Would you take the 200K and run? Or wait for more appreciation?

Would you take the 200K and run? Or wait for more appreciation?

Investor · MI · Member since 2019 · 112 posts · 221 votes

Hi! So curious what you guys would do in our position.

We bought a house in Seattle (White Center) five years ago and it has appreciated around 200K so far. Each year, we spent a few months in Michigan and we Airbnb’d the Seattle house while we were gone. We did so well with it that when we moved back to Michigan full-time this January, we made the Seattle house a full-time Airbnb. We had it booked 90% of the time and then Covid hit and they all canceled. Then, bookings came back up...but, then the protests started and we are back to zero bookings for the entire summer.

We are in the process of looking for flips and buy and holds here in Michigan to go full speed ahead with investing and we are looking at all of our options.

We can:

1. Get a full time renter in Seattle and break even after paying a property management company. Side note, we were cash flowing over $1000 a month doing Airbnb, so making zero cash flow isn’t as fun. 

2. Weather the Airbnb storm and pay our mortgage out of pocket for a few months (hopefully, that would be it). 

3. Sell it and take the 200K and put it towards a new primary home since we are looking for one anyway. 

4. Sell it and take the 200K and invest in multiple homes here in MI to flip and BRRRR.

Obviously, the house has a history of amazing appreciation. But, it makes me wonder if we could do more with the 200K than maybe it would appreciate in the long run. Seattle has such great appreciation typically, but with so much turmoil happening, it’s making me wonder. My gut says we would be crazy to sell such a great long term appreciation home, but also, if we sell now, we don’t have to worry about 1031 exchange or capital gains. 

Ok, just wondering what you would do??

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Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
6y

I would sell and invest that $200k in properties that will cash flow with long term tenants in a more stable market. Your part of MI may or may not be stable, I am not an expert on MI.

I recently talked with a full-time passive Short Term Rental owner. He lives outside the US and remotely manages his STRs. One of his keys to successful STR investing was only buying properties that can also work as long term rentals.

If your current property doesn't produce cash flow as a LTR after paying a PM and maintenance and cap ex reserves and vacancy, then cash in on that appreciation while you have that sweet, sweet capital gains tax exemption (terms and conditions apply, talk to a CPA about whether you actually do qualify in your specific situation). 

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  • Member since 2018 · 15 posts · 7 votes
    6y

    Seattle is a much stronger market than anything in Michigan. People are investing in Detroit still which to me is insane. Cheap houses don't mean much besides no one wants to buy them. So you better think about your exit strategy from Michigan because that is not a very strong market and you could be stuck there selling your houses for 12 cap and make no money. 

  • Investor · MI · Member since 2019 · 112 posts · 221 votes
    6y
    Originally posted by @Jared Stasch:

    Seattle is a much stronger market than anything in Michigan. People are investing in Detroit still which to me is insane. Cheap houses don't mean much besides no one wants to buy them. So you better think about your exit strategy from Michigan because that is not a very strong market and you could be stuck there selling your houses for 12 cap and make no money. 

    There is a lot more to Michigan than Detroit. Have you ever been to Michigan?  

  • Member since 2018 · 15 posts · 7 votes
    6y

    Yep been to Michigan. I was just pointing out that people invest in Detroit and I think it's insane. Which city has the largest population and employment growth in Michigan? 

  • Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
    6y

    If its a house for sure sell and take the $200k. If was a multi unit would say just refinance and hold.

  • Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
    6y

    @Nikki Closser have you made a decision yet? Curious to know what you decided to do and why.

  • Investor · MI · Member since 2019 · 112 posts · 221 votes
    6y

    @Brian G. We did! What sealed the deal is that our taxes and hazard insurance both went up so our overall payment went up $265. All said and done, after paying property management fees and everything else, we would be losing money each month if we ended up going the long term rental route. AirBnb was lucrative for sure, but we don't want to keep a house that we can rent long term if needed! It goes on the market in a few weeks once our current guests leave. 

  • Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
    6y

    @Nikki Closser someone (?) once said you can’t lose money by taking a profit. Perhaps one could forfeit future profit but that is never guaranteed. Congrats in advance on locking in your profit and taking some chips off the table. What do you plan to do with the proceeds? Fun stuff.

  • Investor · MI · Member since 2019 · 112 posts · 221 votes
    6y

    Love this! Thanks for your encouragement. We’re actually looking at a few different apartment buildings. Hoping to find a seller finance situation, at least for some of the down payment. Hoping to make the profit we made go as far as possible! @brian 

  • Investor · MI · Member since 2019 · 112 posts · 221 votes
    6y
    Originally posted by @Brian G.:

    @Nikki Closser someone (?) once said you can’t lose money by taking a profit. Perhaps one could forfeit future profit but that is never guaranteed. Congrats in advance on locking in your profit and taking some chips off the table. What do you plan to do with the proceeds? Fun stuff.

    Love this! Thanks for your encouragement. We’re actually looking at a few different apartment buildings. Hoping to find a seller finance situation, at least for some of the down payment. Hoping to make the profit we made go as far as possible!

  • Member since 2020 · 59 posts · 24 votes
    6y

    Hey @Nikki Closser! 

    I'd go with option 4. Those additional properties could be the exact appreciation you're looking for from your Seattle house.

  • Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
    6y

    @Nikki Closser how exciting. Swing for the fences but be patient until you find the right deal. You have no pressure since you are selling a primary that is still under the 121 capital gains exclusion right? That’s the best case scenario: a good profit and no time constraints on redeploying the proceeds.

  • Investor · MI · Member since 2019 · 112 posts · 221 votes
    6y

    @Brian G. correct! That’s exactly what we are doing :) 

  • Rental Property Investor · Corvallis, OR · Member since 2018 · 840 posts · 1k+ votes
    6y

    @Nikki Closser if its zero cap gains I would sell tax free and invest profits. If it is taxable, then do the 1031. I was a little unclear about the last part you wrote. I am guessing that $200k in Michigan would leverage into a nice multi unit that would cash flow tremendously. Just my thoughts.

  • Scott JohnsonBusiness Member
    Specialist · Greenville, NC · Member since 2019 · 673 posts · 408 votes
    6y

    @Nikki Closser personally is cash out. Seattle is a tinder box right now and if properties are still selling like wildfire I’d 1031 out of it and buy something else.

    I tend to stay, or get, out of areas when I don’t understand what’s going on. Seattle is one of those areas.

  • Member since 2020 · 437 posts · 675 votes
    6y

    This a question where likely only the OP has the best answer because wealth is very personal and is often best measured as a portfolio.

    Just this past week a poster asked a similar question about a SF Bay Area property with a decent amount of equity. Given the high a appreciation nature of the market, the respondents, me included advised not to sell, may be take out equity to fund projects in the state he was planning to migrate to.

    If you look at markets with that appreciation vitality Seattle has many strengths along with few select markets like SF, LA, NYC, Austin. So odds are the property 5 years out will hold and increase value.

    The biggest challenge will be remote property management. I don’t have much experience except RE I own across the coast in NYC and it’s not been a problem at all. I have sent in repairmen, bed bug inspectors, had appliances delivered all remotely. It cost a a bit extra but I’ll take it as those props have appreciated over time.

    So bottom line - The linear and easy route will be to sell and move on. The more challenging and I’d argue “wealth building” route will be to hold the asset. Your property has appreciated 200k in 5 years that is 3.5k in appreciation per month. I am not even counting the income you generated from your AirBnB. How would that compare to the $300 per door cash flow (a number which is rejoiced here on BP) income you will get in other states with limited appreciation potential. You may have to buy a sizable number of units to make that kind of wealth.

  • Rental Property Investor · Member since 2019 · 9 posts · 4 votes
    6y

    @Nikki Closser

    Thanks for posting your question!! I was just about to do the same regarding our sfh in Oregon. This led me for the most part to the same conclusions and validated my thoughts at least partially! congrats!

  • Member since 2019 · 1k+ posts · 1k+ votes
    6y

    @Nikki Closser

    For the same reason as your CFP would advise you against selling, I would sell. Right now you have fictional money. On paper money. You can’t eat it or buy diamonds and furs. Selling puts it in your pocket.

  • Investor · MI · Member since 2019 · 112 posts · 221 votes
    6y

    I have an update about what we did!! It worked out really well well :) https://www.biggerpockets.com/...

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