Rental property keep or sell?

Question

Hello BP community,

I have a rental property I previously lived in for 10 years and have rented out the last 2 years. I have about 75,000 in equity in the property and it cashflows about $250 after all expenses (Maint, Cap Ex, PM, Vacancy) . The market is really hot here right now and the houses in the neighboorhood are selling at all time highs and in less than a week. So my question, would you take advantage of the market and not having to pay capital gains tax due to living there 2 out of the last 5 years and sell the rental property? Then use the profit to invest in  a couple of Brrrr's? Or continue to hold since it does have decent cashflow? Thanks in advance for any advice.

Jonathan Greene · Answer

I would sell that in a second, especially since you are in a seller's market with values peaking. Don't you think you can use the 75k equity to go into a deal that earns more than $250/month and also take the win of doing so well on a house over the years? My best investments were always houses I lived in. I think it's time to cut this one, take the profit, and re-engage into one or two new opportunities.

Percy Matsunaga · Answer

@Travis Wood

Here what I would do. Since you already have equity of $75K in the property, why not do a cash out refi of XX and invest those $$?

Since it’s a cash out, you will not have to pay Capital gains tax on it and you keep the property and potentially get another property.

Mikael Winkler · Answer

@Travis Wood

Sounds like you have a pretty good problem on your hands. Yeah, I guess the question to ask is if the equity that you'd capture would allow you to make better use than holding it in that one property - basically the highest and best use of the money. Would selling, for example, allow you to purchase multiple properties that would cashflow $250+, growing your portfolio.

Can't remember the podcast number, but there was a guest that brought up the idea of return on equity, that really got me thinking. Basically, if you have a ton of equity in a property, is that equity's best use staying in that property, or would it make more sense to utilize in another way? In their case, I believe they had a significant amount - maybe owned free and clear. So, the equity was high enough that the return they were getting was comparatively low. Not to say that's a terrible thing. It all depends on an investor's individual goals. If you want to sit back and get great cashflow, leaving equity in may be the route. If someone wants to aggressively grow their portfolio, maybe using that equity as capital to buy more is preferable.

Either way, congrats on having $75,000 in equity to be able to be kicking that idea around! Good luck!

Rental property keep or sell?

Most Popular Reply