I'm hoping to get some advice/feedback on an investment that a friend currently owns. It's a multifamily home with 3 floors and a basement in a desirable area. It's divided into 3 units: 2nd and 3rd floor living space has 3 individual leased tenants, first floor apartment has 1 tenant and the basement has 1 tenant. Each has their own entrance.
Below are the numbers:
Current Market Value of the home $630k
Loan amount 490k
Remaining loan amount 415K
30 year (22 years left) 3.75%
Total cash invested 100K (down payment/improvements)
Total mortgage payment = 3.5k
Total rental income = $6600
This was this person residence at one point but has since been converted into a rental property within the past year. Do these numbers look good or is selling it a smarter decision?
@Rob Metting If I was your friend, I will refinance, get the down payment and some money out to buy another property and the return of this property will be infinite since he has no money on the deal,
Never sell. Look into a 1031 exchange and put your profits into a bigger property. That way you won't get hit with the taxes on the sale of the property.
@Rob Metting , if they lived in the property for at least two years right before moving out then all of the gain would be tax free if they sold. No need to do a 1031. That might be an important factor. If not then like @Esha Addy said they could do a 1031 and sell and reinvest in another property or properties and still not pay tax. But it would only be deferred.
However, there's not nearly enough information in your post to make a more reasoned opinion on sell/refi. Or even just hold and enjoy cash flow for a while. Depending on condition/area demographics etc that actually looks like it's a pretty decent asset. Be careful about stretching a good asset too far. A mature market is no time to get all crazy with the leverage. Not a lot of 3.75% money out there right now.
A refinance or 1031 exchange should be considered but it depends on the investment strategy. A value add strategy would recommend to 1031 exchange into a property that could use work or improved operations. Good luck!
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