Should I sell or hold? Advice needed

8 Replies

Hello,

I own 2 SFH that were purchased less than a year ago. Both were BRRRR investments.

I currently have a $95K debt in my Heloc and it costs me $500 a month in interest. 

MY GOAL: PAY THAT BAD DEBT OFF BY THE END OF THE YEAR

I would appreciate your opinion as to whether I should hold and refinance the properties or sell, pay off the debt and restart. I am currently negotiating with a fatigued investor who has been self managing for 30 years and is sick of it, wants to sell the whole portfolio of 30 units.

Summary house 1: 2200sqft, 3BR 1.5Ba, great location, a block away from university. The house is beautiful and stands out. Its the kind of house that people want to rent or own. It was purchased october 18 so I could sell it in a month for long term cap gain.

Purchase price:102K

Rehab cost: 30K

Money invested: 55K

Rent is $1300 and cash flow: $350. Its been rented for 6 months. Tenants have been great and quiet. The house is professionally managed. 

One problem with the house: it will need a new roof in 3-4 years, which will cost about 10-15K. Current home value is 160K

Summary House 2: 1750sqft, 3BR 1BA, finished basement. The house is set for a 4th BA with an additional 4k. Everything is new, including the big ticket items. It was purchased in May so selling it would amount to a flip, with the massive tax liability that ensues.

Purchase price:$78K

Rehab cost:26K

Money invested: 45K

Rent is 1200$. Not yet rented but I have several applicants ready to take it yesterday.

Cash flow is $400. 

My final goal is to have 20 units that are professionally managed with great long term tenants that I selected over the years and I cuddle and treat well. A small and sweet portfolio that is low maintenance, makes money and makes everyone happy. My problem with these 2 properties is that Going through the learning curve, I put too much money in them, and I want to pay off my 90K debt in my Heloc by the end of the year.

I have 2 options: 

1. I could Refi both properties and pay the rest of the debt with my income

2. I could sell one property and 1031 exchange but I dont know if I can exchange the second as it has never been rented and would be considered a flip. 

What would you do if your priority right now is to cash out the equity and pay off the debt?

Thanks

Hello Erick!  Pay off any negative debt and start over.  I do not know where you are but this a great selling time right now,  but it kind of matters where you are invested.  I think you can file a 1031 on anything.  Not all debt is bad as long as it generates a positive cash flow, does not take money out of your pocket.  Good luck to you!

@Erick T.   While your goal maybe to have 20 units, it takes time to get there.  You are going to have debt if you want to buy that many properties, especially over a short period of time.  

How much would it cost to refinance the current rentals and how much would they cash flow at the end of it?

House one has good cash flow, especially considering how much you put into it.  you have good tenants in place, I'd keep it.

House 2 isn't rented, so your cash flow is only on paper.  How much would you have to pay  in taxes if you sold it?

Hello everyone, 

Thank you for your replies and please keep posting. All perspective really help make a decision. I appreciate it a lot.

Say I decide to refinance:

- If the bank values house 1 at $140,000, which is conservative, I can take out $30,000. At that point my cash in would become $25,000. 

Cash after mortgage, taxes, insurance and PM would be $326. Cash flow around $200. CoC would be 9.6% after a year

Problem is the elephant in the room: a roof to replace in 3 years that would cost 10K. That is one big reason when I’m considering selling now because the selling market is really hot in my area and I could get 160K, maybe more for it. On the other hand, it is occupied till march and the market is not that hot during the winter.

- House 2 is a better investment. Cash flow prior to refinancing is $409

I can get $36,000 out of refinancing and the new cash flow would be $220

After refinancing Money invested would be about $9650. Coc 27,35%

My goal has been to leave at most 10K in every house.

Option 2: I sell house 1, I can take about $75,000 equity at long term cap gain. I can then refinance house 2, take the $36,000 cash and rent it. I keep a property that returns 27% during the first year. I can pay off the $90,000 debt and I have $21,000 cash to move on to the next property. Problem with this is that the lease ends in March and selling a rented SFH is not ideal.

Option 3: I keep house 1 and sell house 2, take about $62,000 equity, refinance house 1 and take 30,000 out. i pay off the debt and I have a rental that brings in 9.6% return. Personally I dont like this option.

 

  Honestly selling House #1 sounds like a good option.  If the market is hot like you claim then you can get a good bang for your buck.  You can also either sell it before the roof is a problem or completely replace the roof & possibly have a higher value for your sale. 

I would keep House #2 for the simply reason that your CoC is so high. It seems as though you don't have as much cash involved on that one & are garnering a grand return monthly. HOWEVER those numbers are not yet proven but if you understand your market & know someone will be willing to pay your rental rates then you're in the green.

  I would do whatever you feel is right, carefully analyze your numbers & make a decision if need be.  I think your main question could be do you want to hold more or less risk?  

Originally posted by @Austin Tully :

  Honestly selling House #1 sounds like a good option.  If the market is hot like you claim then you can get a good bang for your buck.  You can also either sell it before the roof is a problem or completely replace the roof & possibly have a higher value for your sale. 

I would keep House #2 for the simply reason that your CoC is so high. It seems as though you don't have as much cash involved on that one & are garnering a grand return monthly. HOWEVER those numbers are not yet proven but if you understand your market & know someone will be willing to pay your rental rates then you're in the green.

  I would do whatever you feel is right, carefully analyze your numbers & make a decision if need be.  I think your main question could be do you want to hold more or less risk?  

Thank you Austin, 

House #2 is not yet rented but my PM has 3 applications now and they would like to move in this week. So I needed to make the decision whether to sell or rent now.  I agree with you that selling house #1 may be a better idea. Its a bigger house, 2 story, great location. The kind that families would want to own.

Compare what you won-to-date vs your initial investing schedule and your 1-2 strategy.  Can you get out without loosing?