Miami, FL · Member since 2011 · 296 posts · 72 votes
Good evening folks,
I've been wondering around this lately and decided to come to where the expert live.
I have a rental property that used to be my primary home until a year ago(Miami, FL). We bought it in 2010 and priced has doubled since.
Last year we bought a new house and decided to keep the previous one as a rental, I had a 15Y loan and refinanced it to 30Y to maximize cash flow. At present time, spread is aprox $1,500/mo (just rent-PITI to simplify things). It will shrink some as I already know insurance will increase quite a bit at renewal.
Prices in the area have gone up and talking to a couple of agents I learned that houses are closing about 10% above appraisal, which makes me wonder where is the "line" where selling outright makes more sense than holding on to it?
I understand that a solid plan for the profits of the sale plays a factor in the decision but I want to keep the question single-threaded for now.
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
5y
NOW!!!!
Here's why. Think of your equity as as cash that's locked up in the property, and that equity is the asset, not the property. The property is just the temporary resting place for it. I say this because the equity value would be the same dollar amount...no matter what property, or properties, it is in. When your equity builds up, it looks good on paper, but only on paper. It's greatest value is when you release it into the real world.
Property appreciates to $25k. New number$ for... Property A: REI keeps property PV = $125k Equity = $45k (plus whatever paydown happened...thanks to the tenant, and their rent payment) Cash flow = $1000 (assuming rent increase covers taxes/insurance increase)
Property increases in value, but CF remains the same...the landlord gets no real value from the appreciated PV...yet.
Property B*: REI sells property DP = $40k PV = $200k Equity = $40k (still the same as when it was in the original property - closing costs) Cash flow = $2000
* This could be more than 1 property, but the total equity would still be the same...just split up, and it would still be a 20% DP on the Properties...so the Total PV would also be the same. What changes is the cash flow, and the total PV...and, since the PV goes up, so would the appreciation compared to the original Property A since the Original Property A's PV would be only $125k but the new PV would be $200k. That means if the same appreciation rate (say 10%) was applied to both, the original property A's new PV would be $137.5K, while the new PV would be $220k.
Investor · Decatur Atlanta, GA · Member since 2011 · 610 posts · 232 votes
5y
@Sundar Rajan man I miss those days of buying in Decatur for that price. The cheapest I bought was $27,000. Wish I had the foresight to buy more. I've heard mixed reviews on Opendoor, but that is mostly from the sale side after they have purchased it. Anything in Decatur under $300k, especially in 30032 will get multiple offers when listed on the MLS. Opendoor takes 5% and an agent 6% but probably a higher price.
@Sundar Rajan man I miss those days of buying in Decatur for that price. The cheapest I bought was $27,000. Wish I had the foresight to buy more. I've heard mixed reviews on Opendoor, but that is mostly from the sale side after they have purchased it. Anything in Decatur under $300k, especially in 30032 will get multiple offers when listed on the MLS. Opendoor takes 5% and an agent 6% but probably a higher price.
Same here, I got lucky with the $37K purchase, got couple more in Stone Mountain. There were several available in Stone Mountain around $31K. Mind you, that is to an out of state buyer. I am sure there were better deals if you were able to drive by locally!
Yes Opendoor was open about their cost.So, you think MLS is the way to go? I am getting offers from private investors around the Opendoor tentative offer price.
@Sundar Rajan, the sole reason I put 500k is that if you "can" move to your rental and convert it as primary for two years and you will get reduction of your capital gain tax.
Rental Property Investor · Columbia, SC · Member since 2020 · 302 posts · 186 votes
5y
I can just tell you my thought process. I am selling a rental that I bought originally as a primary a few years ago because I am within my window to not pay capitol gains tax, we will see a AT LEAST 187% return on our money (62% a year). And we can take the capitol and reinvest it to 10x our current cashflow from the rental. It was a hard decision because I believe in the area and I like the house, but it has a lot of deferred maintenance and I am confident I can make a higher cash flow return with our money. Hope that is helpful!