.

   After that if you think pulling out the $40K is still worth it go for it. But like others have said, getting $500 a door passive income is the goal. 

   I hear investors come up with these ideas more because they want to be busy doing deals. Enjoy where you’re at. When you get busy you’ll appreciate that passive $1K a month. 

- Mike

@Jake Thompson I think you should keep the duplex as well. $40k really isn’t that much money to start over with. BRRRR is an awesome concept/strategy but I think it’s much easier said than done. I mean think about it. To get all your money back out you have to be all in for less than 75-80% of ARV. With only 40k to your name a huge chunk of whatever equity you create on a BRRRR property is going to be eaten up by hard/private money points and interest. Which means you’d have to find an even better deal, in a hot market. Or you could let that $1k a month keep rolling in with little effort. That’s not even to mention how awesome a place San Diego is. Clearly I know nothing about the specifics of the neighborhood/area of your property but I imagine over the long term (10-15 yrs) that $1,000 a month will turn into 2,000 or more. AND the equity you will gain through appreciation in San Diego should be a very major consideration. The other thing to think about is you could very easily lose that entire $40k on a first deal if you have no experience and no vetted team. Half of that $40k could get eaten up in a rehab estimate error alone.

$40k to produce $12k annually is a very good return (30% return). 

I have done a few BRRRRs but have yet to get all of my purchase and rehab costs back via the rehab. The reason that it has not worked for me is the low refi appraisals along with the max 80% LTV. So as other posts have indicated, it is not easy to get all money out.

Note at the 30% return of keeping the RE, you can borrow $40k from a HML and keep the propery and be better off than having sold the property. I would feel differently if you would net $100k on the sale.

Good luck

Hi all, thanks for the responses! We're going to hold onto the property and cash flow we already have. The smart move would be to just save up the money needed for a down payment on the next property and try to recycle that. If I am unsuccessful on this BRRRR I'd feel pretty crappy knowing I gave up a solid cash flowing property. Plus, as @Ryan E. mentioned, San Diego will likely continue to appreciate over the next 10-20 years.

Thanks everyone for the input!

Originally posted by @Jake Thompson :
@Caleb Heimsoth I am leaning towards selling, but only if that makes the most sense. I’ll be doing it locally (I just moved to Oregon) so I’ll be able to keep a closer eye on things. But, contractors, budgets, timelines, etc. are definitely unknowns that play into risk. I may end up flipping the first deal or 2 until my income is solid and I can actually qualify for loans when I refinance too... But the thought of giving up the $1,000/mo for unknowns is tough. The long term goal is $5,000/mo in passive rental income, so it seems counterintuitive to sell my only property. But if I can take the capital and use BRRRR to get more cash flow then I will...

 Make your goal $100k/month passive, then think what you'd do to do that.  I don't want to tell anyone how to invest or what their goals should be, but if your goal is $5k/month and you're really focused on that, it'll come quick. Then what?   Better to have a crazy goal so your steps you take are aligned with it vs. a smaller goal that might take you down the wrong track.