Need advice on next move
Rental Property Investor · Denver, CO · Member since 2020 · 5 posts · 4 votes
Need advice on next move
Most Popular Reply
Real Estate Agent · Colorado Springs, CO · Member since 2019 · 124 posts · 127 votes
3y@Jason Hawkins As with all things real estate, any advice I would give would be based on what your goals are. Without knowing that I will simply provide some of my thoughts/questions for your consideration. Before selling your rental property I would first ask what your current interest rate is on that property and also how that property is or isn't contributing to your goals? Debt is far more expensive than it used to be and one of the greatest parts of real estate is maintaining long-term fixed rate debt, so I would think carefully before trading a 4% for an 8%. You're also making $1700/month (not including expenses) on that property which would be hard to find right now in any high appreciation market like CO with its high prices and high interest rates. But if your goal is cash flow and not appreciation then maybe selling and buying in a market that is opposite of CO is what makes the most sense. Again, it just comes back to your goals.
I personally don't love the idea of trading an asset (your rental) for a new primary (a liability), but I'm married as well and can understand that sometimes you may not have much of a choice. But your rental is making money and renting your current primary would likely not net you as much cash flow, so what if you just sell your primary and take the money from that to buy your next primary. If you lived in it for 2 of the last 5 years, then you don't have to pay taxes on the sale.
If after all this consideration you find you do want to sell your rental, I would highly recommend doing so through a 1031 Exchange so that you can defer the taxes on the sale.
That's just my two cents, hope that helps. If you every need any help looking at deals in Colorado Springs, let me know. I'd be happy to help you out or just point you in the right direction!
20 Replies
- Real Estate Agent · Colorado Springs, CO · Member since 2019 · 124 posts · 127 votes3y
@Jason Hawkins As with all things real estate, any advice I would give would be based on what your goals are. Without knowing that I will simply provide some of my thoughts/questions for your consideration. Before selling your rental property I would first ask what your current interest rate is on that property and also how that property is or isn't contributing to your goals? Debt is far more expensive than it used to be and one of the greatest parts of real estate is maintaining long-term fixed rate debt, so I would think carefully before trading a 4% for an 8%. You're also making $1700/month (not including expenses) on that property which would be hard to find right now in any high appreciation market like CO with its high prices and high interest rates. But if your goal is cash flow and not appreciation then maybe selling and buying in a market that is opposite of CO is what makes the most sense. Again, it just comes back to your goals.
I personally don't love the idea of trading an asset (your rental) for a new primary (a liability), but I'm married as well and can understand that sometimes you may not have much of a choice. But your rental is making money and renting your current primary would likely not net you as much cash flow, so what if you just sell your primary and take the money from that to buy your next primary. If you lived in it for 2 of the last 5 years, then you don't have to pay taxes on the sale.
If after all this consideration you find you do want to sell your rental, I would highly recommend doing so through a 1031 Exchange so that you can defer the taxes on the sale.
That's just my two cents, hope that helps. If you every need any help looking at deals in Colorado Springs, let me know. I'd be happy to help you out or just point you in the right direction!
- Accountant · McKinney, TX · Member since 2023 · 394 posts · 580 votes3y
@Denver McClure might be someone to chat with over these considerations.
- Rental Property Investor · Denver, CO · Member since 2020 · 5 posts · 4 votes3yThat’s another tough part, the rental mortgage is at 3% and my primary at 3.75%.
Quote from @Jordan Malara:
@Jason Hawkins As with all things real estate, any advice I would give would be based on what your goals are. Without knowing that I will simply provide some of my thoughts/questions for your consideration. Before selling your rental property I would first ask what your current interest rate is on that property and also how that property is or isn't contributing to your goals? Debt is far more expensive than it used to be and one of the greatest parts of real estate is maintaining long-term fixed rate debt, so I would think carefully before trading a 4% for an 8%. You're also making $1700/month (not including expenses) on that property which would be hard to find right now in any high appreciation market like CO with its high prices and high interest rates. But if your goal is cash flow and not appreciation then maybe selling and buying in a market that is opposite of CO is what makes the most sense. Again, it just comes back to your goals.
I personally don't love the idea of trading an asset (your rental) for a new primary (a liability), but I'm married as well and can understand that sometimes you may not have much of a choice. But your rental is making money and renting your current primary would likely not net you as much cash flow, so what if you just sell your primary and take the money from that to buy your next primary. If you lived in it for 2 of the last 5 years, then you don't have to pay taxes on the sale.
If after all this consideration you find you do want to sell your rental, I would highly recommend doing so through a 1031 Exchange so that you can defer the taxes on the sale.
That's just my two cents, hope that helps. If you every need any help looking at deals in Colorado Springs, let me know. I'd be happy to help you out or just point you in the right direction!
- Real Estate Agent · Colorado Springs, CO · Member since 2019 · 124 posts · 127 votes3y
@Jason Hawkins Sounds like the best option could be to sell your current primary and keep the Rental based on the following factors:
- Lower Interest Rate
- Great Cash Flow
- Existing ability to tap into equity (which you may have an opportunity to request an increase)
- Established rental history
- On the sale of the rental you may have to pay taxes, but on the sale of the primary you may not have to
I might be missing some advantages...
- House Hacking Specialist · Denver, CO · Member since 2016 · 411 posts · 396 votes3y
@Jason Hawkins, Like any post, you will get multiple responses with all different recommendations. None are wrong. But like @Jordan Malara touched on, depends on your specific goals. I once heard, its like asking advise on whats the best car.
I am on the other side of the spectrum. Based on the info provided and the understanding that you are wanting to grow your rental portfolio + net worth, here are the 2 options I would consider:
Option 1
Stay put in your current primary and leverage the remaining balance on the rental HELOC to purchase a 2nd rental property. $100k will not get you anything in the springs but you could get a pretty decent rental in Pueblo. Cashflow will not really move the needle for you but your net worth will grow (tenants paying down mortgage principle, appreciation even thought it might br pretty modest the next year or so, and depreciation).
Option 2
Stay put in your current primary and leverage the HELOC on your rental and invest in a passive fund. Higher returns than stock market and do not have to deal with the management. Whether that is managing the property or the property manager. Downside to this is the interest from your HELOC will offset a good chunk of the 17-19% returns you would get from investing passively
Again no answer is right or wrong. These are just the options to consider.Back in May we ran a deal analysis on a pueblo duplex in our high interest rate environment. Happy to share the recordings if you want… let me know
- 3yJaron WallingPro MemberRental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
What's the a payment on that HELOC?! I like responses above but I'd try to eliminate that debt regardless of your next move.
It's not good idea keeping that around.
- Investor · Philadelphia, PA · Member since 2022 · 106 posts · 56 votes3y
Would hate to see you move on from your rental since it looks like great cash flow (even factoring in a HELOC payment) and youre locked into a great rate. But, family above all else if you need the cash for a new primary with your family that's a different story. Not sure from OP if the new primary property is a need or want.
- Rental Property Investor · Colorado Spgs, CO · Member since 2020 · 91 posts · 61 votes3y
Sometimes the best move is no move. As I acquired properties over the last few years, I listened to all the hype surrounding REI and I was determined to do.... something. I almost did this early 22 cause my rentals were boring to me and I wanted more.
Had I done that I may have another rental or 2 but cashflow would essentially be gone and I'd be one bad roof away from a lot of pain. Instead, I've been strengthening reserves, am not worried at all about my situation, and after I hit the reserve amount I'm looking for, I'll be much more confident going after more investments.
I'm not saying do something or do nothing, but I would also sit down with other REI around you (which lucky for you there are a lot of us in COS) and go through your different scenarios and goals. No matter what you decide, best of luck in that decision and if you need advice, again there are a bunch of us around here happy to listen.
- 3yBen RhodinBusiness MemberRealtor · Denver, CO · Member since 2020 · 338 posts · 331 votes
Hey @Jason Hawkins! This is a typical question, and I answer it with clients numerous times a week. It typically comes down to an emotional decision, but you have to take the whole picture first. Without knowing the full picture or what these properties look like, I would first try and steer you away from selling a rental to buy another primary. Since you are buying a primary, you can put a low downpayment, so it could be easy enough to instead of selling the rental, maybe just pull some equity out of it, enough for the Downpayment, and use that for your new primary. Your current primary may be the tougher of the two to make a rental, so I wouldn't bank on that.
Reach out if you want me to do a full scrub of this scenario, and we can see what would be the best moves for you to make. I believe there is a good chance you can keep both properties. - 3yRyan ThomsonBusiness MemberReal Estate Agent · Colorado Springs, CO · Member since 2018 · 1k+ posts · 1k+ votes
@Jason Hawkins run the numbers and think through your goals and priorities.
If you can't cover the negative cash flow on the current primary when you turn it into Rental number 2, it may make sense to sell it. If you can take a cashflow hit I usually like the option of keeping a home in Colorado for the long run.
Either way if you want to move to Colorado Springs you can get another primary here for 5% down. If its a multifamily you can use an FHA loan (or VA loan if you are a veteran) to get a multifamily for only 5% down.
The Assumable Guy544 Reviews - 3yAndrew HoganPro MemberRental Property Investor · Indianapolis, IN · Member since 2016 · 560 posts · 463 votes
Your current 'Return on Equity' isn't terrible assuming a $1,700/mo net cash flow.
($1,700 x 12 mo) / $240,000 = 8.5% Return on Equity
I've seen worse :)
What I see a lot of investors do is get into multifamily passively. That 240k+ could be spread across 1,000+ doors with a proven operator and aim for a 2x+ multiple every 3-5 yrs while you spend our time doing other things.
I've also seen "HELOC Arbitrage" where someone reinvests the 3% HELOC for a 10% return and they profit that 7% spread.
Good luck - Rental Property Investor · Denver, CO · Member since 2020 · 5 posts · 4 votes3y
Quote from @Ryan Thomson:
@Jason Hawkins run the numbers and think through your goals and priorities.
If you can't cover the negative cash flow on the current primary when you turn it into Rental number 2, it may make sense to sell it. If you can take a cashflow hit I usually like the option of keeping a home in Colorado for the long run.
Either way if you want to move to Colorado Springs you can get another primary here for 5% down. If it's a multifamily you can use an FHA loan (or VA loan if you are a veteran) to get a multifamily for only 5% down.
Could you please explain how I could get a multi-family property with 5% down?
- Rental Property Investor · Denver, CO · Member since 2020 · 5 posts · 4 votes3yThanks for the input. I would love to get into multi family. How could I spread $240 to that many units?
Quote from @Andrew Hogan:
Your current 'Return on Equity' isn't terrible assuming a $1,700/mo net cash flow.
($1,700 x 12 mo) / $240,000 = 8.5% Return on Equity
I've seen worse :)
What I see a lot of investors do is get into multifamily passively. That 240k+ could be spread across 1,000+ doors with a proven operator and aim for a 2x+ multiple every 3-5 yrs while you spend our time doing other things.
I've also seen "HELOC Arbitrage" where someone reinvests the 3% HELOC for a 10% return and they profit that 7% spread.
Good luck - Rental Property Investor · Denver, CO · Member since 2020 · 5 posts · 4 votes3yThank you. What type of fund? And I would love to know more about the Pueblo duplex if you don’t mind sending some info on the recording?
Quote from @Ben Einspahr:
@Jason Hawkins, Like any post, you will get multiple responses with all different recommendations. None are wrong. But like @Jordan Malara touched on, depends on your specific goals. I once heard, its like asking advise on whats the best car.
I am on the other side of the spectrum. Based on the info provided and the understanding that you are wanting to grow your rental portfolio + net worth, here are the 2 options I would consider:
Option 1
Stay put in your current primary and leverage the remaining balance on the rental HELOC to purchase a 2nd rental property. $100k will not get you anything in the springs but you could get a pretty decent rental in Pueblo. Cashflow will not really move the needle for you but your net worth will grow (tenants paying down mortgage principle, appreciation even thought it might br pretty modest the next year or so, and depreciation).
Option 2
Stay put in your current primary and leverage the HELOC on your rental and invest in a passive fund. Higher returns than stock market and do not have to deal with the management. Whether that is managing the property or the property manager. Downside to this is the interest from your HELOC will offset a good chunk of the 17-19% returns you would get from investing passively
Again no answer is right or wrong. These are just the options to consider.Back in May we ran a deal analysis on a pueblo duplex in our high interest rate environment. Happy to share the recordings if you want… let me know
- 3yAndrew HoganPro MemberRental Property Investor · Indianapolis, IN · Member since 2016 · 560 posts · 463 votes
Quote from @Jason Hawkins:
Thanks for the input. I would love to get into multi family. How could I spread $240 to that many units?Quote from @Andrew Hogan:
Your current 'Return on Equity' isn't terrible assuming a $1,700/mo net cash flow.
($1,700 x 12 mo) / $240,000 = 8.5% Return on Equity
I've seen worse :)
What I see a lot of investors do is get into multifamily passively. That 240k+ could be spread across 1,000+ doors with a proven operator and aim for a 2x+ multiple every 3-5 yrs while you spend our time doing other things.
I've also seen "HELOC Arbitrage" where someone reinvests the 3% HELOC for a 10% return and they profit that 7% spread.
Good luckA syndicated fund.
- House Hacking Specialist · Denver, CO · Member since 2016 · 411 posts · 396 votes3y
Quote from @Jason Hawkins:
Thank you. What type of fund? And I would love to know more about the Pueblo duplex if you don’t mind sending some info on the recording?Quote from @Ben Einspahr:
@Jason Hawkins, Like any post, you will get multiple responses with all different recommendations. None are wrong. But like @Jordan Malara touched on, depends on your specific goals. I once heard, its like asking advise on whats the best car.
I am on the other side of the spectrum. Based on the info provided and the understanding that you are wanting to grow your rental portfolio + net worth, here are the 2 options I would consider:
Option 1
Stay put in your current primary and leverage the remaining balance on the rental HELOC to purchase a 2nd rental property. $100k will not get you anything in the springs but you could get a pretty decent rental in Pueblo. Cashflow will not really move the needle for you but your net worth will grow (tenants paying down mortgage principle, appreciation even thought it might br pretty modest the next year or so, and depreciation).
Option 2
Stay put in your current primary and leverage the HELOC on your rental and invest in a passive fund. Higher returns than stock market and do not have to deal with the management. Whether that is managing the property or the property manager. Downside to this is the interest from your HELOC will offset a good chunk of the 17-19% returns you would get from investing passively
Again no answer is right or wrong. These are just the options to consider.Back in May we ran a deal analysis on a pueblo duplex in our high interest rate environment. Happy to share the recordings if you want… let me know
@Jason Hawkins I will DM you the details
- 3yRyan ThomsonBusiness MemberReal Estate Agent · Colorado Springs, CO · Member since 2018 · 1k+ posts · 1k+ votes
Quote from @Jason Hawkins:
Quote from @Ryan Thomson:
@Jason Hawkins run the numbers and think through your goals and priorities.
If you can't cover the negative cash flow on the current primary when you turn it into Rental number 2, it may make sense to sell it. If you can take a cashflow hit I usually like the option of keeping a home in Colorado for the long run.
Either way if you want to move to Colorado Springs you can get another primary here for 5% down. If it's a multifamily you can use an FHA loan (or VA loan if you are a veteran) to get a multifamily for only 5% down.
Could you please explain how I could get a multi-family property with 5% down?
There are loan prodcuts available that allow you to put 5% down or less on a duplex.
If you are a military buyer you can use a VA loan for 0% down on a purchase of 1-4 units
The Assumable Guy544 Reviews - Investor · San Diego, CA · Member since 2016 · 1k+ posts · 975 votes3y
@Jason Hawkins What would your current primary rent for?
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