Should I sell or keep my rental
Beaverton, OR · Member since 2022 · 48 posts · 34 votes
Should I sell or keep my rental
Most Popular Reply
Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesSo you have a choice between:
A) Selling a house and making an immediate profit of at least $200k, of which you could reinvest it into a property that would be worth at least $1M (or multiple that would add up to that number), and collect the CF that would come from it (them), or...
B) Keeping a house as a rental, of which you would only be getting $200/month...or $2400/year, that would take 80 years to equal the $200k in immediate profit you would get if you sold this property.
Now, I ask you this question: Why is there a question of what to do at all? I should think it would be obvious.
41 Replies
- 4yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
So you have a choice between:
A) Selling a house and making an immediate profit of at least $200k, of which you could reinvest it into a property that would be worth at least $1M (or multiple that would add up to that number), and collect the CF that would come from it (them), or...
B) Keeping a house as a rental, of which you would only be getting $200/month...or $2400/year, that would take 80 years to equal the $200k in immediate profit you would get if you sold this property.
Now, I ask you this question: Why is there a question of what to do at all? I should think it would be obvious.
- 4yLien VuongBusiness MemberReal Estate Agent · Boston, MA · Member since 2018 · 2k+ posts · 1k+ votes
Selling is the best option to deploy that capital and capture the tax free gains from the property. I actually know Beaverton as I have a good friend that lives there. It is a very dynamic and growing area and given that price point, you should be able to liquidate very quickly. What I would do next is figure out what is the next asset you can get into to increase equity and cash flow.
The Elle Group5153 Reviews - Beaverton, OR · Member since 2022 · 48 posts · 34 votes4y
Quote from @Joe Villeneuve:
So you have a choice between:
A) Selling a house and making an immediate profit of at least $200k, of which you could reinvest it into a property that would be worth at least $1M (or multiple that would add up to that number), and collect the CF that would come from it (them), or...
B) Keeping a house as a rental, of which you would only be getting $200/month...or $2400/year, that would take 80 years to equal the $200k in immediate profit you would get if you sold this property.
Now, I ask you this question: Why is there a question of what to do at all? I should think it would be obvious.
Thanks joe and lien for the reply! Dont get me wrong, i know the numbers play out nice and that is what I have been trying to explain. But when i talk to my real estate agent he says no to hold it and it will only go higher up in value. I also talked to some of my other elders who are in real estate (obviously they play the buy and hold method) and they tell me to keep. Which is what I dont understand. Why keep when profits so high?? Thats why I habe been searching for why hold if the profits is so high. Sorry still new to all this so ive just been trying to figure out both sides. But i do agree the immediate profits seems the way to go for sure
- Property Manager · Baltimore, MD · Member since 2014 · 1k+ posts · 1k+ votes4y
Since this was formerly your Primary Residence, I would strongly consider selling it within the "The 2-in-5-Year Rule" it so that your transaction is free from capital gains tax.
- Beaverton, OR · Member since 2022 · 48 posts · 34 votes4y
Quote from @Joe Norman:
Since this was formerly your Primary Residence, I would strongly consider selling it within the "The 2-in-5-Year Rule" it so that your transaction is free from capital gains tax.
ah dang, I think i dont fall for that rule now since we got the house in jun of 2016. What would be the next best option? just take profit and accept capital gains? or try to do a 1031 but that only gives me 45 days to find another investment in which if i dont i'll just get taxed the same?
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes4y
You can avoid property tax by selling it and using a 1031 Exchange. The "2-in-5-Year Rule" doesn't matter.
I would recommend you sell. If you only make $200 a month after paying the mortgage and property management, then you are technically in a negative cashflow. You should be setting aside 10% each month for maintenance, 10% for capex, and 10% for vacancy until you have a healthy reserve established.
You also have to consider Oregon is increasingly unfair to Landlords and that is unlikely to get better. You should move your capital to a state that is more tax friendly, believes in justice for Landlords, and where your money can cashflow better.
The DIY Landlord Book4.7248 Reviews - Beaverton, OR · Member since 2022 · 48 posts · 34 votes4y
Quote from @Nathan Gesner:
You can avoid property tax by selling it and using a 1031 Exchange. The "2-in-5-Year Rule" doesn't matter.
I would recommend you sell. If you only make $200 a month after paying the mortgage and property management, then you are technically in a negative cashflow. You should be setting aside 10% each month for maintenance, 10% for capex, and 10% for vacancy until you have a healthy reserve established.
You also have to consider Oregon is increasingly unfair to Landlords and that is unlikely to get better. You should move your capital to a state that is more tax friendly, believes in justice for Landlords, and where your money can cashflow better
thanks nathan! Sounds like selling is the way to go. I guess I would have to wait till March when their lease is up. I am unsure how breaking a lease would go in oregon, I would have to ask the property managers about that. I believe its a 3 month notice but i am unsure of what fees I will have to pay for breaking. On another note, which state would you recommend me looking into that play out in landlords favors? or fairness is the word I mean to use. Do you think if I wait till march to no renew their lease then sell would be too late as far as trying to maximize profits go?
- 4yJared HottleBusiness MemberReal Estate Agent · Cedar falls IA Waterloo, IA · Member since 2020 · 902 posts · 549 votes
I think I would sell for sure within the next year. This will allow you tax free gains with having lived in it 2 of the last 5 years. No need for 1031 exchange, you can keep whatever money you need from it to pay off debt or pay down any other property you have or whatever you want and you can use the money to buy another property. I do not think the cash flow justifies holding it especially when you can get tax free gains
Jared Hottle Real Estate59 Reviews - 4yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesThey're all wrong. None of them are investors, or understand REI...including the REA. They don't understand the value of the equity is greater than the property. They don't understand that when it's your own house, the asset is the house, but when you're an investor, the asset is the equity...and your equity is useless when it sits doing nothing. Your property has a value that if it goes up an average of 5% per year for the next 5 years, it would be worth only $778k. That's an increase of $160k in both the PV and the equity. That sounds like a great thing, and if you were a homeowner it would be. But you're not. If you want to be a REI, you have to think like one, which means follow the numbers with $$$ in front.
Quote from @Irvin Nguyen:
Quote from @Joe Villeneuve:
So you have a choice between:
A) Selling a house and making an immediate profit of at least $200k, of which you could reinvest it into a property that would be worth at least $1M (or multiple that would add up to that number), and collect the CF that would come from it (them), or...
B) Keeping a house as a rental, of which you would only be getting $200/month...or $2400/year, that would take 80 years to equal the $200k in immediate profit you would get if you sold this property.
Now, I ask you this question: Why is there a question of what to do at all? I should think it would be obvious.
Thanks joe and lien for the reply! Dont get me wrong, i know the numbers play out nice and that is what I have been trying to explain. But when i talk to my real estate agent he says no to hold it and it will only go higher up in value. I also talked to some of my other elders who are in real estate (obviously they play the buy and hold method) and they tell me to keep. Which is what I dont understand. Why keep when profits so high?? Thats why I habe been searching for why hold if the profits is so high. Sorry still new to all this so ive just been trying to figure out both sides. But i do agree the immediate profits seems the way to go for sure
Take that equity out as cash (selling the property), figuring on taking out closing costs, and you'll probably be left with around $250k in cash. Now take that money and invest in a a different property (or multiple ones) using that cash as 20% DP's, and the total PV could be around $1.25M...not just the $600k+ you have in PV now.
You want to really see the difference in thinking like a REI and not a REA? Let's say your REA is correct, and the PV's increase...and you apply that same 5% increase over the next 5 years to the new buy(s). The new total PV would then be over $1.9M...not just the measly $778k it would be keeping the property.
You want to be a REI, you have to start thinking like one...in terms of $$$$...future dollars as a result of the compounding effect that only REI can offer. Equity is dead cash...until you access it, and move it forward. - 4yDave FosterBusiness MemberQualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
If you don't think that you qualify for the primary residence exemption than you're best option for avoiding tax is a 1031 exchange. Although, depending on when you moved out you may still qualify. It doesn't matter when you purchased it. The question is have you lived in it for 2 out of the 5 years immediately prior to selling it.
As far as your concerns about the time constraints and the difficulty of finding replacement properties, we are still seeing more than 92% of our clients complete their exchanges . One of the best things you can do if you know that your property will sell fast is to go under contract on your new property before you even close the sale on the house you own now. You are required to close the sale before the purchase, but there are no rules about which has to go under contract first. Here's a link to an article we wrote for BP about mitigating the risks of the 45 day requirement,
The 1031 Investor5137 Reviews - Rental Property Investor · Philadelphia, PA · Member since 2018 · 260 posts · 145 votes4y
You might have missed the window of low rates, but if you can get interest rate close to what you have now on your mortgage, you could refinance it, take 70% of the appraised value = 427k-308k= 119k that can be used to buy another rental property. You cashflow is only 200k, so unless you can get low rates, selling would be best and you can reinvest the profits into another rental. Overall if you can get an interest rate that still allows you to cash flow, I would refinance it. This way you get to keep the home, get cash out of it and buy another and have 2 rental properties
- Investor · Nutley, NJ · Member since 2017 · 72 posts · 56 votes4y
Welcome to the site. There is no decision to be made. You should sell and redeploy the proceeds into one or multiple properties.
If you lived in the house 2 out of the last 5 years, $250,000 of the profit is tax exempt, %500,000 if you're married. *****I'm not a tax professional so check with your CPA on this. If your profit is NOT tax exempt because the 5 years has passed, then you should try 1031'ing the property. If you do 1031 it, be prepared to put 100% focus on finding a replacement property because that 45 days goes by FAST.
Good luck!
- Rental Property Investor · Charlotte, NC · Member since 2016 · 47 posts · 16 votes4y
Great discussion! I’m in a similar situation but on a smaller scale, it’s a condo in Concord, NC (outside of Charlotte) and we are going to do a cash out refi and use it towards another investment property.
Tasha
- Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes4y
@Irvin Nguyen you have received some fantastic advice on this thread. This is a no brainer to me. Sell! I am a real estate agent, but also an investor and I can tell you that NOTHING has propelled my portfolio forward as fast as selling real estate so I could redeploy the equity.
I like to think about return on equity. If you are making 1-5% return on your equity, then you would be better served just throwing that in the stock market so you don't have to think about it (don't do that!). You want to keep your money hard at work working for you!
I would echo others to say that you are probably able to sell and not pay taxes due to this having been your primary for 2 of the last 5. I think you should explore that avenue ASAP.
- Beaverton, OR · Member since 2022 · 48 posts · 34 votes4y
Thank you for all this info, at the end of the day yes I wanna be in the investor side of things. and I agree with everything you and many others are saying which is why I am on the side of selling. Now I just have to see how to break lease, let tenants know, or how to even go about that so I will have to talk to my PM about it all. I really appreciate the honest advice and reality check of knowing the difference between the two of REI and REA. Putting things into numbers to visually see things helped a lot also. Thanks guys!
- Beaverton, OR · Member since 2022 · 48 posts · 34 votes4y
Thanks for the link! will definitely take a look at it today. As for the 2-5 rule. I lived in that house from jun 2016 to March 2019, so if i sell that house in march 2023 (when lease ends, hopefully sooner if breaking lease is OK) that leaves me in only living in that house for 1.5 years assuming it only goes back 5 years making it march of 2018. So i would assume i dont qualify for that rule?
- Beaverton, OR · Member since 2022 · 48 posts · 34 votes4y
yea, i dont think refinancing would be the best play because I refinanced in 2020 bringing it down from 5% to 2.99% and with rates being 6% i am unsure if that the right play for me and selling would have to be the route i take
- Beaverton, OR · Member since 2022 · 48 posts · 34 votes4y
I will definitely take the selling route after talking to all of your guys, best option also and creates much more opportunities than what I am getting now. so thank you guys all for the awesome advice!
- Rental Property Investor · Prospect Heights, IL · Member since 2015 · 22 posts · 3 votes4y
@Irvin Nguyen Have you tried checking the new rent estimate in the area? It might be a lot hire now with this hot market. This happened to me when I first bought the house in 2018 estimated rent was 1800 and I was only making $200 after expenses and a few years later it rents for $2600.
*You also have the option to rent per room
*Find a new tenant and do a cash out
*line of credit
*Or if you still have PMI, call the mortgage company and tell them you want it remove because you have more than 20% equity in the house.
- Beaverton, OR · Member since 2022 · 48 posts · 34 votes4y
Yea, I tried looking and even used the rent estimator on this website. based off this site and zillow, prices was about $2400ish which is slightly more profitable but still not as high to cover other expense or to put aside for other stuff
- 4yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
Then look in a different market.
- 4yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
Quote from @Irvin Nguyen:
Thank you for all this info, at the end of the day yes I wanna be in the investor side of things. and I agree with everything you and many others are saying which is why I am on the side of selling. Now I just have to see how to break lease, let tenants know, or how to even go about that so I will have to talk to my PM about it all. I really appreciate the honest advice and reality check of knowing the difference between the two of REI and REA. Putting things into numbers to visually see things helped a lot also. Thanks guys!
Why do you think you have to break the lease?
- Beaverton, OR · Member since 2022 · 48 posts · 34 votes4y
Would you plan to sell with the tenants currently in it? I guess my question is how would you go about it to make the most profit or get best offer on the house because their lease ends February 2023. I guess my options would be the following and please correct me if I am wrong or missing something.
1. Sell with current tenants in it to possible investors
2. notify tenants and PM that I plan to sell and they have 3 months (based on my research for oregon, not sure how true)
3. wait till contract ends, say I wont be renewing after feb 2023 and then sell? My biggest worry here is if market isnt so seller friendly by then vs now?
4. seeing if tenants would be willing to buy it go that route? but I could be missing out on higher offers etc.
I wanna get the most out of selling it and I am not sure if it would be selling to investor route, or maybe someone who wants it as their family home looking to offer more to sell it to them?
- 4yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes...or,
Quote from @Irvin Nguyen:
Would you plan to sell with the tenants currently in it? I guess my question is how would you go about it to make the most profit or get best offer on the house because their lease ends February 2023. I guess my options would be the following and please correct me if I am wrong or missing something.
1. Sell with current tenants in it to possible investors
2. notify tenants and PM that I plan to sell and they have 3 months (based on my research for oregon, not sure how true)
3. wait till contract ends, say I wont be renewing after feb 2023 and then sell? My biggest worry here is if market isnt so seller friendly by then vs now?
4. seeing if tenants would be willing to buy it go that route? but I could be missing out on higher offers etc.
I wanna get the most out of selling it and I am not sure if it would be selling to investor route, or maybe someone who wants it as their family home looking to offer more to sell it to them?
5 - Do all of the above.
Put it on the market with the tenant in place. If another REI buys it great, if not, then keep it on the market, don't renew the lease, and sell it without a tenant in place. - Laveen, AZ · Member since 2016 · 584 posts · 528 votes4y
Quote from @Joe Villeneuve:
So you have a choice between:
A) Selling a house and making an immediate profit of at least $200k, of which you could reinvest it into a property that would be worth at least $1M (or multiple that would add up to that number), and collect the CF that would come from it (them), or...
B) Keeping a house as a rental, of which you would only be getting $200/month...or $2400/year, that would take 80 years to equal the $200k in immediate profit you would get if you sold this property.
Now, I ask you this question: Why is there a question of what to do at all? I should think it would be obvious.
Now this is one I can say hands down needs to be sold.
@Irvin Nguyen This house needs to go. You can literally buy two whole properties, even two whole multifamily properties CASH with that kind of money. I'm not saying that's the best way to go about it but it's to give you some perspective how much money is sitting idle and how high your missed opportunity losses are.
If you calculated $200 without factoring vacancy, Capex, maintenance, leasing fees (if your pm charges it) and other costs to hold, then you're actually getting $0/month or less
Sell that house and buy us a pizza.
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