Should I sell or keep.

Question

Hello, I'm looking to get opinions on what I could do. I bought this Florida duplex in 2016 for $220,000 current it cash flows a gross monthly amount of $1100 the market value is around $340,000 and I owe $203,000 on it plus I wouldn't pay commissions on the seller side because I'm a realtor. This means I can sell it and get net around $120,000. I need that cash flow money it helps a lot but I can live with out it. So I was thinking to see if maybe I could try flipping properties buy buying them in auctions or getting deals from distress owners. Because it is $120,000 I'm thinking seriously on trying do some type of investments to make better use of that money.

Anthony Angotti · Answer

@Yoel Frometa you'll hear it all the time on the podcasts and if you talk to long term buy and hold investors. The biggest regret is selling too many of the properties.

The quick money from Flipping might be nice, but the long term hold on the cash flowing property is what's going to generate wealth.

If you are looking to flip there's easier access to money than selling the performing rental properties. (Lines of Credit, Refinancing the Rental Property, Hard Money, Private Lender, ETC)

Ralph Justiz · Answer

@Yoel Frometa If you were to sell how much work and time would it take to get you back to your current cash flow? How much would you have to pay in taxes assuming the property was not your primary residence 2 out of the last 5 years? How much would you have to pay to recapture depreciation?  Would that effort be "worth it" in the next 2, 5, 10 years?

Jeff Cichocki · Answer

Here's a couple of different thoughts regarding selling the property...

1. Why not sell it with owner financing? You can wrap the existing mortgage with a new loan and pocket the spread between your mortgage payment and their payment to you. It's a good way to continue receiving cash flow without any of the expenses.

2. If you seller finance it... Once you create the note, you could also sell a part of the note off and receive a lump sum of cash while still owning the majority of the note.

3. Why not sell an option to another investor. You could sell a piece of the properties equity and not give up the monthly cash flow (or maybe you do give up some of it).

Anyway... the point is that there are more options out there than just sell or refinance. Different strategies and solutions will have different pros and cons to them. But, if you consider some of the more creative solutions out there, you'll likely find something that works perfect for you.

Good luck!

JD Martin · Answer

Based on the numbers you posted I would sell. $1100 gross rent per month is lousy cash flow based on your expenses, which sounds like at least a mortgage of $200k plus anything else in there. I'd be surprised if you are netting anything on this property. Not to mention the fact that you bring in $1100 on a property worth more than 300k. That must be the new "1/3" rule 😀 .

Oliver Carey · Answer

Sell, Keep, or Cash Out Refi at 80% LTV and Keep - What is your Outcome... what Results are you looking to achieve? - then decide which route to go based on that answer.

Gary Parilis · Answer

Among the few regrets I have in life are  properties I've sold. When we moved from our first home to our second, we were young and risk-averse. I had a hunch I should keep the house and rent it, but sold it. Now 20 years later, the tenants would have paid off the mortgage and the value has more than tripled. Live and learn!

Yoel Frometa · Answer

@Gary Parilis

Hello Gary I really appreciate your advice it’s sincere, according to Warren Buffett a key to his wealth is that he held his investments.

Mary White · Answer

I've been in your situation twice. The first time the market had dropped and we were forced to rent the property. We sold that house in 2017 to purchased a 4-plex BRRRR opportunity with cash. At the end of the day we made a profit on the 4-plex and it was a very good re-deployment of capital. However, the house was in a higher appreciating area and has gone up $75,000 in the past three years. If I could do it again, I wouldn't have sold the house. The only real positives are a strong cash flow on the 4-plex, zero dollars left in the deal, and the fact that the new property is in my current home town.

I just purchased a new primary residence and we have $125,000-$250,000 in capital in the previous home. Rather than sell and take the gains for future investments, I've chosen to keep it and do a cash out refinance. I know I'll get much less cash to work with, but this home is in a very desirable area and will have a healthy $500/month cash flow once refinanced. It will also need next to nothing in terms of my personal work load. I self manage my properties and this is very important.

I shared my story because what I've learned is to hold whenever possible. Also, it's a good idea to think about whether you want to diversify your holdings. As in use some for cash flow and others for appreciation. If I hold some single family homes along with my multi-family homes then I can liquidate a property quickly if needed. Sometimes the best thing is to let the cash flow build up in your savings along with the cashed out money and just wait for the right deal.

Best of luck!

Yoel Frometa · Answer

@Jeff Cichocki

Thank you very much Jeff you have a very interesting point.

Lionel Li · Answer

May not be the best use of capital from a gross-return standpoint, that's only 3.9% of ARV annually and not yet taking into account PITI, utilities or reserves. Don't get me wrong, this is a successful appreciation play for sure but in terms of holding this long-term, there are better rates of return on your capital in other investments.

If you're trying to build cashflow, then this is a great way to shift capital made from appreciation to buy more income producing assets. If you're not itching for cashflow and you can bleed a little every month to hold your capital gains, then by all means keep it growing!

Great stuff nonetheless!

Should I sell or keep.

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