To hold or to sell...

17 Replies

Full disclosure, I’m new to ALL of this.

I bought my first property in Philadephia in August ‘16 ($145k), and through sweat equity (about $30k) + appreciation it has been appraised for 1.75x ($255k) it’s original value. The reason I got it appraised was because I refi’d a few months ago (before I knew ANYTHING about investing) and knocked it down to a 15yr while bumping up my monthly payment $200. Knowing what I know now, this was probably not a good idea. My future plans have changed and I’m going to be moving across the country in the next 6 months and the 2 things I was considering doing were: 1) rent the house out for the next 3 years, then sell and the Owner Occupant Sales Exlusion will still apply or 2) just sell the house when I move. Whichever way I go, I’m 100% going to be investing in other properties in the very near future. I will have some solid liquid assests ($100k) by the time I move, so that’s why I wasn’t too concerned with selling the house immediately, as I don’t necessarily need the profits at this moment (but I know it won’t hurt). I’m going to throw out some stats on the house and any replies would be greatly appreciated because I’m torn on what I should do, and any other suggestions on what I could do would be great too, because I know there’s alot of stuff I still need to learn about investing. thank you guys! 

Total Expenses = $1,521

Projected Rent = $1,650

Cash Flow = $129/Month

CoCROI = 5%

@Kyle Keller yes. Mortgage, Taxes, Insurance, Water Bill, Repairs, & CapEx. I didn't included vacancy because I know someone already who will sign a 3 year lease the moment I make it available, or property management because I have a family member here who will handle it for free.

Originally posted by @Kyle Keller :

@Michael Lyons

Is this cash flow taking into consideration fees for maintaining the property?

 yes. Mortgage, Taxes, Insurance, Water Bill, Repairs, & CapEx. I didn't included vacancy because I know someone already who will sign a 3 year lease the moment I make it available, or property management because I have a family member here who will handle it for free.

@Michael Lyons

Then just decide if you could use the profits from the property to bring in a higher ROI in a different investment. It seems like this one is a sound cashflowing property, unless you think you can up your ROI on another investment, I would just leave the property be and reinvest the cashflow for now.

@Michael Lyons

Do you see the value of the home further appreciating in the next three years? If not, I would sell now while it is a hot seller's market and things are going for waaayyy over asking price. Your 5% cash on cash ROI seems small compared to the ROI you would get from selling it.

Originally posted by @Samantha P. :

@Michael Lyons

Do you see the value of the home further appreciating in the next three years? If not, I would sell now while it is a hot seller's market and things are going for waaayyy over asking price. Your 5% cash on cash ROI seems small compared to the ROI you would get from selling it.

 this is exactly what I was thinking. I think im going to test the waters and see what people are thinking, thanks for your input

@Michael Lyons

You’re gonna take a “loss” on those closing costs you paid for that refi if you turn around and sell. Figure out how many months it takes you for the reduced interest to pay for those closing costs..... probably a while. Univest bank will open up a line of credit (.7 * value - mortgage balance). It’s pretty cheap to set up and you will have access to your equity that is currently tied up in the property.

Originally posted by @Max T. :

@Michael Lyons

You’re gonna take a “loss” on those closing costs you paid for that refi if you turn around and sell. Figure out how many months it takes you for the reduced interest to pay for those closing costs..... probably a while. Univest bank will open up a line of credit (.7 * value - mortgage balance). It’s pretty cheap to set up and you will have access to your equity that is currently tied up in the property.

 Another good idea, I think I like this one best so far. If I were to sell now I’d wind up losing out on some money on the closing costs for the recent refi + the extra appreciation (if the house is worth more than what I’m projecting it to be in 3 years). So with your scenerio, I would be able to use some of the equity + still have the house just in case my projections are off, which is very likely. Like having my cake and eating it too, I appreciate the input thank you

@Michael Lyons you didn't say exactly how much equity you have in the deal, but let's assume you're at 75% LTV. That would be 64k worth of equity. At $129 a month in cash flow, you're at 2.4% return on your equity. Especially considering it was your primary residence, I would sell tax free and use that capital to buy 2 more houses that'll probably have 5X the cash flow and likely more equity upside since it already sounds like you maximized this places value

Originally posted by @Bill Goodland :

@Michael Lyons you didn't say exactly how much equity you have in the deal, but let's assume you're at 75% LTV. That would be 64k worth of equity. At $129 a month in cash flow, you're at 2.4% return on your equity. Especially considering it was your primary residence, I would sell tax free and use that capital to buy 2 more houses that'll probably have 5X the cash flow and likely more equity upside since it already sounds like you maximized this places value

Sorry, if you have a minute do you mind explaining LTV to me? I can't seem to grasp the definition I just found, it's pretty confusing. Something in layman's terms would be much more helpful lol. Like I said before, I'm as green as they come as far as real estate investing goes so I don't know a ton of the terms

@Max T. I like this but I'd take it one more step. Once you do break even on the recent refi I'd refi AGAIN back into a 30-year so you reduce your payments and boost your CoC returns.

At that point you can decide whether it makes sense to pull out your equity or keep the line of credit instead.

@Michael Lyons LTV is "loan to value". You said the house is currently worth $255k but you didn't say how much your current mortgage is for.

Most mortgages on investment properties are done on a 75% LTV. In this case that would mean you'd have a loan of $191,250 but that may not be the case of you decided not to pull cash out when you did your refinance.

You should be calculating your return on how much equity is trapped in this home to get the best picture of how your investment is performing. If your loan is $191,250 that means your equity is $63,750.

So if you’re cash flowing $125/mo, or $1,500/year your return on equity (RoE) is just 2.35%

If that’s the case I’d sell the house to free up the equity. Surely, you can invest it at a higher return than 2.35% elsewhere.

But again, we don’t have the full picture yet so nobody can say for certain.

Originally posted by @Travis Biziorek :

@Michael Lyons LTV is "loan to value". You said the house is currently worth $255k but you didn't say how much your current mortgage is for.

Most mortgages on investment properties are done on a 75% LTV. In this case that would mean you'd have a loan of $191,250 but that may not be the case of you decided not to pull cash out when you did your refinance.

You should be calculating your return on how much equity is trapped in this home to get the best picture of how your investment is performing. If your loan is $191,250 that means your equity is $63,750.

So if you’re cash flowing $125/mo, or $1,500/year your return on equity (RoE) is just 2.35%

If that’s the case I’d sell the house to free up the equity. Surely, you can invest it at a higher return than 2.35% elsewhere.

But again, we don’t have the full picture yet so nobody can say for certain.

 gotcha. it wasn’t originally an investment property, I’ve lived it in the past 5 years. I currently owe $134,500

Originally posted by @Tucker Cummings :

Have you considered selling as a 1031 into a cash flowing property where you’re moving?

It’s currently his primary, so any sale would result in tax free gains regardless. Maybe I’m missing something but there’s be no point in a 1031