When you're torn between holding or letting go...

Question

I'm torn over whether to refi or sell one of my homes. It is my primary that I bought 3 years ago with the intent to house hack, improve, and rent. Appreciation has been good. I'd like to eliminate student loan debt.

For you landlords out there what goes in to deciding for you to continue renting or cash out and reinvest?  If you're interested, facts on the property I'm torn on are listed below if you'd like to include a critique in addition to your own decision making process:

Condo in 11 unit building

owe: 76K.  3 units currently listed and pending.  Low 156k, high 185k (yes, interesting spread).  both have been updated, just one a little nicer than other

student loans are 486/mo with a balance of 27k

It could rent for about 1275.  Refi of $110k at 3.125% yields a payment of 538/mo PITI. add 255 for HOA which covers water, trash, roof, exterior, common grounds.  cash flow by my estimation is extra conservative at about 169 for first year allocating a bigger than likely necessary budget for capex and maintenance.  Otherwise around 300/mo

I gave consideration to whether return is better on cash in another investment vs the modest cash flow by refinancing. It's a competitive market.

If it were you would you refi, let the rent pay your property and student loan of or take the cash, pay student loan with cash and reinvest

Nathan Gesner · Answer

I don't see condos as good long-term investments. There are too many potential problems like increasing HOA fees, problem neighbors, etc.

Because you're carrying long-term debt with student loans, I would seriously considering selling in today's peak market to pay off the loans and ensure you are debt free. Then I would look for a better long-term investment.

Shaun Brown · Answer

@Rodney Sums Yes I would probably take a second position mortgage to keep the monthly payment as low as possible and hope that whatever the next property cash flows would cover the cost of the 2nd mortgage.

I think this actually makes the most sense after the thought put into making this post. funny how back and forth I have been on how to move forward.

Rodney Sums · Answer

@Daniel Zapata a few years ago the tax code changed, increasing the personal exemption amount.  My itemized deductions for a couple years weren't greater than that amount so no benefit comes from the interest payments however that may change since I picked up more properties this year.

@Nathan G. I agree with your concerns regarding condos.  I'd prefer to have a detached SFH or multi.  It just so happens I am a board member and president of the HOA for this property. What makes this condo special from my perspective is location. Its in Central Phoenix in a neighborhood were even small old house in need of repairs and upgrades get over 300k.   If I sold, after paying the cost of selling plus the loan, I've got enough change to maybe get another single in this very hot competitive market that would either be less central or very old in need of serious rehab...or look out of town which I did with 2 other properties.  The appeal of keeping the condo is having a cheap, central, low maintenance easy to rent/sell property that uses the cash of others (for the most part) to pay the debt and eliminate the monthly obligation.  This is why I'm torn but I'd love to hear more arguments about why a condo shouldn't be held as I described, thank you sir!

Shaun Brown · Answer

I am in the same boat. North Phoenix property extensive rehab lived in for 2 of the last 5 but im carrying a 2.25% rate which makes it a cash flowing rental potentially.

I'm conflicted on realizing equity through debt or selling.

Daniel Zapata · Answer

If the interest rate on your student loans is higher than the 3.125% for the refi, I would consider paying off the student loan.

You should also research the tax implications of doing this (I'm not an accountant). As I understand it, the interest paid on the portion of the refi not used on the property (i.e. to pay student loans) is not tax deductible. Your student loans may be tax deductible, so it's something to add to the evaluation.

Rodney Sums · Answer

Account Closed

The rate varies.  Been as high as the 4s, currently in the 2s.  Current payoff is in about 5+ years.  I have considered how that rate compares to the refi rate and the fact a refi lengthens the payoff.  that's part of the dilemma. Payoff with my cash quicker or with someone else's cash longer/later with proceeds from a sale.

Rodney Sums · Answer

@Shaun Brown agreed.  I've had to house hack my way to making properties I've owned in metro Phoenix to become cash flowing rentals.  I've had to buy out of town to cash flow from the start when buying as an investment property. The tough part comes when you try and compare what cash flow you get from what you already have vs what you can achieve when selling and putting the equity toward something else...in a hot market.  When you say realize equity through debt, are you talking about doing a HELOC or cash out refi?

Basit Siddiqi · Answer

Don't love a house because a house can't love you back.

When you're torn between holding or letting go...

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