3 Family Cash Cow with tons of equity: Keep it or sell it?

43 Replies

We've owned a 3 family rental for 10 years. It nets about $15k per year. We owe $113k and it's currently worth $350k-$370k. My wife and I are struggling with deciding to keep it or sell it. I'm a Realtor so the cost of selling is relatively low.

...and if we sell it, then what? 1031 into something else? Future retirement home in Florida(to be used as a rental now)?

Pay the capital gains and put that money back on our HELOC and wait for the next investment opportunity?

please help with ideas and insight from the vast amount of knowledge and experience within this group. Thanks!

If you can find a larger property with better returns that you want to buy then go for it: sell and 1031; though it's pretty tough to find cash flow beasts out there at the moment. 

Unless you have seen properties for sale in the area you want to buy with numbers better than your 3-family I would keep it and enjoy the extra $1,250 of cash flow you're receiving every single month. 

Have you considered refinancing it and getting some cash out? You can put that cash as a down payment on another property (possibly your retirement home in FL but keep it as a rental until you are ready to retire). You can have cash flow from a current property and use that property as your leverage for your future investments. That's how the wealthiest people in real estate started. Don't sell your deals unless they are a disaster; rather keep the properties that you have and keep expanding your portfolio. It will pay off 100 times in the long run! 

You most likely will not be able to find better deals out there in a hot market like this.  I'm from WA and folks over here are changing your strategies and invest in OOS.  There aren't that many inventories out there.  If yours bring positive passive income, then I'm sure others will see that too.  My vote is: To keep them as long as you can.

@Jeremy Bailey Very interesting to see how people give advice. In my humble opinion, no one can give you advice until they understand your situation, risk tolerance, opportunity cost, goals, etc. These are a few questions I would be asking myself:

1. What is my risk tolerance? You may not be open to the stresses that come from not knowing if you're going to find a good enough replacement property in a 1031, or worse, knowing that you're settling on a bad deal because you're running out of time.

2. What is my goal? Some people's goals are to increase cash flow at all costs. Others are to ensure they don't have headache properties in retirement. Often times, we find that our own personal goals can provide directly contrary plans with other people. Personally, my entire philosophy is to buy great deals and never lose them. Once I've found a great deal that's cash flowing well, why would I sell it? My goal would be entirely different if my supreme goal was to get rid of partners, acquire larger properties that sustain bigger staffs, etc.

3. What else could I do with the money? Some people despise sitting on cash as they don't value the flexibility in being able to take down a good opportunity if one presents itself. They say that their money "isn't working for them." Others love the hunt of the next deal and want to maintain big cash positions. If you 1031, do you have a solid plan for identifying within 45 days? Do you have lenders lined up to minimize the probability that you fail the exchange?

These are all questions I would ask yourself. Others will give advice on how they would handle your property. But that's not going to help you other than illuminating the options. I hope this helps!

@Jeremy Bailey , Given the low low cost of financing these days I probably wouldn't rush to sell just so I could shed debt and wait an opportunity.  You might end up waiting quite a while to deploy that cash.  Meanwhile you incurred a large tax hit and loss of revenue.  So your break even on that move becomes years.

The 1031 would let you avoid that scenario - if you can find something that meets your cashflow requirements.  A vacation rental that may turn into a primary one day is a very interesting scenario.  Because there's reasons other than just cash flow to do that - low low interest rates, finding your dream house now, having a place to visit occasionally ahead of a move, and also getting cash flow income all at the same time.

Something like that sounds like a very good use of a sale and 1031. If your net is $15K on a $300K asset that's around 5% ROI. There's plenty of opportunities out there to equal or beat that and meet your other goals as well.

Just curious, has the property value shot up tremendously in the last few months? If you think the price is artificially high, I would advise you to sell. If you make a handsome profit, you could reinvest if the market corrects itself.

Good luck. Either way, it sounds like you're in the drivers seat.