I have an offer for my rental, Should I sell?...

Buying & Selling Real Estate
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I have an offer for my rental, Should I sell?...

German Torres
Houston, TX · Member since 2016 · 17 posts · 5 votes

Hi BP, I'm looking for advice.

I own a town house 2/2/2, I bought it for $56k including repairs 3 years ago cash,

ARV $80k

$1.1k rent

$700 Cash flow

The tenant has offer me $80k to buy it and I considered to use the money to buy a small multi family, but Is my only rental.

Any Advice?

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Brian Goodling
Investor · Tampa, FL · Member since 2019 · 29 posts · 45 votes
6y

Man, $700/mo cash flow? Thats insane, and you're honestly considering getting rid of that for roughly 60k cash? Especially when you've already done the repairs and such. Dont get me wrong, 60k is a decent chunk, but it wont get you another property for all cash most likely. For a small MF are you talking a duplex? If so, the duplex can only be 240k since you'll need 25% down. Finding a duplex to rent for roughly $1250 each side might be tough unless you're in a really good area, but even if you are in a good area I would bet the property is more expensive than 240k. 

Again, a lot of this is napkin math, but I couldnt see giving up a gold mine like that. 


Why not refinance the property, still retain the cash flow, albeit less than $700/mo, and use the cash from the refi and purchase your MF? That seems to be the play here honestly. But I wouldnt sell. 

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  • Hai Loc
    Specialist · Toronto, Ontario · Member since 2012 · 2k+ posts · 891 votes
    6y

    I always tell people if you gonna sell make sure you buy something better, more specifically better numbers/return 

    1Reply
  • Brian Goodling
    Investor · Tampa, FL · Member since 2019 · 29 posts · 45 votes
    6y

    Man, $700/mo cash flow? Thats insane, and you're honestly considering getting rid of that for roughly 60k cash? Especially when you've already done the repairs and such. Dont get me wrong, 60k is a decent chunk, but it wont get you another property for all cash most likely. For a small MF are you talking a duplex? If so, the duplex can only be 240k since you'll need 25% down. Finding a duplex to rent for roughly $1250 each side might be tough unless you're in a really good area, but even if you are in a good area I would bet the property is more expensive than 240k. 

    Again, a lot of this is napkin math, but I couldnt see giving up a gold mine like that. 


    Why not refinance the property, still retain the cash flow, albeit less than $700/mo, and use the cash from the refi and purchase your MF? That seems to be the play here honestly. But I wouldnt sell. 

    4Reply
  • Clayton SmithPro Member
    Rental Property Investor · Tuscaloosa · Member since 2019 · 91 posts · 38 votes
    6y

    The best thing is figure out your return on equity. Take last years NOI minus any mortgage payments divide it by your estimated net of the sale, I assume you will not need to pay realtor fees but what about closing costs and repairs?

    Net / Net sale = return on equity

    So $700 / month CF x 12 = $8400

    Even if you own the property outright you still have a pretty good return on equity.

    $8400 / $80,000 = 10.5%

    If you know you can get a higher cash on cash return than 10.5% then sell it. 

    1Reply
  • Scott Green
    Member since 2019 · 13 posts · 11 votes
    6y

    All good counsel from the comments above.  If you determine that moving on to another investment makes sense, and is financially prudent, then don't forget the 1031 exchange that will allow you to defer the taxes on the sale.  That way you can move all of your money into the replacement property.

    2Reply
  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    6y

    @German Torres, Those are strong numbers.  But if expansion is in your game plan this property is at the top of it's game.  So I would actually gulp and consider selling and 1031 ing to move forward and not pay tax on the profit.  But first....

    Why not try to squeeze a little more juice and give yourself some runway to find the perfect next property like @Hai Loc is saying??

    When a tenant wants to purchase it is because they feel vested and comfortable right where they are.  Usually the certainty of getting to stay there is more important than the actual ownership itself.  I would probably go to the tenant and tell them I would love to sell to them but I need some time - like a year to line up everything correctly.  And since everything continues to go up in a year the property is probably worth $85K.  And they will probably need longer than they think to get their first time financing in place.  So why don't we just give you another 1 year lease with an option to purchase the property at one year for $85K.  

    If you do something like this you've just given yourself one more year of superior noi.  You've given yourself runway to find a good replacement.  And you've upped the net gain on the sale.  They get to stay put.  Have some assurance for the future.  Guaranteed stable rent for a year. And plenty of time to fix any credit dings.

    And of course at the end do a 1031 exchange to keep the tax man away.

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    1Reply
  • German Torres
    OP
    Houston, TX · Member since 2016 · 17 posts · 5 votes
    6y

    Thank you all, after your comments I went straight to my Agent and Told him I won't sell, Obviously he got upset but you guys helped me keep my path towards financial independence, I will take your advice @Brian Goodling refi and purchase. @Dave Foster and @Hai Loc you both made such a great point and I will keep it in mind.

    1Reply
  • German Torres
    OP
    Houston, TX · Member since 2016 · 17 posts · 5 votes
    6y

    @Clayton Smith because of your analysis I decide to keep my property.

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