Seeking Cash out advice!

6 Replies

So a friend of mine who is much further ahead in the investing game than I put the idea in my head to cash out of the first rental I bought in April and take that money, put it into other SFHs like HUD and make more on my investment dollar.

So the details: 

Id be selling a 4 bedroom 2 bath 2 stall detached garage. Currently rented at $1,535/mo. I owe $80,000 on the mortgage. Without an appraisal yet, we think it’s be worth $200,000. So with realtors fees and taxes I figure I’d walk away with $100,000.

What would you all recommend?

What would be a wise investment for that $100,000?

Should I just stay where I’m at?

Should I buy, outright, 2 other units, in a C class neighborhood, HUD, and get $1,000/mo from them?

Thank you all for any thoughts and insight!

If you decide to sell, my advice is hold the property for over year to avoid short term capital gains taxes. Alternately, you could hold it for 2 years to do a like kind exchange (1031) into the other properties, which defers taxes. 

Personally, I would hold the property for cash flow. Assuming the neighborhood will hold value over time, you can still profit when you sell in the future. 

If you want to access the equity, then just do a cash out refinance. Assuming it appraises for $200,000, you should be able to refinance for $150,000 (25% equity left in). Pay off your loan and use the cash proceeds to invest. This way you keep property A and buy properties B and C.

The best way to get rich in real estate is never sell, keep buying. Of course there are situations where selling makes sense, but the point is build a portfolio and let the power of time work its magic.

Originally posted by @Joe Splitrock :

If you decide to sell, my advice is hold the property for over year to avoid short term capital gains taxes. Alternately, you could hold it for 2 years to do a like kind exchange (1031) into the other properties, which defers taxes. 

Personally, I would hold the property for cash flow. Assuming the neighborhood will hold value over time, you can still profit when you sell in the future. 

If you want to access the equity, then just do a cash out refinance. Assuming it appraises for $200,000, you should be able to refinance for $150,000 (25% equity left in). Pay off your loan and use the cash proceeds to invest. This way you keep property A and buy properties B and C.

The best way to get rich in real estate is never sell, keep buying. Of course there are situations where selling makes sense, but the point is build a portfolio and let the power of time work its magic.

 Agree.  Unless something horrible in this market or neighborhood is coming down, hold.  

Taxes and transaction costs are too high to be trading RE.

Originally posted by @Joe Splitrock :

If you decide to sell, my advice is hold the property for over year to avoid short term capital gains taxes. Alternately, you could hold it for 2 years to do a like kind exchange (1031) into the other properties, which defers taxes. 

Personally, I would hold the property for cash flow. Assuming the neighborhood will hold value over time, you can still profit when you sell in the future. 

If you want to access the equity, then just do a cash out refinance. Assuming it appraises for $200,000, you should be able to refinance for $150,000 (25% equity left in). Pay off your loan and use the cash proceeds to invest. This way you keep property A and buy properties B and C.

The best way to get rich in real estate is never sell, keep buying. Of course there are situations where selling makes sense, but the point is build a portfolio and let the power of time work its magic.

Joe - been adopting this "never sell" idea as well. Of course unless it makes sense (under performing property, cashing out for a 1031, exiting and living off your proceeds, et al).

Even without appreciation, cash flow should come with equity pay down. Someone is buying you cash every month if they're renting from you. That equity can be used as a tool, as a proceed, as whatever you need it to. That's the long game.

I'm not entirely sure I'd do anything with that property....7 year term and you're already cash-flowing $300, that's pretty good. 

If you are determined to take of the equity out to buy another property, I think you could get around $40k out if it appraises for the $200k. You would then be paying a higher interest rate, but you'd also have a longer loan term (at least 15 years), so your monthly payment should decrease and you would cash-flow even more. 

You could have it completely paid off in 7 years though...seems like you are in a pretty good position either way.