Keep, refinance, or sell?

9 Replies

Hello, I've done plenty of reading on this and I'm constantly on the fence as what to do with my one and only rental (former residence) property. I'll keep it short to not waste your time:

Purchased in 2010 for $123k, refinance in 2017, 15 yr loan @ 3%. Total PITI is $900. Rent is currently $1,300. Current sale estimate is $170k, possibly up to 190k with this sellers market. Current mortgage balance $80k. ($500 a month goes on the principle)

Reading tells me the investor thing to do is to sell and use the money to buy multiple rentals or cash out refinance to buy one more rental. But I'm really not that gung ho into real estate. (used to date a real estate expert who helped me get into the game). Refinancing to a 30 yr loan increases cash flow to about $700 a month, but I feel like I'm going backwards extending the mortgage on that property. I rented because the numbers worked, my current house would make another good rental if I were to move again (expected cash flow would be 500-700 month). Honestly I think 2 rentals would be my max I'd be interested in managing/handling. Goal was for supplement income in retirement or early retirement (I'm eligible to retire at 50, which is in 14 years).

Part of me wants to sell to capitalize on the value, walk away with 80-100k. But I don't have a plan to re invest that money, I keep hearing equity is dead money, but I also like knowing in 10years it will be paid off and it will cash flow roughly 1200-1400 a month then. I guess part of the problem is not knowing exactly what I want. Like everyone I want maximum money with little effort. My salary is only around $55k currently, I put in $10k a year into my 457b retirement plan. So investing the 100k into a 400k or more property wouldn't be feasible as I wouldn't qualify to pay that kind of loan back. 

If it's paid off in 10 years, cash flows, $1400 a month, does that still look like a waste to someone with more financial knowledge than me? 

Thanks for reading, blunt responses are welcomed. 


Hey @Bill Ward this is good question but without an accurate COC or ROI it's hard to justify which route to take. Are you running the numbers for your properties? You have expenses to factor in other than PITI. If you're not already I'd build out a spreadsheet in excel and calculate everything. The BP calculators are OK but doing it yourself forces you to learn how inputs affect a deal.

In my opinion I'd HOLD this property for a long time unless it has repairs that need addressed in the future or you're not seeing any appreciation since 2017. The rent will slowly creep up over the years. Only downside is current market conditions. It's hard to find deals like this to repeat. 

Yep, unless you need the money right now, for personal or investment needs, I'd keep the house.

I'm in the same boat, but I'm on the other side, as I am now at the age of 50 getting my ducks in a row to supplement my income for retirement. 

I currently have a rental property in Georgia under contract to sell for an all cash offer of $210K and I bought it for $107K back in 2016 and I owe $77K on the mortgage, no sells commission. After taxes, closing cost, etc. I'm walking away with about $125K or so.

I'm going to take that money and reinvest in one of my other properties that currently is a long term rental into a short/mid term luxury rental for more rent and more cash flow and buy a couple of mortgage notes, with nice discounts and higher interest rates where I am the bank. 

@Jaron Walling yes I keep a spreadsheet of everything that I pay for on the house. It has relatively new: hvac, roof, water heater, refrigerator. Any time I have to replace or repair I try to upgrade that item so that when it comes time to sell or justify higher rents I have it already done. Next big replacement will be a tub in the master bath and I’m considering either basic tub replacement or remodel to shower only.

Current Tenants have been great, 6 months in and no complaints. Sounds like both of y’all are saying just hold on to it. That’s usually my plan until i look at that number I could sell for..

Thank you for the responses

Other questions for you Bill:

Do you self Manage?

Are you trying to maximize your return or minimize your effort?

You already realize the potential return on your now current residence to that point have you looked at refinancing your first property and using the cash out to buy a new home for yourself and you'd have your 2 properties.

With a rent of ~$1300 I wouldn't project cash flow beyond 700/month once your debt service is removed, which covers all the expenses you are already aware of, Taxes, Management, CapEx, Etc. If you are more comfortable paying off your debts and that makes you feel better, then do it. If you want to get to your income goal faster, leverage. That's a very personal decision. I like the idea of holding long term low interest debt as a hedge against inflation but if that doesn't let you sleep well at night, then don't do it.

The current cash flow of 400 a month is before any repairs or maintenance you're right. Mortgage break down is 500 to principle, 200 to interest, 200 taxes/insurance=900 total. A thought was to refinance the remaining 80k just to a 30 yr loan (no cash out), would would drop my monthly mortgage by approx. 300, giving a cash flow of 700 before maintenance. I do self manage. Or keep it as is, when it's paid off, even at current rates it would be 1100 a month before maintenance, and since it's 10 years away I assume rent will be higher then. Turnover costs have been minimal with me handling any cleaning and minor fixes, tenants have been good to me so far.

As is, I usually put back most of what I make throughout the year into upgrades and repair, with most of my value coming from appreciation which has gone from about 130k in 2017 to 170k now. In 2020 I technically had a negative cash flow (but some were upgrades that add value to the resale and rent) but more was paid on the principle than I negative flow, So I figured I averaged out ahead. 2021 is going much smoother so far, I've averaged 350 monthly cash flow after all expenses.

If you have not lived in the home for 2 of the last 5 years I believe you'll get hit with capital gains tax when you sell. (I am not a CPA or very knowledgable on the topic, just recommend you read up some more on the subject)

@Anthony King thanks, yes I know I that. I moved out in July 2018. So it’s coming up fairly soon. Does that clock work as in I lived there July 2016-July 2018, so I would have to sell by July 2021? I’m not going to make that time frame just wondering if that’s exactly how it’s calculated..

@Bill Ward That's great and everything but what is the ROI on this property after property taxes, vacancy, CapX, maintenance, and insurance? You self manage so nothing to worry about there.

@Jaron Walling I’m not sure how that exactly calculates- being that it was my primary residence. I think I put down ~$3k in 2010 when I purchased it. Obviously I just paid the regular mortgage then for 8 years. Total purchase price 123k. Since I moved out in 2018 I’ve spent roughly $5k total into it. It was valued at $130k in 2017, and now $170k.

The purpose of renting was because if I sold when I moved i would probably have walked away with 10-20k total and would have used that toward my next down payment, felt like I wouldn’t have made any money off of it. The sale price has skyrocketed the last two years. The principle was at 98k when I moved out and now it’s at 80k. I had put about $8k into the house just before moving (didn’t plan on moving but couldn’t pass up on the deal I found). Renting was to offset those expenses.

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