Low cash flow OR selling in hot market

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Low cash flow OR selling in hot market

Mike Bend
Member since 2020 · 11 posts · 4 votes

Hello! First port here....My goal is to ultimately have a portfolio of rentals. I can’t decide if I should sell my townhouse for about 50-60K profit in this hot market and use that to find a better deal that cash flows better or if I should keep the townhouse but make conservatively about 50-100$ a month in cash flow.

I owe 169K on my mortgage with 2.8% interest. The house appraises for about 230, and other models around me have been selling quick around that 230K price. I live in Chicago suburbs so the high property tax and HOA on my townhouse are the cash flow killer. Rentals in my area for these 2 bed 2 bath townhouse are about 1700-1900$ per month.

Sorry if this post was too vague to answer. I can add more details if need be.

Thanks for any input

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Joe SplitrockPro Member
Moderator
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
5y

@Mike Bend condos and townhouses are the first to lose value in a down turn and last to recover value in a hot market. Condos and townhouses have all the scale disadvantages of single family homes and have the multifamily disadvantage of sharing walls with other people. I am not a fan of HOA, because of restrictions they can place on your business and the added expense.

The challenges in IL are you have to deal with anti-landlord politicians, high taxes and poor handling of key issues like crime and COVID. This is why Illinois is one of the few states that lost population in 2020. It is one of only a few states states that lost enough population to lose seats in Congress. Taxes are only increasing in the future as higher wage earners leave to erode the tax base.

Of course the most important question is if you sell, where will you invest the money. Selling only makes sense if you have a better investment to move into. I am sure you can do better, just make sure you have a plan before you sell.

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  • John Warren
    Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
    5y

    @Mike Bend you have a lot of equity, and I think you should look at your long term goals to see if your town home fits in. If your long term goal is appreciation, it looks like your town home has done fairly well. From a cash flow perspective, you can collect 41 years of cash flow if you sell... that is a lot! My rule of thumb is that if I can collect 10-15 years of cash flow I will consider selling an asset. There is no way to predict what the world will be like in 15 years (much less 40 years) and the time value of money dictates that you can grow that wealth very quickly if you get that capital and redeploy it now. 

    2Reply
  • Mike Bend
    OP
    Member since 2020 · 11 posts · 4 votes
    5y

    @John Warren

    Thank you John

    0Reply
  • Jonathan KlemmBusiness Member
    Moderator
    Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes
    5y

    @Mike Bend - Welcome and glad to have you in the BP community.  Your question is one that many investors face when they are starting out if they already own their current home.  You arent going to find a better interest rate than you currently have and sounds like it's a nice property.  

    Also, what is your current principal, interest, taxes, & insurance (PITI) payment?

    I suggest looking into getting Home Equity Line of Credit (HELOC), I believe my friend @Michael Barbari at First Midwest can go up to 90% LTV. Then after you get that you could consider moving out and looking for a house hack or multi family, if that was your plan moving forward.

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    1Reply
  • Michael BarbariPro Member
    Banker · Downers Grove, IL · Member since 2014 · 396 posts · 107 votes
    5y

    @Jonathan Klemm @Mike Bend Thanks for the mention Jon. Yes, 90% LTV on owner occupied single family up to 4 units. 80% on condo/townhomes.

    1Reply
  • Brandon Schwab
    McHenry, IL · Member since 2019 · 21 posts · 26 votes
    5y

    Hi @Mike Bend, welcome to the BP community! You’ll learn a lot here. I’m from the Chicago NW burbs as well, we’ll have to connect offline and grab a coffee sometime. My thoughts on your post is if you owe $169K and sell it for $230K. After you expenses for closing you are only netting $45K (assuming a 6% realtor) at best. Ask yourself what can you do with $45K to trade up or level up. Keep in mind the hot market will work against you when you are trying to buying your next asset. Also right now it’s extremely hard to buy at a discount unless property needs a lot of work. Are you connected with any local wholesalers? Might want to feel out what you could trade up to first? 

    Side question, how long have you had the current mortgage in place (since last refi)? Sometimes that factor should be considered in keep it or sell it. For example if you’ve had for 12-13 years and paid down a lot of the interest of a 30 years mortgage in the first 15, the back 15 of the 30 year you pay down principal a lot faster. 

    Either way, hope this helps and good luck! 

    2Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    5y

    @Mike Bend condos and townhouses are the first to lose value in a down turn and last to recover value in a hot market. Condos and townhouses have all the scale disadvantages of single family homes and have the multifamily disadvantage of sharing walls with other people. I am not a fan of HOA, because of restrictions they can place on your business and the added expense.

    The challenges in IL are you have to deal with anti-landlord politicians, high taxes and poor handling of key issues like crime and COVID. This is why Illinois is one of the few states that lost population in 2020. It is one of only a few states states that lost enough population to lose seats in Congress. Taxes are only increasing in the future as higher wage earners leave to erode the tax base.

    Of course the most important question is if you sell, where will you invest the money. Selling only makes sense if you have a better investment to move into. I am sure you can do better, just make sure you have a plan before you sell.

    3Reply
  • Noah Chappell
    Investor · Minneapolis, MN · Member since 2016 · 254 posts · 228 votes
    5y

    @Mike Bend I'm not super knowledgeable about your area but if you sold and netted 45k, then bought a duplex to house hack for ~200k, you'd probably do better over the long term and this would get you closer to your goal of having that portfolio. 

    1Reply
  • Mike Bend
    OP
    Member since 2020 · 11 posts · 4 votes
    5y

    @Jonathan Klemm

    Current PITI is 1279. High taxes but I found out I'm paying way more than my neighbors. Never knew about appealing taxes until now. Neighbors are paying 3500 and I'm around 5800 which is insane!

    HOA is 240

    0Reply
  • Mike Bend
    OP
    Member since 2020 · 11 posts · 4 votes
    5y

    @Brandon Schwab

    I have never talked to a whole seller. I don’t have the Capitol to really buy but selling the property would give me something to work with

    I refi last year. So still got awhile on the mortgage.

    Would love to meet up some day and learn from you!

    Thank you.

    0Reply
  • Eddie L.
    Member since 2020 · 89 posts · 43 votes
    5y

    @Michael Barbari what is your LTV for a HELOC on an investment property?

    0Reply
  • Michael BarbariPro Member
    Banker · Downers Grove, IL · Member since 2014 · 396 posts · 107 votes
    5y

    @Eddie Lovick 60% currently. I have to be first lien. Was 75 before covid but we’re creeping back up.

    0Reply
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