Sell or hold ? Rental ( prior Primary Residence)

Buying & Selling Real Estate
6yFollow

Sell or hold ? Rental ( prior Primary Residence)

Drew Shaw
Member since 2020 · 3 posts · 0 votes

We moved to bigger house with better schools and rented out house to learn how rental works and to see if we want to do it.  Its been rented out for 7 months ( so far so good) and we have another couple months to decided if we want to hold on to it or sell and buy 2 property for investment, mostly because 1. We have ton of equity in the house  2. Saving tax from the gain of primary residence. ( living in house for 3 years in last 5 years)

Rental/property info - 2012 construction, 2800Sq FT, 4Bed+Den, 3.5 bath, great neighborhood. its 15 year mortgage with 7 years left. 2.375% for 15 years. Value is ~700k, equity 500k+ . Rental pays everything and  evens out. Bought it as 425k ish

What is the recommendation here 

1. Refinance the mortgage  to 30 years, take the equity out , generate great cash flow and invest equity in other property 

2. Sell the rental. Save the taxes on primary residence and invest the proceedings to buy 2 mid-size single family

Thoughts ?recommendation ?

0Reply
20 views

Most Popular Reply

Soh Tanaka
Property Manager · Lindenhurst, IL · Member since 2016 · 854 posts · 506 votes
6y

I don't know what you are getting in rent, but my guess is maybe $4k? Wild guess. If you run the math, you'll quickly realize that selling it and buying more lower priced rental properties with 30-year mortgage will result in better cash flow and probably accumulate equity faster.

1Reply
See this reply in the discussion

6 Replies

Jump to latestLatest
  • Soh Tanaka
    Property Manager · Lindenhurst, IL · Member since 2016 · 854 posts · 506 votes
    6y

    I don't know what you are getting in rent, but my guess is maybe $4k? Wild guess. If you run the math, you'll quickly realize that selling it and buying more lower priced rental properties with 30-year mortgage will result in better cash flow and probably accumulate equity faster.

    1Reply
  • Jaysen Medhurst
    Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
    6y

    @Drew Shaw, you almost certainly should sell. There's no way you're actually cash flowing once vacancy, CapEx, and repairs are considered (you should also underwrite for management, even if you're self-managing). $500k of equity is nothing to sneeze at. Your return on that equity is probably pretty terrible. Redeploying that capital to a ~$2MM MFR could be throwing off $50-60k/year with pretty modest CoC returns. Plus, you'll get great depreciation and the appreciation will be on an asset worth ~3X what you have now. Win-win-win...

    What is the rent? My bet is that, @Soh Tanaka is being generous with his $4k estimate. My guess is $2700-3k/month. Around me $2MM houses rent for ~$6500.

    1Reply
  • Drew Shaw
    OP
    Member since 2020 · 3 posts · 0 votes
    6y

    @Jaysen Medhurst you are dead on. My rent is 2900. Also I already got few unexpected garage and electric issues, so had to put extra cash.  So you are right on cash flow as well.  

    Is there any rule of thumb on CoC that investors typically follow ? I am new to this and hence trying to learn

    0Reply
  • Jaysen Medhurst
    Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
    6y

    I like to see mid-teens or better CoC ROI, @Drew Shaw. That's not possible in every market, of course. In markets with really good appreciation, cap rates will be compressed along with CoC ROI.

    0Reply
  • Drew Shaw
    OP
    Member since 2020 · 3 posts · 0 votes
    6y

    Thanks @Jaysen Medhurst. I will be selling my house (class A area) and pocket tax free profit. And keep looking properties for in Class B or C area for investment. As a beginner, do you have any recommendation as which is better ? SFR ( 3-4 bed , 2 bath) or MFR ( duplex or 4-plex)

    0Reply
  • Jaysen Medhurst
    Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
    6y

    Good move, @Drew Shaw. I definitely recommend focusing on MFR. You'll get a lower per-unit cost and start to realize some efficiencies of scale. If you happen to find a duplex that works, great, but focus on larger properties. Duplexes are the hardest to make the numbers work. Considering the capital you'll be working with, I would also recommend you consider 5+ unit properties. That allows you to force appreciation, which you simply can't do with 1-4 unit properties.

    Ideally, you want a C property in a B neighborhood. Beyond that, I think it depends on how much work you want to put in and what your investment goals are.

    Shoot me a PM if you want to talk through any other questions, Drew. Happy to help out anyway I can.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free