Help everyone! I have a scenario and I just don’t know what to do, I feel stuck.. I currently have 1 single family property that cash flows $1000 per month , the house could sell for around $500,000 and I owe $140,000 on it, it’s in a 15 yr mortgage @ 2.5 % (pretty good) - would it be smart to sell this home and use the equity towards the purchase of 3 similar priced homes? Or should I continue to save my positive cash flow for another home ?
I get concern of the potential of possible zero cash flow for a few years But if the long term play of equity could benefit me more then the cash flow then I’m very interested
fyi I feel rate stuck in this current market - my single family home @ 2.5% rate gives me comfort and seeing 5-6% rates on investment properties concerns me.. but I don’t want it to steer me away from make a game changing move if purchasing 3 more instead of having the 1 is the best play. Please any help would be amazing !
Investor · Austin, TX · Member since 2017 · 352 posts · 374 votes
4y
There's no shot I would sell that home. It's a golden goose that will be IMPOSSIBLE to replace. It's worth more to you than anyone else in the world right now. I assume your goal is to build a high quality cashflow positive portfolio? Why eliminate the very asset you're trying to cultivate?
Lots of ways you can argue the above- curious to see what others say.
Real Estate Agent · KC Metro Area - Kansas City, MO · Member since 2019 · 26 posts · 20 votes
4y
Hey Troy,
Honestly it just depends on your goals, and what the numbers look like for those other three properties you'd end up buying. A cash flow like you're seeing right now is fantastic. Granted, you have some equity built up into that property so that is where some of that is coming from with your mortgage payment being lower. I would ask, how much longer do you have the mortgage for? You might be able to get more cash flow overall with selling and getting a few other properties, but the work required for that might not outweigh the increase in profit.
If you know you could cash flow similar to $1000 from the other properties if you were to sell and buy 3 then I would do that.
Honestly it just depends on your goals, and what the numbers look like for those other three properties you'd end up buying. A cash flow like you're seeing right now is fantastic. Granted, you have some equity built up into that property so that is where some of that is coming from with your mortgage payment being lower. I would ask, how much longer do you have the mortgage for? You might be able to get more cash flow overall with selling and getting a few other properties, but the work required for that might not outweigh the increase in profit.
If you know you could cash flow similar to $1000 from the other properties if you were to sell and buy 3 then I would do that.
the single family home I own has 12 years left til it’s paid in full
I’ve crunched quickly numbers on if I were to get 3 more properties in the area I live in (which is what I prefer) and with interest rates the way the are I would be at zero - $100 cash flow per property ..
the single family home I own has 12 years left til it’s paid in full
I’ve crunched quickly numbers on if I were to get 3 more properties in the area I live in (which is what I prefer) and with interest rates the way the are I would be at zero - $100 cash flow per property ..
Gotcha! Yeah personally I wouldn't sell and buy others. I would just keep holding your current one. Especially with rates being a little higher right now, and likely going to continue to rise more throughout the rest of the year. 12 years is a long time to wait, but with $1000/month cashflow that is $144,000 more you will have in 12 years. Your cashflow at that point will be more too because the mortgage would be gone, rent will have gone up, etc. In 3-4 years though you will have some to put towards another property.
Why not take out a HELOC instead and use that to buy another property or two?
That's exactly the route I'd go. You get to keep the 2.5 rate on the 140 that's still owed, but still unlock some equity for another purchase. Also avoids a taxable sale.
Why not take out a HELOC instead and use that to buy another property or two?
I definitely have thought about doing this and I think in reality it will be my most likely scenario, I’m kicking myself for not taking advantage of heloc When rates were lower but nothing I can do about it now.
the single family home I own has 12 years left til it’s paid in full
I’ve crunched quickly numbers on if I were to get 3 more properties in the area I live in (which is what I prefer) and with interest rates the way the are I would be at zero - $100 cash flow per property ..
Gotcha! Yeah personally I wouldn't sell and buy others. I would just keep holding your current one. Especially with rates being a little higher right now, and likely going to continue to rise more throughout the rest of the year. 12 years is a long time to wait, but with $1000/month cashflow that is $144,000 more you will have in 12 years. Your cashflow at that point will be more too because the mortgage would be gone, rent will have gone up, etc. In 3-4 years though you will have some to put towards another property.
Thanks Logan, I agree. That 2.5 % with 12 years left is just too good to let go. If I want to make a move sooner I do have the heloc option and also will have that $12,000 a year to put towards the next one.
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
4y
You should have sold it already. You've been losing money for quite a while on it. That $360k of equity should be worth at least $1.5M in property value...not just $500k. That's three times what it's worth now. Also, right now, your equity may look great at $1000/month, but the reality is your $360k of equity is only buying you $1000/month. That's not much at all. If you only got 75% as much CF per $500k of property value (that would be $750/month), that $1.5M in PV would get you closer to $2250/month in CF.
So, your choice is keeping the property and have: 1 - $360k in equity 2 - $500k in PV 3 - $12k in CF/YR
...or,...
Sell and re-invest that equity and have: 1 - $360k in equity 2 - $1.5M in PV 3 - $27k in CF/Yr
Since rates are so high right now, I think it would be best to hold onto it, get a heloc since you have so much equity in the house, use the money from the HELOC to put a down payment on a few more homes, so you get to keep the home that is cash flowing you 1k and you could buy a few more rentals.
Selling such a great cash flowing property would be counter productive since you could use the equity to buy more homes and get to keep it as opposed to selling it (losing the property) and buying more homes. You need to learn how to start using the equity you build up to reinvest, thats the key! That is what I did since home prices blew up so much. It seems like almost everyone here said the same thing so there is the answer to your conundrum no questions asked!
However, if for some reason you cannot get the equity out , because I have run into income/debt ratio problems before, then and only then would I sell to buy more homes, if your forced to because you cant get the equity out. Ever since 2008, I will have to admit, it has become astronomically hard to get loans these days.
Help everyone! I have a scenario and I just don’t know what to do, I feel stuck.. I currently have 1 single family property that cash flows $1000 per month , the house could sell for around $500,000 and I owe $140,000 on it
Was this your primary recently? If it was and you've been renting it out for less than 3 years, the cap gain is probably tax free. Tax considerations should always be a factor in a sell or hold decision.
How feasible is it in your market that you can just go buy 3 decent deals right now? In most markets it's not easy unless you've been actively creating and cultivating off market opportunities for a while.
A LOC if you can get it is simplest and cheapest. You could then shop with little consequence. Either way, find the new opportunities before you sell.
When I had loans, I'd also factor in principal pay down on these 15s. CF is pretty variable ie it's $1000/mo until you have larger repairs or replacements. This thing is probably also paying down quite a bit per month. Balance sheet returns matter as well in the end.
If it was me, I'd keep it and save to buy another rental. You have a low mortgage rate and high cash flow. As Nicole mentioned, you could take a HELOC out which would decrease your cash flow, but would allow you to get another rental sooner. It really depends on what you are comfortable doing and the numbers.