Should I sell and move on? Help or send SOS :)

27 Replies

Ok BP followers, here's my dilemma... 

I own 1 duplex in a prime neighborhood that is appraised around $450,000. I financed well at 3.75 no MI so my payment is $2075 with a balance of $310,000 remaining on the loan. I take in $2,700 in rental income, but after utilities my net cashflow each month is $400. It's a beautiful turn of the century duplex that I renovated when I purchased and lived in one of the units then renovated a single family which I later sold. My main question is do I ride this out for the long haul, or cut bait and move on? The average duplex in my area sells for around $400,000-$500,000. The house is old, the Winters are long, and I'm tired of the leaks and squeaks and though I love the house, all I can see is dollar signs for repairs in the near future because I'm OCD about everything! Anything will help. Here are a few photos of the place if that helps. 

@Ross Melby . What did you buy it for? More specifically, what did you buy it for and rehab it for? Basically how much money Do you still have in it? I’d say this is an easy sell scenario. Sell sell sell. But answering those questions will help tol

Originally posted by @Ross Melby :

Hey 

@Caleb Heimsoth 

I purchased the house for $330,000 three years ago and invested about $15,000 in light work I completed myself so all in $345,000. Thanks for the reply, much appreciated. 

If I were you then I’d sell sell sell.  This should be a no brainer.  You’ll realize about 100k in appreciation and stop losing money.  

What’s the hold up? You should be calling a good agent now to sell. 

@Caleb Heimsoth the only hold up is everyone keeps beating in my head "NEVER SELL..." which is giving me pause. I'm not loosing money, but there definitely isn't much to look forward to and no real way to budget for repairs. I'm trying to figure out what the next purchase will be if I sell. We have a super competitive market with a lot of money floating around and I refuse to purchase in our less favored areas where you can still pick up a deal for around $250,000 but will be dealing with unsavory tenants in less than savory neighborhoods.. 

Originally posted by @Ross Melby :

@Caleb Heimsoth the only hold up is everyone keeps beating in my head "NEVER SELL..." which is giving me pause. I'm not loosing money, but there definitely isn't much to look forward to and no real way to budget for repairs. I'm trying to figure out what the next purchase will be if I sell. We have a super competitive market with a lot of money floating around and I refuse to purchase in our less favored areas where you can still pick up a deal for around $250,000 but will be dealing with unsavory tenants in less than savory neighborhoods.. 

I can’t Help with the what do you buy if you sell part, but I know you should sell, like yesterday. 

@Ross Melby so you're making $400/mo. before vacancy, maintenance, capes reserves, etc...?

No brainer, sell. The only reason you havent sold is that you are emotionally attached to the property. You're at best, breaking even, and the property is only getting older.

You are a smart man and agree I am emotionally attached. I am at best breaking even, and completely agree everything is simply getting older and older. Thanks for the reply! 

@Jason D

@Ross Melby

Ross,

My question to you is: Why do you pay the utilities on a duplex you have rented?

Does it have separate meters? Usually duplexes here have separate ones.

I'm in Florida, and i don't pay for any of my property utilities.

Hope it helps.

@Ross Melby

I'm a long term investor so, after looking at the other comments you can anticipate I'm leaning towards holding however, if you feel being a landlord is overwhelming to you, then sell. If not, then hold.

You have good equity, which could give you collateral once there's a downturn in the market and you'll be able to invest in another property.

Do your numbers.

"the only hold up is everyone keeps beating in my head "NEVER SELL.."

Most of us on here are generally successful investors. Any investor that believes in the "NEVER SELL" mantra is truly an idiot. When the situation or need arises you sell.  

In your situation, both financially and physiologically, all indications are that the smart thing to do would be to sell. Stop allowing your emotions to influence your decisions.

Originally posted by @Thomas S. :

"the only hold up is everyone keeps beating in my head "NEVER SELL.."

Most of us on here are generally successful investors. Any investor that believes in the "NEVER SELL" mantra is truly an idiot. When the situation or need arises you sell.  

In your situation, both financially and physiologically, all indications are that the smart thing to do would be to sell. Stop allowing your emotions to influence your decisions.

 you can always rely on Thomas S. to give it to you raw :)

@Ross Melby I am assuming you'll net 95% of sale price since you're an agent and will only be paying half the commission. 

Let's say you sell it for 430k, 95% of that is 408k, minus the 310k loan and you'll be left with 98k. You're 98k right now is making you 5k/year, a measly 5% return. Even if you include mortgage pay down, likely 80% of your mortgage payment is interest, so still abysmal. 

Unless there are strong indications of serious appreciation in that area, selling is a no-brainer. You're better off parking the money in an index fund and not dealing with property maintenance & tenants.

You should sell it and invest in less expensive markets like Cincinnati, Indianapolis, Kansas etc., a 100K equity can bring you as much as 5-8k gross/month in some of this markets.

@Ross Melby I'm not clear on what you're talking about cutting bait and moving on from. You have postive cash flow of $400 so I don't see this as having to cut your losses. Are your fears of repair costs in the near future real or imagined? How much have you been spending on maintenance? What deferred maintenance is there? It sounds like you renovated it somewhat recently. You have about $100K in equity. Where did that come from? Was it built in when you bought or has it appreciated that much? Your cash on cash return is pretty slim but if that equity is coming from appreciation and is likely to continue, I don't think I would be in a big rush to sell. The big factor in favor of selling however is your return on asset is very low. You're netting roughly $4000/year on a $450,000 asset. I'm sure you can redeploy those funds and do much better than that. 

I’m gonna suggest the opposite in here and say hold it?!? A beautiful property in a great location is priceless and “holding out for the long haul” is gonna be like 5 years when market rents have gone up and up every year. 

First off it looks beautiful, nice job! 

I’m OCD about my house hack too but could care less about the properties I don’t live in, when you move out you’ll relax on that. 

You need to stop paying utilities! Someone earlier had a lot of good advice around that- that’s a must! 

If this really is a good location is Airbnb an option? That would immediately increase cash flow a ton. 

Also I suspect your rents are under market? I don’t know Minneapolis but $1,350 a piece on a 450k property seems low. I randomly googled market rents for Minn- I know, google... but it said 1450 for a 800 sq ft place. Yours looks really nice too. 

Just my thoughts but I would hold?  This seems like a long term potentially stress free rental that gets better and better every year. 

Ouch. You have a half million dollars in equity and credit working to make you $4k/year, before considering income tax? Yup, sell it. I'd probably take a step back to look at the numbers and then look at your emotional attachment, not wanting to deal with the hassle of a sale, etc. Naturally, this is a numbers game, and the way we stay in and expand business is by maintaining the numbers. 

Selling now will allow you to enjoy that $100k gain, whereas, if you rely on cash flow, it'll take you a good 25 or more years to enjoy that kind of return.

If you choose to ride it out for the long haul, you ought to at least consider moving the cost of utilities to the tenants, increasing rent, etc.

Originally posted by @Ahmad H. :

@Ross Melby I am assuming you'll net 95% of sale price since you're an agent and will only be paying half the commission. 

Let's say you sell it for 430k, 95% of that is 408k, minus the 310k loan and you'll be left with 98k. You're 98k right now is making you 5k/year, a measly 5% return. Even if you include mortgage pay down, likely 80% of your mortgage payment is interest, so still abysmal. 

Unless there are strong indications of serious appreciation in that area, selling is a no-brainer. You're better off parking the money in an index fund and not dealing with property maintenance & tenants.

Love this. Not enough people are using the COE metric instead of COC. As your equity grows in a property, expect the returns to grow as well. If your returns are remaining stagnant, like your initial cash investment, you aren't making real money.

@Ross Melby  Love this post and everyone's feedback. I'm also a little (my husband might say super) OCD about my older property and also concerned about upcoming repairs. Hadn't considered selling since I'm trying to grow my rental portfolio but this gave me something to think about and at least run the numbers on. 

@Ross Melby - I'm in a similar situation but this post helps me realize I'm also emotionally attached. I'm planning on selling once I find a property to 1031 into that cash flows more. I would recommend the same. This way you initial contributions stays the same but now instead of making $400 a month you can find a property where you can cash flow much more since you'll be essentially putting in $98K down on it. That's probably better than selling and having to pay the taxes on the profit then finding something to reinvest in. Best of luck!

Originally posted by @Priya Thomas :

You should sell it and invest in less expensive markets like Cincinnati, Indianapolis, Kansas etc., a 100K equity can bring you as much as 5-8k gross/month in some of this markets.

 Hi Priya where can I get $5k-$8k gross/month? Maybe I'm missing something but I have been investing in Indy for years now and have never seen anything like that. I sincerely am curious. DM me if you prefer. 

Thanks!

@Ross Melby That's a touch situation and many of us have been there, maybe some of us currently are (ME). I can only tell you what I am planning to do and that is to sell and reinvest into an apartment building. You may only be getting $400/month still but 1. you'll be more diversified and 2. at least in my case there is a lot of room for appreciation. 

Another option is to JV with someone or join a syndication. I can make some recommendations if you're interested but then at least you are a lot less involved. DM me if you want.

@Ross Melby

How long did you live in home? I would

probably sell in your situation. If it were me in that situation I have no doubt I can grow the proceeds of the sale faster than 400 a month so thats how I look at it. If you feel the same you should do the same. I am curious how sure you are that the duplex will sell for that amount if cashflow is that bad but you did a great job on the renovation.