The Double edged sword

4 Replies

Hello BiggerPockets, I have a Dilemma I would love to get some input on.

I purchased a screaming deal in June of 2017.

All in with rehab, the cost was $75k (including furnishings).

It has been on Airbnb for nearly 2 years now.

After all expenses including management the property effortlessly nets around $3k/month consistently (according to my Trailing 20) which is in the 45%+ cap rate range.

It is a condo that has proven nearly impossible to (re)finance (due to mostly investor ownership in the community).

Now it has a market value of roughly $150k+. Even with the new valuation the property is still preforming at a 23% plus cap rate.

I will buy 20+ caps (B class properties) all day, but the lack of leverage presents a problem when one is trying to scale.

I have however, been able to reinvest the cash flow directly into a couple small multi family deals.

On the other hand, In my market the extra $150k down can absolutely get me a larger multi family, which is my desired trajectory.

This begs the question; To sell, or not to sell?

(A) Sell a 45+ %+ cap rate property, take the double up on investment and 1031 to a bigger deal.

Or,

(B) Keep property and scale accordingly via reinvesting cash flow + savings.

Any/all input would be greatly appreciated.

Thank you in advance.

Thinking out loud here...could you not pay it off (with some other loan or w/ cash flow) then use it as collateral for future purchases? Thus not needing to refi or sell it. If the bank isnt wanting to refi it I'm not sure if they would use it as collateral or not. 

Also, how many banks have you looked at refi it with? Seems odd in this market they wont do a refi period. 

It seems like a pretty good thing you've got going if you are netting $3K/month IMO. I would sock away the cash flow + savings to scale up. Also, I know portfolio lenders sometimes will lend even if the owner occupancy is low in a building. You'll pay higher interest, and likely won't be able to take out as much equity, but that may be an option to look into.

@Nik Moushon I actually purchased it outright and currently  owe nothing on it. 

As far as the number of lenders I have reached out to... I can say close to 20, from private money to local and large banks.

I really appreciate your  feedback though. As well as anything else you can come up with.

Thank you again 

@Danielle Wolter That is something I will look into. I’m  guessing, because I didn’t have a portfolio at the time, I Subconsciously blocked it from my mind.

Super helpful! I will report back in the next few days with any updates. Any other feedback you or anyone else may have would be extremely helpful as well. I have obviously had at least one blind spot.

Thank you again