Selling cashflow property to grow portfolio?

Boise, Idaho
General Landlording & Rental Properties
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Selling cashflow property to grow portfolio?

Michael Kaminski
Member since 2023 · 10 posts · 6 votes

I've tried to build some spreadsheets but can't seem to make any sense of a clear path but maybe that's data enough to not take action.

I bought a duplex 7 years ago for 188k and now I'm guessing it would sell for close to 500k. It is assessed at 535k and there aren't many multifamily properties to compare to. The duplex is a 2 bedroom 1 bath on each side and rent has gone up dramatically. One side rents for 1k (good long term tenants slow 3-5% rent increases) and the other side rents for 1.5k (turn over allowed for aggressive price increases). After mortgage, taxes, insurance, and other costs this property cashflows ~1400/month. I owe 130k on the current mortgage. 
I could 1031 but when I'm trying to find a better property in my area, Boise Idaho, nothing seems to come close to the benefits I already have with this property. I absolutely don't have a perfect picture of what better means but in my mind it should at least break even?

I think after closing and realtor fees I would have more than 300k to invest. Buy 2 properties and just wait for rents to come up? If the new properties broke even at least I've doubled the property appreciation that can happen.

Am I thinking about this from the wrong direction? Any suggestions, doing nothing would be a valid response.

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Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
3y

You can not have $1,000 rent on a $1,500 property. If you can’t raise rents hourly hire a PM. They would be collecting at least $1,500/side and taking $240/mo in fees. So you’d be up $3,000/year minimum while not having to manage either side. You are paying to do a PM’s job. 

If a market known for being landlord friendly like Las Vegas can consider rent caps anyone can. The day they pass 5% rent caps it will take you 10 years to get to today’s market rent. Not only do you lose out on $60,000 in rent, nobody will want to buy with such low rents, costing you at least another $100k in equity. 

With such low holding costs there’s pretty much no exchange that will make sense. You’d be better off getting loan against your $370k in equity. Each $125k in equity would be 25% down on an identical property if it exists.  Then you just have to figure out if it would at least break even with the added costs. 

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  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    3y

    You can not have $1,000 rent on a $1,500 property. If you can’t raise rents hourly hire a PM. They would be collecting at least $1,500/side and taking $240/mo in fees. So you’d be up $3,000/year minimum while not having to manage either side. You are paying to do a PM’s job. 

    If a market known for being landlord friendly like Las Vegas can consider rent caps anyone can. The day they pass 5% rent caps it will take you 10 years to get to today’s market rent. Not only do you lose out on $60,000 in rent, nobody will want to buy with such low rents, costing you at least another $100k in equity. 

    With such low holding costs there’s pretty much no exchange that will make sense. You’d be better off getting loan against your $370k in equity. Each $125k in equity would be 25% down on an identical property if it exists.  Then you just have to figure out if it would at least break even with the added costs. 

    2Reply
  • Michael Kaminski
    OP
    Member since 2023 · 10 posts · 6 votes
    3y
    Quote from @Bill B.:

    You are paying to do a PM’s job. 

    Eloquently put, certainly gives me some perspective. My wife helps make some decisions and often uses the argument that they are good tenants. I am of the opinion that even tenants that pay fair rents can still be good tenants. We just need to be making business decisions and not emotional decisions. Time will tell if I can put it into action.

    Again on the money with the proposal of loan against equity to leverage into an identical property. I'll start investigating that process now. Thanks for the succinct and thorough advice.
    2Reply
  • Ryan Wallace
    Real Estate Agent · Eagle, ID · Member since 2019 · 45 posts · 28 votes
    3y
    Quote from @Michael Kaminski:

    I've tried to build some spreadsheets but can't seem to make any sense of a clear path but maybe that's data enough to not take action.

    I bought a duplex 7 years ago for 188k and now I'm guessing it would sell for close to 500k. It is assessed at 535k and there aren't many multifamily properties to compare to. The duplex is a 2 bedroom 1 bath on each side and rent has gone up dramatically. One side rents for 1k (good long term tenants slow 3-5% rent increases) and the other side rents for 1.5k (turn over allowed for aggressive price increases). After mortgage, taxes, insurance, and other costs this property cashflows ~1400/month. I owe 130k on the current mortgage. 
    I could 1031 but when I'm trying to find a better property in my area, Boise Idaho, nothing seems to come close to the benefits I already have with this property. I absolutely don't have a perfect picture of what better means but in my mind it should at least break even?

    I think after closing and realtor fees I would have more than 300k to invest. Buy 2 properties and just wait for rents to come up? If the new properties broke even at least I've doubled the property appreciation that can happen.

    Am I thinking about this from the wrong direction? Any suggestions, doing nothing would be a valid response.


     Hi Michael, 

    Depending on the location of the property in Boise, it sounds like you have a gem. I would focus on increasing the rents of the first unit to market value as soon as possible. There is a huge benefit to having good tenants, but not at the cost of 35% of market rents. You can find a balance of being below market rent, but not losing a large portion of money and subsequent value in the property. I work and invest primarily in the Treasure Valley and I will tell you finding deals that pencil is difficult. Trading one good cash-flowing property for 2 properties that will barely break even in the hopes that appreciation will carry you doesn't really sound like a plan. I would instead focus on increasing the cash flow of the property you have and then towards the latter part of this year refinancing down to an 80% LTV and pull some cash out. Rates should be starting to settle/ decline by then. With this cash, I would start hunting for another property. Winter can be a lucrative time to find deals in Boise, especially if they sat through the fall. People want to move them before year-end, sometimes even at a substantial discount. With this refinance strategy, you can avoid the costs of selling, control your expected cashflow, and still expand your portfolio.

    You still need to focus on improving the performance of that property first! Best of Luck!

    0Reply
  • Michael Kaminski
    OP
    Member since 2023 · 10 posts · 6 votes
    3y
    Quote from @Ryan Wallace:
    Quote from @Michael Kaminski:

    I've tried to build some spreadsheets but can't seem to make any sense of a clear path but maybe that's data enough to not take action.

    I bought a duplex 7 years ago for 188k and now I'm guessing it would sell for close to 500k. It is assessed at 535k and there aren't many multifamily properties to compare to. The duplex is a 2 bedroom 1 bath on each side and rent has gone up dramatically. One side rents for 1k (good long term tenants slow 3-5% rent increases) and the other side rents for 1.5k (turn over allowed for aggressive price increases). After mortgage, taxes, insurance, and other costs this property cashflows ~1400/month. I owe 130k on the current mortgage. 
    I could 1031 but when I'm trying to find a better property in my area, Boise Idaho, nothing seems to come close to the benefits I already have with this property. I absolutely don't have a perfect picture of what better means but in my mind it should at least break even?

    I think after closing and realtor fees I would have more than 300k to invest. Buy 2 properties and just wait for rents to come up? If the new properties broke even at least I've doubled the property appreciation that can happen.

    Am I thinking about this from the wrong direction? Any suggestions, doing nothing would be a valid response.


     Hi Michael, 

    Depending on the location of the property in Boise, it sounds like you have a gem. I would focus on increasing the rents of the first unit to market value as soon as possible. There is a huge benefit to having good tenants, but not at the cost of 35% of market rents. You can find a balance of being below market rent, but not losing a large portion of money and subsequent value in the property. I work and invest primarily in the Treasure Valley and I will tell you finding deals that pencil is difficult. Trading one good cash-flowing property for 2 properties that will barely break even in the hopes that appreciation will carry you doesn't really sound like a plan. I would instead focus on increasing the cash flow of the property you have and then towards the latter part of this year refinancing down to an 80% LTV and pull some cash out. Rates should be starting to settle/ decline by then. With this cash, I would start hunting for another property. Winter can be a lucrative time to find deals in Boise, especially if they sat through the fall. People want to move them before year-end, sometimes even at a substantial discount. With this refinance strategy, you can avoid the costs of selling, control your expected cashflow, and still expand your portfolio.

    You still need to focus on improving the performance of that property first! Best of Luck!


     Thank you for the confirmation. Seems to be a united message from the community about next steps. I'll put a plan into action for correcting the rents. Be patient and put myself in a good position for the off season. 

    0Reply
  • Peter Berokoff
    Member since 2023 · 3 posts · 0 votes
    2y

    Hello, Have you sold this place yet?

    0Reply
  • Mathew Pezon
    Rental Property Investor · Allentown, PA · Member since 2014 · 67 posts · 38 votes
    2y

    Hi Michael,

    Let's refocus! Maximizing the performance of your current property might be the key to a more stable and profitable path as compared to exploring new investments. It seems like you are undercharging your property. Why don't you hire a PM? It gonna save you bucks by the end of the year. It's worth considering.

    0Reply
  • Michael Kaminski
    OP
    Member since 2023 · 10 posts · 6 votes
    2y

    I am now renting both side for 1500 and I'm holding the property. Seems like the general trend in my area is a slight decrease in rents but I was still able to get a substantial increase. 

    0Reply
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