Keep Rental or Sell to Help Finance Home
Looking for opinions. My family an I are looking to move out of our Duplex after 5yrs and buy what we hope to be our forever home.
I had assumed if I can find a property manager when I move out, I'd keep the duplex. Let it bring in a small trickle of cash, but mostly for the equity and appreciation, and cash flow during retirement.
However I had a thought the other day and began doing some math to test it out. The question was, what if I sold, used the sale to help put more money down on the primary residence, drop the mortgage and invest the difference in the market (401k, IRA, Traditional Brokerage Account).
Duplex Numbers: Refi in 2021, 240k. Zillow says 270k, but I know that shouldn't be trusted much. Remaining loan balance 182k. 10/1 ARM 2.75%->7.75% in year 13/14, (max step 1.5%).
Scenario A, renting the Duplex.
Couple of assumption, 3% appreciation, 10% rent = Maintenance, 10% rent = Cap Ex, 10% rent = vacancy, and 13% avg Property management fees.
I think I could rent for $2300, and 3% increase each year. In 35yrs, duplex could be valued at 700k. and would be cash flowing 25k/yr after the mortgage is paid off.
The primary residence we're looking for is in the 450-500k range. Using 480k, mortgage was $2700 with 5% down. Same appreciation assumptions, that house could be worth $1,311k in 35yrs.
Summary: $2M in Real Estate Equity, and Cash Flowing 25k/yr (which using a 4% rule is equivalent to 622k in equivalent stock market "value")
Scenario B, selling the Duplex, invest the difference
If I sold the duplex, maybe for 255k, I'd get 71k gross, and assuming 8% transaction cost, 66k net. Add that to the 5% I was already ready to put down = ~19% down on the primary with a mortgage of $2,300 (delta $400).
That $400 invested at 8%/yr is 908k in 35yrs, which would bring in 36k/yr using the 4% rule.
Summary: 1.3M in Real Estate Equity, and an investment value of $908k. Using the 4% rule that would provide $36k/yr.
I'm not sure which Scenario makes more sense... Scenario A has more RE value, and 25k during retirement with rental cash flow. Could also sell the duplex then for 700k-8% transaction, and that would be worth 25k using the 4% rule. But Scenario B has more income during retirement via the 4% rule.
Opinions appreciated.
if you see major assumption misses let me know, but really just trying to think through the idea, the math was to prove it was a feasible comparison.
@Nick Howard you aren't going to get a real answer because it is ultimately up to you. No one here is going to really do the math for you and can't make a decision for you.
Most people here never wants to sell a property if it cash flows.
I wouldn't bank on appreciation because that's a number you are just guessing it might happen.
Remember Rich Dad Poor Dad. The cash flowing duplex is an Asset. The primary residence is a liability. Do not sell an asset to buy a liability. You also kinda answered your own question in your numbers, keeping the duplex makes you more money, and don’t forget principle pay down, that will be a few hundred dollars a month too. And if you change your mind in a few years you can always sell the duplex at that point.
