To Sell or to Hold?

Question

First post here and Im just looking for some guidance as I've been doing it all myself since 22 and now I'm 25 and finding a mentor has been difficult for me.

I currently own a rental property that generates $2,875 in gross rent. After expenses I take home ~$1,351(Mortgage, Water/Sewer landscaping etc).

This rental is valued at ~$275k I owe ~$140k as I bought the property back in 2021 with a 3% interest. This rental is not my primary residence as I live in a different city.

I've been contemplating on selling the rental and using the funds to flip properties. I've done only one flip in my life and that helped fund the downpayment for the rental so I wouldn't say doing a flip is scary as I've done it before. I'm just looking for the best decision to make and how to grow my real estate portfolio and not sure if holding the rental will do this but again due to not having someone to learn from maybe holding the rental is the better decision.

Any guidance and help would be much appreciated, thank you.

Jake Andronico · Answer

@Marcel Bracamontes

You are incredibly young (congratulations on your early success!!).

In my opinion, this is a cash cow that you are considering selling to get into a much riskier venture.

This is a long game. The quick success is extremely alluring, but there is significant risk. Don't rush.

If you paid off this property, what would your net cash flow be? Two of those and you'd probably be financially independent w/ minimal headache.

Eliott Elias · Answer

There is no roadmap on the best decision for you. It is solely dependent on where you see yourself in 10 years.

This is the market to buy cheap real estate, not to sell. Flipping in today’s market is like catching a falling knife. Who knows where the market will be once the project is done. I am personally buying properties that cash flow right now.

Jaron Walling · Answer

@Marcel Bracamontes That's a cash-flow machine with locked low interest rate. Pretty crazy to sell but it really depends on your goals. Define your goals and start taking steps to achieve it.

What direction is the market going in?

What is your calculated COC?

Any big deferred maintenance looming in the future?

Are you keeping up with market rents?

Are your tenants paying on time and communicating well?

Personally, if the boat is sailing and moving forward you're winning. Don't rock the boat. Find money elsewhere or pull a HELOC to jump into the next deal.

Alecia Loveless · Answer

@Marcel Bracamontes I would keep the property as is and wouldn’t refinance or do anything foolish to rock the boat on that much cash flow from one property. I have 20 doors, 5 more under renovation but not rented yet and am averaging about $225/door/month which is considered an average return on a rental unit.

I think once you get into the world of flips you will quickly find out that a lot of your profit is quickly eaten away with short term capital gains taxes. Or if you hold the property for more than 1 year long term capital gains tax + the holding costs of keeping it for so long.

I would strongly recommend networking through your local Real Estate association and meet ups and to try to find a partner to bring the money to your next deal, if that ends up being a flip then great!

I have just done this for the first time and we’ll be splitting a nice cash flow each month, the way we structured our deal is that when I’m able I will pay back 50% of the down payment and closing costs and renovation costs and I will receive a fee for managing the property as my partner is from out of state.

In your case your partner might just bring the $$ and you do the work and you split the proceeds 50:50. Endless possibilities here.

Sunil Kurian · Answer

@Marcel Bracamontes

In a short time you have made it to the point where you have ~$1300 in profit/month and a total of $135k in equity. Amazing! Sounds like you hit a home run in your first 'at bat' which is enviable. Some investors chase cashflow and others chase appreciation...sounds like you've accomplished both right imout of the gate - congrats.

Heres how i would suggest looking at it. You actually have 2 assets you need to consider. The house is one asset here but the 3% financing itself is another. I've heard of several lenders who offer products that allow you to tap into the equity of your rental WITHOUT messing with the existing mortgage. Be careful in how you do this because the interest rate might be variable...but that would be the move to make without losing either asset.  it's worth looking at.

That said, you are in a good spot even if you do nothing. It certainly wouldn't be losing to stay put and patiently save up cash over time for another purchase.

Vadim F. · Answer

I wouldn't flip in today's market. What I would do is see what cash flow I would be comfortable with. If you can still cash flow 200-300mo after taking out 100k in equity and use that money to buy more rentals that cash flow would be the ideal solution. Yes rates are high, but they won't always remain that high.

Samuel Diouf · Answer

$1,300/m is amazing cash flow for one property. Maybe keep the property and take the equity out through a cashout refi if lenders allow you to.

Abel Curiel · Answer

Hello Marcel, great question & Welcome to the BP forums!

Curious to know what the end goal is for you.If the goal is to buy X rental properties by X age... or something along those lines, I'd consider holding the property. There are other ways to flip another property without having to sell - i.e. partnerships (OPM), refinance, HELOC. Your next flip, if all goes well, will yield a profit which you could use to buy more rental property.

I believe there is a way to rinse and repeat the process - flip followed by rental acquisition - through partnerships. Stealing the famous "Field of Dreams" quote here... "if you build it, they will come"... Find the deal, negotiate flexible terms, get your partner involved and close on it.

If you've already flipped a home and know how to source a potential flip deal, you can potentially find a mentor to partner with you on the next flip. This way, you don't have to sell the property.. instead, you just have to come up with a portion of the funds needed on the deal so you can have skin in the game - maybe use a HELOC and repay it upon closing of the flip?

If your goal is to flip homes and that is the business model for you, I'd consider selling it to have more capital on hand - possibly to invest in multiple deals at once.

All the best to you on your journey!

Abel

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