I need advice of whether or not I should sell, refinance, or HELOC this one rental property. Given that real estate isn't my full time profession, I decided to ask the pros to see what you would do in this situation. I bought this townhouse in Northern Virginia (hot market) in 2010 as an owner occupied for 306K with a down payment of 3K thanks to a desperate bank who paid closing costs and the first time homeowner tax credit (8K) and a FHA loan at 3.5% down. Lived in it a few years, then decide to buy a new home and convert this to a student rental for a university nearby. Fast forward to today and what was worth 306K is now worth 400K with a mortgage balance of ~280K. Mortgage is ~$2000/mo with rent ~$2500 after expenses nets ~$250-300/mo. Since this is a student rental, I can't afford to have a PM due to the yearly turnover bc they would essentially eat all my profits so I manage the property which is not too bad, but can be a pain at times. Conversely I have never had a single day of vacancy so there is a trade off to having student housing. I do have 2 other homes in North Carolina which are doing very well. I bought these for under 100K and they each pull in ~$300 per month after expenses. This has begun to make me start thinking if I need to change my strategy and use the money in this VA home to purchase more homes in NC. I plan on purchasing many more homes in the NC area in the future. Options: 1. Should I sell this to net around ~90K after realtors and such and get rid of the landlord lifestyle for a more passive investor role? Feel like I'm throwing away a gem if I do this since with the university nearby, this should always have renters and appreciate very well. 2. Should I refinance this home to net ~40K to pull money out of it for purchases. If I do this then I might have a negative cash flow producing property. Isn't that a big NO NO? I would also lose my great mortgage terms @ 30yr 3.5% interest rate. 3. Should I get a HELOC? Since HELOC's are normally 75% LTV I would need to wait a few years to do this since I'm just slightly below that. 4. Am I missing any options?

@Emmett McNulty Never thought of it in those terms, but it does make sense. After reading what you and @Russell Brazil mentioned, I believe I am going to keep the property. Since this is not my full time job and my goals are long term (early retirement), than it makes the most sense to keep this one and keep investing in the NC market in the future. Appreciate it.

@Chris Ayers Great question and this is one we faced ourselves over the last year. We were in the Denver, CO Market and the Columbia, MO market. One very vertical (Denver) and the other with strong cash flow (Columbia). I can only speak to my analysis, but here's what my thoughts are and were. A lot of this boils down to your business model, is your goal to grow vertically through equity or horizontally through volume (cashflow): The following are my opinions on both: First the vertical model. Exceptional wealth is both gained and lost in the vertical model. In this model you are anticipating market appreciation to build wealth, which over the long haul is reliable. What you have seen with a 30% increase over 5 years in the properties net worth in NC is an example of this model when it works. Second, the horizontal model. The horizontal model lends itself to a sustainability and your income is generally limited to the ROI based on rents. If your selection of properties is good, you may be capable of seeing strong annual returns with a more diversified portfolio. These will generally be less than the vertical model when markets are good, and better than the vertical model when markets are poor. The question that I would ask yourself is: "Am I more comfortable with all of my capital in a limited number of investments or over many investments". Over the long haul, both will perform similar on a net/net basis (my pinion over a 20 year period of analysis between Denver, CO and Columbia, MO). Once you know the answer to that question, I believe you will know the answer all 3 of your questions above. Just my thoughts.

What should I do with this property?

Chinmay J.

Investor · Northern, VA · Member since 2016 · 1k+ posts · 904 votes

9y

What to do would be a function of your long term goals. Although, I don't have a crystal ball, no one really is expecting the Northern VA market to dip.

So Option # 5 would be to do absolutely NOTHING, and you would more likely than not be just fine 5 yrs down the road.

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Franco Li

Vendor · New York, NY · Member since 2017 · 217 posts · 88 votes

9y

Your mortgage term is amazing, but it seems like you already had the property for a number of years, so I wonder what large repairs you would need to perform in the long-run. I think:

1. If you can't raise rents on the property, this place doesn't seem too profitable despite the amazing mortgage terms. I say this because you're only pocketing $300/month, and if you have to fix something huge, thats all your profit! Moreover, a month of vacancy will hit you like a knife in the chest w/ that steep mortgage.

2. If you consider other opportunities, I think there are potentials for higher returns. I would not be too absorbed with the great lending terms, because an 5/7Y ARM can you get that rate if not lower. If you are not familiar, with an ARM, I wrote an article about it and give you more details on why its a good strategy.

3. Perhaps consider pulling out of the property, net around $90K, and see if you can buy THREE more properties that can net you that $3600/home/year. Then you'd be making triple the amount!

4. Don't get attached. Haha.

Good luck brother.

What should I do with this property?

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