Hold or Sell high cash flow, high equity property?

8 Replies

Hi!

   I live in the Denver area and have a property I cash flow $550 a month on and have a 3.65% interest rate on.  I also have $260k in equity and if I sell here soon will be within the threshold of avoiding capital gains, I'm coming up on having been able to say I've lived there for 2 of the past 5 years.  I have no other investment properties.   I think the market is getting close to being at the top, could be another year or two but the savings bypassing capital gains I believe will supersede the appreciation gain.   The other thing is the homes all around my property are getting bought and scraped and row homes are being built in their place and I think that will make my little old house less desirable when it is towered by these townhomes.  I don't have a lot of experience in investing so while I believe I may be able to better leverage that equity if is sold I'm a)not sure exactly how to put it to work for the better or b) if Im better off holding on to the property for the long haul.  I believe it will always rent do to its location and was also considering airbnb with it.  Seems unlogical to take a property that I paid for at the bottom of the market and then take the equity and buy at the top of the market, but if I can own multiple properties or do something else with it then maybe the higher debt amount doesn't matter?  What would you do?

Thanks so much!

KS

You won't be able to airbnb it since it isn't your primary. What are your goals? Do you want to be a landlord? Do you want to own more? Could you qualify  for additional purchases if you sell and use that equity as a down payment to turn 1 rental into 3-4?

We are not at a top, but things are finally slowing down a bit. Properties will continue to appreciate, but just not as fast/much. I'd turn that one investment into many if it were me.  

For me it would depend on how much cap gain I have.  I see how much equity and what your interest rate is, but what did you pay for it vs what it will sell for?

I'll always take a tax-free gain when I can if substantial.  Keeping a rental is cute and all but your ROE is low ($500/mo on $260k).  I have a house with $90k equity and cf's $600/mo for example).  I'd probably sell, thank Uncle Sam for a nice tax-free chunk and re-deploy.

Welcome to BP!

@Kathi Spencer   Your in a great place.  With $260k in equity, you have a lot of options.  

1. Do you like being a landlord and want more properties?  If so and possible, sell or refinance and buy more.

2.  Hate being a landlord.  Sell and use the money for one, several, or none of the following:

  • Put the gain in the stock market.
  • Partner in a more passive way in real estate.  Maybe you can be the money gal in someone's next deal.
  • Become a money lender.
  • Seed money for a venture you would be more passionate about.
  • If you are worried about the future economy or are at a point where you want to reduce your risk, use the equity to pay off other debt, maybe even your primary residence.  This is more of the Dave Ramsey approach, but there is some freedom in being out of or close to out of debt.    
  • Spend some of it and enjoy the fruits of your labor.

Hope I didn't cloud the decision even more.

Matt M. I have an opportunity to partner with a builder on a duplex project where I could get 25% of the net profit, however, the project won't be ready to sell until about this time next year.  I hear some people think we are going up still and some think we will be crashed by this time next year.  What do you think?  I could also be an equity partner with a guaranteed 15% return.

 Thank you for your comment!

Originally posted by @Kathi Spencer :

Matt M. I have an opportunity to partner with a builder on a duplex project where I could get 25% of the net profit, however, the project won't be ready to sell until about this time next year.  I hear some people think we are going up still and some think we will be crashed by this time next year.  What do you think?  I could also be an equity partner with a guaranteed 15% return.

 Thank you for your comment!

 There are no guarantees in RE investing. How much are you putting into the whole deal? 25% seems like it wouldn't be worth the risk. I personally wouldn't take on any new builds in this market, but that's me.

We won't crash, but as the market balances out, things will be harder to sell.  

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