This might be dumb. I want to sell it.

Heather De La Cruz · 2021-06-24T13:41:37-07:00

I think I have too much going on and I'm considering making a decision that's a little rash. I have a duplex which is generating a little over $1025.00 after mortgage and escrow. It's an hour and a half away. I work full time at a desk and go to school.. I find it harder and harder managing tenants when they move out, dealing with repairs/ cleaning and traveling back and forth as my time is not that flexible.Anyway, I bought the property for $139k it looks like i could possibly sell for close to $400k. (That was the recent sales price for identical properties next door.)My issue is that's my only passive income. I feel dumb because it's $1000+/month for life or potentially over $200k one time with no similar prospects that are nearby.Others have suggested to use a property manager but I honestly have not come across anyone or any company that I find trustworthy. I've seen countless times where tenants are treated poorly and maintenance is upcharged insane amounts.. I've also seen where companies do not respond to tenant requests creating lager problems due to lack of repairs.Is it dumb to sell? Should I hold on to it and bite the bullet and find a reputable property management company? Should I sell and take advantage of the profits?Anyone else find themselves feeling this way or in the same position?I'm a little stressed and welcome any advice.

Joe VilleneuvePro Member

Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes

5y

Pardon me while I gasp.

Please take this for the tongue and cheek statement it is meant to be, but....

This is a math problem, with a simple math solution. Here goes. As I see it, you are mulling over two positive choices. One choice is a great one, and the other is a good one. Here are your two choices. See if you can figure out which one is which.

Choice #1: Sell the property for an immediate profit between $200 - 250k, or...

Choice #2: Keep the property, with all the headaches you mentioned, and profit around $13,000/year in pieces, in CF.

Now, before you make your decision, let me add these additional math equations to the process. Ready?

_$250,000__ = 19.2 years
$13,000/yr

$250,000 x 5 = $1.5M

12 Reply

Heather De La Cruz

OP

Rental Property Investor · Lakeland, FL · Member since 2016 · 15 posts · 22 votes

5y

@Joe Villeneuve

Thank you!

I'm not understanding what you're saying in the second equation though. Can you elaborate a little?

1 Reply

Account Closed

Member since 2021 · 154 posts · 108 votes

5y

He's saying sell it and do it 4 more times to have 1.25 million vs 13k a year and all the headaches.

7 Reply

Patricia Steiner

Real Estate Broker · Hyde Park Tampa, FL · Member since 2019 · 2k+ posts · 3k+ votes

5y

Sell it. It's a great wealth building strategy - and it will simplify your life which is priceless.

And, celebrate what a great investment you made! I'm proud of you.

11 Reply

Joe VilleneuvePro Member

Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes

5y

Originally posted by @Heather De La Cruz:

@Joe Villeneuve

Thank you!

I'm not understanding what you're saying in the second equation though. Can you elaborate a little?

Take the cash from the sale and use it as a 20% DP...that would mean the PV would be 5 times the DP...and, hire a PM.

5 Reply

Ron K.

Professional · Altoona, PA · Member since 2010 · 72 posts · 23 votes

5y

You could sell it and take the $250,000 and generate a return of $12000/year in a more passive investment vehicle and not have to expend as much life energy. $250,000 x .05 = $12,500/per year.

You have multiple option.

4 Reply

Michael Plante

Deland, FL · Member since 2017 · 2k+ posts · 1k+ votes

5y

A $400k property renting for $1000

I would sell immediately

6 Reply

Crystal H.

New to Real Estate · Nashville TN · Member since 2021 · 20 posts · 13 votes

5y

I agree with @Ron K. Sounds like something more passive works for you right now. You could sell and put it in a total market index fund. It's ok to not invest and reinvest every last penny you have in real estate if it's not working for you at this point in your life! Let your money grow passively and get back in later if you so desire.

1 Reply

Heather De La Cruz

OP

Rental Property Investor · Lakeland, FL · Member since 2016 · 15 posts · 22 votes

5y

@Crystal H. I would like to take advantage of a 1031x. I'm waiting on a CMA right now to confirm I can get a buyer for that price and then check my options. But your right, I definitely need something more passive. I'll look into it. Thanks!

2 Reply

Heather De La Cruz

OP

Rental Property Investor · Lakeland, FL · Member since 2016 · 15 posts · 22 votes

5y

@Michael Plante

It's profiting 1k, not renting for 1k. The cost was only 139k.

But it does look like it would be better to sell.

7 Reply

Deanna O.

Rental Property Investor · San Diego, CA · Member since 2010 · 377 posts · 314 votes

5y

The "do it 5 more times" forgets to address WHY it's worth 3x the purchase price. Was it rehab, or (as I suspect) market forces that have RE prices irrationally high right now.

That said, do you have a better place for the $ to be right now? I'm in a similar position in that I own property that has appreciated dramatically, but if I sell it, there's nothing I like better that I could afford, and capital gains/depreciation recapture would eat me alive. In your case you might be able to do a 1031 for a nicer SFR close to home that would be easier to manage and still turn a similar income. There are actually quite a few people who move from SFR up to multi-unit.

6 Reply

Deanna O.

Rental Property Investor · San Diego, CA · Member since 2010 · 377 posts · 314 votes

5y

BTW, the actual "profit" isn't exactly clear. As I read it, $1025 is your net after mortgage and escrow (by which you mean taxes/insurance?). CAPEX, vacancy and maintenance aren't addressed, but neither is pay down of the principle (the part of the mortgage payment that isn't interest is actually income). Do you know what your ACTUAL net income is off this property? Tax deductions from depreciation don't really matter so much, because you have to pay that back when you sell (the joys of "depreciation recapture tax").

3 Reply

Michael Plante

Deland, FL · Member since 2017 · 2k+ posts · 1k+ votes

5y

Originally posted by @Heather De La Cruz:

@Michael Plante

It's profiting 1k, not renting for 1k. The cost was only 139k.

But it does look like it would be better to sell.

How much does it rent for?

1 Reply

Joseph Guzzardi Jr

Rental Property Investor · Member since 2019 · 411 posts · 148 votes

5y

@Heather De La Cruz your decision should be based on your long term goal. Is your goal to have 1-2 properties with cashflow or have a portfolio. If it's to have a portfolio perhaps you sell, acquire additional properties and hire prop mgt. Or if you are fine with just this one property for now, just hire a reliable prop mgr to not have to deal with the day to day headaches and stress. I gladly pay 8-10% of my gross rents to not have to deal with headaches and have a buffer between myself and my tenants.

2 Reply

Theresa HarrisPro Member

Member since 2019 · 15k+ posts · 11k+ votes

5y

It isn't dumb to sell. Could you use some of that money to buy one (or two) rentals closer to where you live? The numbers may not be quite as good, but you'd also be keeping some of that equity that you made from the sale.

If you do keep it, why not pay a local cleaner and handyman to do the repairs? You'd need to do a trip to assess the place before and after they are done, but that's it.

As Joe pointed out, selling it now generates about 20 years worth of your income off the property, probably more as you have repairs and vacancies.

I had a rental (my first place that became a rental after I moved out) and I kept it for 20 years. Prices went up a lot and the tenants were long term (12 years), but I was tired of dealing with the condo fees and some of the problems with the tenants. I sold and used that money to buy two other places. I'm much further ahead even though had I kept it, the price would have gone up 50% in 5 years...there was also a massive loan the condo board took out just after I sold and I have no idea how much that cost the owners (guessing tens of thousands of dollars each). So one of the rentals I bought from that sale also increased and price and my combined rent from the two new places is almost double what I was getting and the combined value of the two property is higher than the current value of the old place had I kept it.

2 Reply

Joe SplitrockPro Member

Moderator

Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes

5y

@Heather De La Cruz many people in a similar situation have decided to sell rental properties. You have a full time career and self managing is both time consuming and more difficult with a single property. That is because with just one property, you don't actually manage enough to get really good at it. I have 13 properties and I still feel a little rusty when I have a vacancy, because repetition is what develops skills. On the flip side hiring a property manager can bleed all the cash flow. In my opinion you need scale for property managers to make sense. I say that because they will take 25% of your cash flow through management expense and the "PM tax" which is the added expense of doing business.

You have to like owning rental properties, not just like the cash flow. If you like owning properties and managing, then trading up to a larger property is a great option.

If you dislike the business, but want the benefits of real estate, consider investing that $200K into syndications, REITs or some other passive real estate investment. Say for example you could find an investment that paid you even 6% annual return. That is $12,000 a year to do NOTHING. I am throwing 6% out there but you could probably do better. Just consider the risk / benefit before entering into any investment. Lower risk is often lower return.

7 Reply

Will GastonPro Member

Rental Property Investor · Columbia, SC · Member since 2010 · 1k+ posts · 2k+ votes

5y

@Heather De La Cruz emotion is the fog surrounding good judgement.

What advice would you give a good friend if they asked you how to handle this situation?

2 Reply

Nicholas L.Pro Member

Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes

5y

@Heather De La Cruz I have the same question that @Deanna O. does, which might help you in your decision - are you really, truly profiting $1025 after all expenses? Or is $1025 just your total rents minus your mortgage payment?

1 Reply

Samantha Magina

Real Estate Agent · Westford, MA · Member since 2016 · 92 posts · 52 votes

5y

Don't forget to consult your CPA BEFORE you sell. They will be able to tell you what your tax consequences will be to sell. If you are thinking of using the cash from this sale as a downpayment on the next property then they can walk you through the concept of a 1031 Exchange, which will defer the tax consequences to a later sale.

2 Reply

Marijuana (MP) Vandyck

Investor · FL · Member since 2015 · 40 posts · 24 votes

5y

@Heather De La Cruz

I'm not a real estate attorney but if you 1031 it won't you have to purchase a like property.... with a short time window in which to do so?

You already can't make it down to do/ manage/ hire someone reputable to do everyday repairs and address tenant concerns.

What's going to change with the new 1031 real estate property from this one? Even if you buy it close to where you currently live the work is still the same, just a shorter drive distance.

No need to answer– this was just me thinking out loud the minute I read that you wanted to 1031 it.

Good luck and please keep us posted.

0 Reply

Joe VilleneuvePro Member

Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes

5y

Originally posted by @Ron K.:

You could sell it and take the $250,000 and generate a return of $12000/year in a more passive investment vehicle and not have to expend as much life energy. $250,000 x .05 = $12,500/per year.

You have multiple option.

Where did the ".05" in your formula come from?

0 Reply

Nate R.

Real Estate Investor · Austin, TX · Member since 2015 · 219 posts · 234 votes

5y

Take the money and run.

0 Reply

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

5y

right now if your not scaling up significantly and staying in the landlording game.. might be a good time to take your chips off the table in the height of the market pay all your tax .. then you could use that money for some other business enterprise that could possibly cash flow far better than leveraged real estate. ???

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4 Reply

Ron K.

Professional · Altoona, PA · Member since 2010 · 72 posts · 23 votes

5y

5% (.05) = conservative return she could expect long-term in other investment classes.

Originally posted by @Joe Villeneuve:

Originally posted by @Ron K.:

You could sell it and take the $250,000 and generate a return of $12000/year in a more passive investment vehicle and not have to expend as much life energy. $250,000 x .05 = $12,500/per year.

You have multiple option.

Where did the ".05" in your formula come from?

1 Reply

Lynne Smith

Investor · Las Vegas, NV · Member since 2016 · 18 posts · 11 votes

5y

Hi Heather,

You are in a great position and don't need to hurry this decision. Go back to basics on real estate investing and look at your options. What you decide will depend on what you want. It sounds like the biggest sticking point is property management - which is solvable (if you want it to be). Network through local REIA's or through BP and start interviewing property managers.

As you've probably read the guides that BP provides, one of the biggest challenges with buying/selling real estate is taxes. I also have a property that has appreciated immensely and if I were to sell it without doing a 1031 exchange, taxes and depreciation recapture would be immense. In your case, taxes would be over $50,000 + depreciation recapture which depends on how long you've owned the property. You'll want to run those scenarios. Here are your options and scenarios you should consider:

1. Hold the property. Hire a decent property manager to alleviate your immediate stress and buy time to weigh your options.

2. Hold the property and grow your portfolio. You can REFINANCE and use part of the proceeds to buy another property. Assuming an interest rates of 4%, you could pull $150,000 out (this is not a taxable event) and buy one or more other properties. The payment on the additional loan amount would be about $700, so your cash flow is reduced, but you keep the property while the tenant continues to pay the mortgage for you. This would help expand your portfolio and avoid taxes.

2. Sell the property. As noted above, taxes will be very painful if you sell it outright. You can do a 1031 exchange to avoid any gains. The rule is that you must buy a replacement property at or above the property you are selling. So you'll need to purchase $400k of real estate, identify the replacement property (or properties) within 45 days and close within 180 days. I found a great attorney to serve as a "Qualified Intermediary" for a 1031 we are doing through my local REIA -- so network to find a really experienced person who can help you through the process.

I tried to make this short, but I see you can use a breath of air. Time is on your side! Reach out if you'd like to chat -- I'm happy to talk it through with you.

Lynne

6 Reply

This might be dumb. I want to sell it.

This might be dumb. I want to sell it.

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