Should I sell or Refinance?

20 Replies

Hello.

Bough 1920s duplex in 2018. Have $145k left on mortgage. Received an offer today for $300k. Thinking I would come away with $120-125k after everything. I’ve never had that much money. I’m a newer investor. This is 1/2 of my portfolio.

Part of me wants to hold long term as that’s what I have heard but part of me wants to sell, and reinvest into more property.

Thoughts?

Personally, I wouldn't touch that money...this is a marathon, not a sprint. If you want to sell, do a 1031 into a bigger property and scale that growth. Don't be tempted by short term gains, think of how that equity will serve you and your family in 10-20 years. 

Congrats on the great deal!

You need to keep that building! In a couple of years, it could be worth $500K. Any extra rental income that you’re receiving, throw at the mortgage. If you stay focused, you can have that building paid off in a couple of years. Great job!

@Tim Kaminski , Incomplete information to help you make a truly rational decision.  Everything that's been said is true. But the actual sit rep on ground could inform your choice greatly.   Here's some additional thoughts to ponder

1. 1920s St. Pete- what s the cap ex potential.  When was the last gut remodel?  If it's in great shape then maybe it's a hold.  But if cap ex is looming then maybe you sell and use the money you would have had to use to fix it to buy something with less cap ex exposure.

2. What's the location.  Is it in South St. Pete which will be the first to drop in a correction?  Maybe you want to sell in a sensitive area and buy in Seminole or North St. Pete which will be more stable.  Or maybe thats in the old SE and you're now a prime target for the land grab that's about to happen there in the Salt Creek district.  In that case you hold.

3. Basically you've to go ask youself the series of whys?  Why do I want to sell?  Then compare the income you can get in another location.  

If the reasons to sell are coupled with opportunities for more income it's a no brainer. 

If the reasons to sell overshadow a drop in income then sell.  

If the reasons to sell aren't worth  the drop in income then don't sell. - In that case you explore a strategic refinance.

And if you sell simply 1031 so you can defer all the tax on profit.   

@Dave Foster

AC and WH new as I replaced them within past 2 years. Roof probably has about 7-8 years to go before have to start thinking about it.

It is actually in Tampa Heights and the area is getting a lot of growth with builders coming in, breweries etc.

I’m thinking of refinancing and holding the more I think about it and get feedback from other investors like yourself.

@Nia Hall

Thank you for your reply. Yes it could be worth $500k or it could be worth less ha which is why I ponder. But yes I think best solution is to refinance and hold onto it. Thanks

@Luke Rorech

Luke yes this was an off market offer.

I would use the money to invest in more real estate. I don’t NEED the money but again, that is more money than I’ve ever had and I went into real estate to make money. But I do understand long term wealth through owning real estate outright. Just a very tempting offer and I like to talk out decisions so I am thankful for the responses.

@Tim Kaminski , what is your goal here, do you need a lot of cash now? Having an understanding if you need cash immediately will help. Are you also looking to make investing your full-time job? Grow your portfolio? These are all questions you should be asking yourself.

As long as the units are rented I would pull some cash out to reinvest while refinancing so you still have the asset. 

Originally posted by @Tim Kaminski :

Hello.

Bough 1920s duplex in 2018. Received an offer today for $300k. Thoughts?

 Always flinch at the first offer, especially if unsolicited. 

I was thinking 450.  Then be silent...

@Ryan Herting

I don’t need a lot of cash now. Yes I would love to make investing my full time job and work for myself. If I were to sell, it would be to buy more properties. Either right away or if market decides to settle down.

@Tim Kaminski

My advise is to hold on to the property. Capitalize on the rental income. You can refinance to pull money out to purchase another investment. With the demand in our area, rents are steadily increasing along with property values. It’s a win/ win to hold!

@Tim Kaminski I want to give you another perspective because I get the sense that you are at where I was just a couple of years ago. 

I had my first rental property that experienced huge appreciation. I was faced with your exact situation, refi or sell. Well I ended up selling because after looking at the numbers, I thought I could do more with a 1031 exchange than I could with sitting on the property for longer. I ended up exchanging into a 6 unit complex. Through forced appreciation and time I now am looking to sell this place for a huge return. Now I could have held onto the original property and cashflowed hundreds of dollars a month for 30 years, or I could sell and find a way to experience that profit in a much shorter timeframe, which I did, then turned into an even bigger return, and I saved 30+ years of monthly cashflow.  

I think @Dave Foster is absolutely right, that this question is much more dynamic than the information given. But aside from just looking at the property and market, you also need to ask yourself what your goals/vision are. If you want to run the marathon do it, if you want to play more aggressive you can do that too. The great thing with real estate is both can be a win for you. For me, I'm young and have energy and time to be aggressive, if I was older I probably would have been happy just collecting a monthly check.   


Anyway, I hope having a different perspective helps. Good luck whatever you do!
  

@Ryan Gross

Ha now you’re making me rethink things. My only worry would be that I wouldn’t be able to find a new property in time as the whole country and my area in particular is hot. If I was going to sell, I think I would put on the market to get the best price/terms. This was an off market offer.

@Tim Kaminski You are getting some great information from both @Ryan Gross and @Dave Foster . If you are interested in building your wealth quickly, I would be looking for a much bigger property now that you can then 1031 exchange the one you now own. Sounds like you could sell that faster than finding the replacement property. There is so much to gain now, before the new tax changes go into effect. Depending on how much you have invested in the current property, you may have some items that can be expensed under the Tangible Property Regulations (TPRs) before you exchange. This could add to your cash-flow. Then, if you do the 1031 exchange, be sure to leverage it into a property that is at least $200k more than what you gain from the original property. By doing this, you will not only avoid capital gains on the exchanged property but also get up-front cash-flow after the purchase of the new property. This up-front cash-flow in taxes that you don't have to pay could be as much as 6-10% of the difference between the former versus new property. If this all sound confusing, contact me for more information or post the question here. 

Originally posted by @Steve Vaughan :
Originally posted by @Tim Kaminski:

Hello.

Bough 1920s duplex in 2018. Received an offer today for $300k. Thoughts?

 Always flinch at the first offer, especially if unsolicited. 

I was thinking 450.  Then be silent...

Exactly!  Off-market 300k? I'd say it's definitely worth somewhere north of 400k. The last thing you want to do is sell to a wholesaler when you aren't in a bind, especially if the property is performing. Take your time and get maximum value. Also, you should only sell when the market dictates you to sell...not because some hustler on the phone is offering you a quick cash transaction.

@Tim Kaminski   Yes, that is what I am recommending...at least a $400k property, preferably more. Remember, you cannot depreciate land. In some places the land can be valued at 50% of the purchase price (downtowns, resort areas, etc.) and put a real kink in what you think you can do. Best to check the land value before you sign that contract. I would be glad to advise you at no cost when the time comes. 

Hello Tim Kaminski. Do you have an FHA loan? The news this morning said that FHA is allowing no cost re-fi of your mortgage in good standing if it will save you at least $50 a month. Another thing I see is that you have not studied the 5 and 10 Years to a Million plans with Real Estate? Your still asking questions. If you want to work smarter and not harder as a small Investor, then, live in one of your houses for two years before you sell it Tax-free as Sale of your Residence and move into your Rental and do it again. You have the 1031 Exchange method to learn about and the Duplex could be moved into a SFH which could be your Sale of a Residence down the road. I am selling my last Rental house in Tampa and I will clear $215,000 after 12 years of renting and three years of living and rehabing it for sale as my Residence. Tax-free and Tax-deferred is the way to go for a small Investor if you have the Time to work with the Economic or Real Estate Cycle.