To sell or not to sell???

Question

We are currently under rehab on a quadplex in OKC. We bought it for 160k, putting in 250k rehab. It appraised 740K when we got it appraised for the lender. We are buy and hold investors so this is an obvious BRRRR for us but I wanted to see what others would do in our position? Keep the property as a rental and get 100-150k after cash out refi or sell for gain of around 250K before taxes...

Can anyone justify selling and taking the proceeds???

Dave Foster · Answer

@Hoai Nguyen, if you look at the impact of taxes, you'll actually net around $165K in cash after taxes in a sale.  You can refi and pull out $150K?  That's not much difference!!!  If it's a good rental, you keep it!

If you do ultimately decide to sell, you'll want to hold it long enough that you can do a 1031 exchange, which would allow you to defer all of the tax and depreciation recapture and reinvest it into another investment property/properties. That way, you get the benefit of the full $250K of equity.

Joe Villeneuve · Answer

You're leaving out the most important info.  What are your monthly payments for mortgage, taxes, insurance?  What is the total monthly rent?  How much total cash have you put into this?

How can you tell if this is a good rental without this info?  You can't.

Micah White · Answer

Refi!!!!! Use that tax free cash out to buy more and keep the ball rolling. Great job!

Ben Scott · Answer

I would suggest keeping the 4-plex unless you need the funds to pay down other debt and funnel those funds into a different project.

Brendan Mullenholz · Answer

What would you net monthly if you rent it?  Look at your portfolio and goals and see where you should go.  It sounds like you should at least hold onto it for a bit since you did the rehab and are clearly making a very good profit either way.

Rhett Tullis · Answer

what about rents?  Most 4 plexes in okc are not in the high rent areas unless you have one in a few specific neighborhoods (plaza, paseo etc)  Based on the appraisal I would guess its in one of those but that would have a huge impact on keeping or selling.  If rents per unit are in the $800 range sell if rents are $1200 or so potential long term hold.  Lots of variables. Also have to keep in mind what rents for single family are in the area, it can be hard to push a 4 plex as high as single fam in the metro (lots of places to choose from)

Chase Busick · Answer

@Hoai Nguyen,

I agree with all the others. Can really go either way, but can be figured out by exploring both options a little further.

Dive deeper into whether or not it’ll make since to sell now, factor in all the costs & opportunity cost of selling vs keeping. It sounds like it’ll be a very nice property condition wise, but may take a lil to sell considering high price point, limited people in that buying pool (considering they can still buy a lot more affordable places), & higher financing costs.. But, selling to capture the gain would be nice! I’d definitely get a better idea on how much profit you’d actually be making, & most of all fits into what you’re wanting to do for strategy.

For keeping it, can be most of the same things.. Have people move in & pay down the loan & build up equity then sell later. Can do a 1031 exchange if find another investment deal, but don’t want to force yourself into one just because. Keeping it as a rental has its long term perks with write offs, possible extra cashflow (if expenses & debt service are too high). If debt service is too high, it may eventually impact your financials & what some lenders would be open to lend on. Sounds like it’ll be fairly good since got at a good price & have a rough budget with a lot of wiggle room.

Seth McGathey · Answer

I am big on holding. You get the tax benefits, the cashflow, and can always sell later if you need to. If you sell, you either need to 1031 it into something else, or you will lose a lot that money to taxes.

The one way I would consider selling is if you see another deal that will increase those profits or be a better return and you would not be able to afford it with the cash out refi. Otherwise I would hold onto it assuming you have expenses covered and maybe even some cashflow. You can still use the cash out refi to go do another deal.

Jose Clavijo · Answer

Keeping it as a rental can be a great move, but it really depends on where you are in your investment journey. I did the same at one point and grew my portfolio to where I eventually decided I didn’t want to hold any more rentals. I’d probably sell in your situation...but that’s just me, based on where my portfolio and goals are today.

Ezekiel Trevino · Answer

Keep it as a rental.

To sell or not to sell???

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