Should I sell or keep my rental

General Landlording & Rental Properties
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Should I sell or keep my rental

Irvin Nguyen
Beaverton, OR · Member since 2022 · 48 posts · 34 votes

Hi guys, 

first timer on this website. I just recently signed up a few weeks ago. I am currently debating on whether to sell my rental property in beaverton oregon (formally my first primary home) or to keep it rented out. A little background on my situation. We bought the home back in 2016 for $355k and now currently owe only $308k. Since moving out in 2019. We have had the same renter since day 1 till now. We are currently only profiting $200 after property manager takes their 8%. The current house estimate is about $610k. Would you sell it and take the 200k+ profit to possibly put into some other rental(s) or keep renting out with the current tenants. Their lease isnt up until february 2023 so i still got time to decide. Tenants have been awesome. We have only had to replace the washer and dryer but besides that all has been smooth with both parties. Just trying to make the best choice on which situation to go about

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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
4y

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.

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  • Irvin Nguyen
    OP
    Beaverton, OR · Member since 2022 · 48 posts · 34 votes
    4y

    @Rodney Sums 

    Plan is going in motion this week once I start my weekend in two days!  Once everything works out, ya'll wants cheese, pepperoni, or the works? lol 

    0Reply
  • Irvin Nguyen
    OP
    Beaverton, OR · Member since 2022 · 48 posts · 34 votes
    4y
    Quote from @Joe Villeneuve:
    Quote from @Irvin Nguyen:

    @Joe Villeneuve

    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? 

    ...or, 
    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.

     Thanks @Joe Villeneuve. Will do all these. I will follow up once everything completes to let you guys know how it goes :) I appreciate the help! 

    1Reply
  • Jeremy Horton
    Rental Property Investor · Somewhere over the Rainbow · Member since 2021 · 1k+ posts · 1k+ votes
    4y

    I would sell as well - I think you could take that capital and deploy it into something bigger. May be hard to find something in 45 days with the market the way it is...but this is a sellers market - we are literally at the top of the market right now. You're seeing a softening happen already, I still think it's a great time to sell. Pros are doing it. 

    0Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    4y
    Quote from @Rodney Sums:
    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.

    I never thought of it that way...about the pizza I mean.  Good call!
    1Reply
  • Rodney Sums
    Laveen, AZ · Member since 2016 · 584 posts · 528 votes
    4y
    Quote from @Irvin Nguyen:

    @Rodney Sums 

    Plan is going in motion this week once I start my weekend in two days!  Once everything works out, ya'll wants cheese, pepperoni, or the works? lol 

     That's what's up, congratulations on those zeros it'll feel good when that deposit hits.

    I'll let @Joe Villeneuve pick the toppings since he told you first  :-D

    3Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    4y

    Load it up...but no anchovies.

    0Reply
  • Tony Kim
    Rental Property Investor · Los Angeles · Member since 2018 · 844 posts · 1k+ votes
    4y
    Quote from @Irvin Nguyen:

    @Rodney Sums 

    Plan is going in motion this week once I start my weekend in two days!  Once everything works out, ya'll wants cheese, pepperoni, or the works? lol 

    I would think it over long and hard before making the kind of decision where you'd be selling real estate in a prime location in a market that consists primarily of owner-occupied homes in order to chase cash-flow in some far away place that you're not familiar with. I agree that the current cash-flow on your property is unacceptable and you could be doing a lot better. Just be aware of what you're getting yourself into....and most importantly, have a definitive, clear strategy for where you'd like to redeploy your capital before selling. In the online world, properties that cash-flow with 20% down apparently grow on trees even after the current 10+ years of unprecedented appreciation we've just had. Just make sure you do your due diligence. I've done the OOS thing before and decided it wasn't for me. 

    1Reply
  • Andrew Tefertiller
    Member since 2019 · 4 posts · 3 votes
    4y

    Great discussion.  I am pretty interested in the pizza idea as well. 

    2Reply
  • Bob Metry
    Member since 2020 · 62 posts · 46 votes
    4y
    Quote from @Irvin Nguyen:

    @Dave Foster

    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? 


    @Irvin Nguyen
    June 2016 to March 2019 is 2.5 years. So you should qualify for the tax free exemption of $250k if single and $500k if married.

    0Reply
  • Matt Bishop
    Rental Property Investor · Dallas, TX · Member since 2020 · 161 posts · 88 votes
    4y

    @Irvin Nguyen, what is the stated termination date of the current lease?

    Can you wait to sell until the lease runs its term?

    I Believe it is customary to give the tenant a 60 day notice of non-renewal. Talk to your property manager.

    0Reply
  • Isaac S.
    Member since 2018 · 563 posts · 562 votes
    4y

    exit strategy, AKA disposition strategy....listen to @Tony Kim and be sure to work through all the scenarios of the potential/acceptable capital redeployment, so that you have a well crafted road map for your upleg(the replacement property), that realistically works on multiple test properties, so you know it's not just theory. IMHO

    2Reply
  • Joshuam R.
    Rental Property Investor · FL · Member since 2016 · 271 posts · 92 votes
    4y
    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.

    once you collect the 10% for each of the 3, what is consider a healthy reserve? The point to where okay I can now stop saving this 10% for this category.

    Curious

    capex healthy reserve = cost of at least one of the most expensive repair (example roof replacement) 

    vacancy healthy reserve = is 3 months worth of your property bank mortgage payment. (thats what im doing)

    maintenance healthy reserve = I would stop saving for this area per property once I have 12 months worth of it?


    0Reply
  • Joshuam R.
    Rental Property Investor · FL · Member since 2016 · 271 posts · 92 votes
    4y
    Quote from @Dave Foster:

    @Irvin Nguyen

    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,

     https://www.biggerpockets.com/...


     Lets say Person lived in their primary 2018, moved out and rented it out in 2022. That means sell by 2023 or anytime after 2022 still counts since the actually total time living in it was only 4 years?

    0Reply
  • Brad HammondBusiness Member
    Real Estate Agent · Portland, OR · Member since 2016 · 1k+ posts · 605 votes
    4y

    Hey @Irvin Nguyen, you will need your tenants to give you notice to vacate, you don't want to be the one to tell them to leave.  I would have your management company raise the rent as much as they can with 90 days notice and hope your tenants decide to move out.  Otherwise, it will be a mess.  Like everyone else has said, I would recommend leveling up into a larger property.  You will need to be strategic on how you list if you are doing 1031, let me know if you want to chat more about this. 

    0Reply
  • Irvin Nguyen
    OP
    Beaverton, OR · Member since 2022 · 48 posts · 34 votes
    4y

    @Brad Hammond Thank you and will do! got a meeting with the property manager today to see what they will say

    0Reply
  • Henry T.
    Member since 2022 · 1k+ posts · 1k+ votes
    4y

    I'm a buy and hold guy, but if you're a hustler you could do well with $200k.  But that $200 a month will be $1500 in 5 years. Also, if you were to find your dream property, do you have the stomach to go up against 20 other bidders? That's what the market is like presently. It's so competitive, you may never get through that door again. Good luck.

    0Reply
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