So I bought my home in 2018, fixed it up, rented it on a lease. Didn't go well so I decided to make it a short term rental. I've been very successful but the market has increased dramatically sine rates are at a historical low and I believe now is the time to get the most money out your home. So I decided to sell it since I will net $100k after the sell. I want to stay in the short term rental business so my intent is to use the gains to buy 2 single family homes in a cheaper home in the outskirts of the city on a strategic location. I am hoping the bank will accept me on 2 more loans given that I currently have a loan on my primary home.
Note: I am currently netting $3k every month from STR.
What do you suggest I do?
Did you already sell it? You’re making 1/3 of the net proceeds every year on that vacation rental. Will you be able to buy two more in as good of a location? Will they net more than this together?
You can go sit down with some bankers/mortgage brokers and run some scenarios by them. See how much you will actually be able to buy if you sell that first property. Once you know what your hypothetical buying power would be, you can shop and see what type of property you could actually buy. Run your best case/worst case scenarios on those properties and then decide if that would be better than keeping the cash flow you already have.
Congrats on your big decision! Quick thoughts, will you net $100k really? Have you incorporate capital gains in that calculation as if it's an STR (and previous rental) I'm guessing you have not lived there the last 2 of 5 years. If not, then you have to think 1031 which is a whole other rat race to deal with to maximize your return.
Also, in order for us to give you an opinion, we are missing a key piece of info...what was your initial investment. If you bought the property for $100k vs $500k there are likely different perspectives on your situation to evaluate.
Best of luck to you!
I know it's not an answer to your question, but 3 years and you'd have that same $100K and still have the property. I'm agonizing over doing the same thing with a property that brings in $10K a year, and I'll be netting $100K too....so I'm taking 10 years of income in one day...but I'm agonizing over that.
So as the other posters have pointed out. Can you really beat 30% Returns on your capital? If the property has appreciated that much and you have significant positive cashflow l, can you use a HELOC to buy another property using the 100k equity figure you discuss assuming that includes 7-8% transactional costs? Would 300-350k get you another property that you could STR using that equity to not only buy another place but furnish it and have it guest ready.
Sounds like you have options which is a great place to be.
So if you've already sold the goose that was laying the golden eggs (over 30k per year) then that's water under the bridge.
Have you ran the numbers on the 2 new possible properties to confirm you can make more net income than what you were making? I hope so.
So your next issue is you didn't check to make sure the bank will loan on the new properties. So that is what you have to work on next.
As Jon mentioned, make sure you hang on money to pay your capital gains tax bill which is going to take a chunk out of your 100k profit unless you have taken that into consideration already.
The problem with selling and taking profits in this market is were are you going to find something else to buy and make at least what you were making? Inventory levels are extremely low.
Good luck with your new properties.
@Juan Vasquez it sounds like you are trading one home in a great location for two homes in an ok location. Their is a "catch 22" when selling and buying in a good market. You sell at inflated prices, but you also buy at inflated prices. You may trade $3000 monthly income for two properties making $1000 monthly income and twice the work.
My advice is only sell bad properties in a good market, because you get top dollar. Good properties in good locations will sell in any market. More importantly good properties in good locations produce good cash flow.
If you have not yet sold the property, consider getting using the equity to secure a HELOC. Use that HELOC to buy another property.
First off I'm with @Jon Crosby here. You need to verify you're really netting 100K.
If you are netting the 100K I'd say set your goals higher than two houses. If you're going to be doing STR's and you're capital heavy you should use the capital as leverage and BRRRR into like 10 STR properties. If you're leveraging your Airbnb income correctly you should have access to huge BLOC's so you should be able to get your hands on a bunch of BRRRR properties.
Aim for the stars and land on the moon my friend. Good luck on your journey!
Hi @Juan Vasquez - lots to unpack here.
1. Why are your rates at a historic low? If you have actually not sold yet, you should be using some sort of dynamic pricing tool. We manage 100+ properties in the Disney/Orlando market, and we are seeing rates climb back to pre-pandemic levels and above, with very high occupancies as well. If you are using dynamic pricing, perhaps you need to enhance your listing - freshen the decor, new photography, etc. to make your listing stand out.
2. If you have already sold, congrats! There are definitely still opportunities to buy in some of the popular Disney area vacation rental communities. We can help you crunch the numbers to determine if you're better off purchasing a larger home which would net more than your original property, or potentially two homes as you suggest. PM me and we can get the process started.
You aren’t the only one trying to decide to hold or sell, not that it matters. If you ever decide to sell and reinvest, you’ll want to learn about the 1031 exchange. It’s so easy to do once you understand how it works and the markets you’re dealing in. Selling high to buy often means buying high. Go to the mortgage broker with two years of income tax returns showing income. You’ll find one. And look into a heloc on your primary home too. Good luck.
@Juan Vasquez , If you want to stay in the str biz then you search for another. But that's not the first thing you need to do.
Your first thing is to make choice.
1. Get a 1031 exchange lined up for that sale so all $100K of cash can go into your next property.
2. Set aside Money from that $100K to pay taxes. And then let the bank know what you have left.
It's not the defining criteria, but... the more money you have to put down on the property the more favorably the bank will look at you.
To piggy back off of what @Dave Foster said ^, I said how a 1031 is easy ^^ but it’s only going to be easy if you use a skilled 1031 exchange company (Qualified intermediary) like I did when Dave handled mine a couple of months ago. I sold and bought within 24 hours, online, and it was seamless.
You don’t have to set aside money in the sale because you get to defer paying taxes if you purchase another property.
I will echo the thoughts of others, I would not recommend selling. And assuming you can show strong rents on 2019 and 2020 tax returns, the income from the short-term rental may well qualify you to buy additional properties. And a cash-out refi or line of credit on that property may provide the down payment money for the new properties without your having to sell. It would be a shame to get rid of that property just as you may have 2 years of income documented on tax returns, which often is the key to using that income in your DTI to enable you to buy additional properties. When you buy new properties, that clock starts over.
I have been cash out refinancing properties to purchase more. I don't have to worry about 1031 time limits. I get to keep my properties without having dead equity in them.