Is it time to sell my house-hacked duplex?

Question

I purchased my first duplex in 2016 for $65K and put around $50K in renovations.  I live in one side and a renter on the other side.  Just had the house appraised and it came in at $189K.  Should I move out and collect market rent of $850/per unit, refi/cash out or sell and invest in a quad?

Corby Goade · Answer

I agree with @Cassi Justiz. If you have a solid cash flowing investment, you don't have to sell it to tap in to the equity, you can leverage it and leave a trail of cash flowing investments behind you- that's the goal, no?

Andrew B. · Answer

I would do a cash out refinance, take out as much equity as possible, then use that to buy a quad. The goal would be to lock in a rate now, as they are only going up. In addition, you can owner occupy the quad to keep your down payment as low as possible, possibly giving you the ability to buy another duplex or quad. Of course, this is the leveraged approach as I have a higher risk profile. If you want something lower risk, you can still do the cash out refinance, but buy a quad with 25% down and don't woenr occupy.

Frankie Woods · Answer

Since you've lived in the property for >2 years, your capital gains are tax free when you sell.  Also, since this is your primary residence, you can qualify for a HELOC for up to 100% [this is almost impossible with an investment property].

Personally, I'm a buy and hold investor.  I'd rather get a HELOC and use it for the next 10 years when I need it rather than pulling the money out and not necessarily having anywhere to put it.

Jaysen Medhurst · Answer

@Shannon P., HELOCs can be great. On an investment property you can usually get out 80%. That leaves 20% locked in the duplex, which is fine, but I suspect that your duplex is not the best use of your equity. Based on it's current value ($189k), you won't be hitting the 1% rule (rents of $1700/month). When I analyze duplese, I find that they usually don't make great investments because you can't get many economies of scale.

You did a great job building equity. It's probably time to trade up to something bigger that can get you better returns. Let's say you sell and walk away with $175k after fees, etc. You could turn that into a $700k property. That would likely cash flow ~$1500/month. (Assumes 8 cap rate, 25% down, 5.5% w/ 30 yr am).

Plus now you're getting nearly 4X more appreciation, depreciation and mortgage pay down. At 3%/year appreciation you'll make $900k more over 20 years.

Shannon P. · Answer

@Jaysen Medhurst  I really like the suggestion that Cassi gave in reference to HELOC.  You suggested selling, could you share with me why vs. HELOC?

Thanks by the way!

Shannon P. · Answer

Hi Cassi,

The monthly payment is $805.  I think that the HELOC may be a great option as it would give me access to cash and the income from renting.

Thanks

Jaysen Medhurst · Answer

@Shannon P., I'd lean towards selling and trading up to a quad. You did a great job on this one. Time to take advantage of the equity you created and put it to work.

Cassi Justiz · Answer

Depends on what your payment is.

From the sounds of it, it is probably a really solid cash flow deal. You could always get a HELOC while you still live there to use some the equity to purchase/rehab the next duplex or quad.

I don't think I would sell something with that much equity as long as it is cash flowing.

Is it time to sell my house-hacked duplex?

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