Would You Sell a SFH Home bought in 2011?

6 Replies

I bought a 1100sqft SFR for $82k in 2011. Zillow is offering me $211k out the door. I kept the rents low all these years. I leveraged this property a few years ago and reinvested the leverage and still have $65k loan on it. So, I will walk with $146k ($211-$65k).

This home is only appreciating at about 1.5% to 2% a year.

My question is , I have additional money, so this $146k will add to my other money and I will have $500k to invest in an apartment complex. I was thinking about a $2M apartment complex with another investor.

What would stop you folks from selling SFH to invest in something larger?

Why don't you just raise the rent and then do a cash out refi. at 75% LTV you can pull out 90K, if you sold unless you can 1031 exchange into something fast, you would otherwise pay capital gains.

146 after paying capital gains is not that much more than 90K you can get in the refi.  I wouldn't sell.  I think the Phoenix market still has some legs for a few more years as our in migration is lots and entry level home like what you have is in high demand.

Why did you keep the rent low?

Good luck,

Stone

@Seth S. , the first question to ask is which number is more important to you - COC or ROI? And the second question is your interpretation of where that particular property in that particular place is heading.

You've got very little cash invested in that so your COC is probably very high. An investor looking for security and needing to live on their REI income might very well decide to keep and enjoy the high COC even with significant trapped equity. Equity is still equity whether trapped or not.

An investor interested in growth and wanting to move into a different class would absolutely take advantage of the moment to sell and get into the new sector using the 1031. While attractive a refi does not free up as much cash and the costs of refi also need to be equated in the picture.  And although you'll get a more advantageous rate on a SF and will likely have to go with a commercial loan I'm actually seeing some 30 year am commercials that pencil out cheaper than the normal commercial 20 and 25 year amortizations.  This may be a moment in time so you may want to jump on that.

Most would agree that this market is long enough in the tooth that the era of great appreciation is done for a while until wage growth trends up more and interest rates head the other way.  Apply that to your locale and you can get a pretty good picture of what's best for you.

Selling = capital gains tax + depreciation recapture - loss in monthly revenue - depreciation write off

Keep it, raise rents and refinance it.  Then sell it on a 5+ year lease option contract with a high down payment.  Make sure the buyer/tenant knows they're responsible for all bills and repairs.  You win in so many ways going this route.

Thanks everyone! As crazy luck would have it. My tenants of 7 years are moving out. I dont have the energy or money to fix it up and put $3-4k into it to get ready for the next tenant. This is why selling sounded so easy. 

This morning my old handy man called, also an old friend, and said he is moving back. He needs a home. So, he can move right in and I dont have to repair or paint anything. Plus, he said he would give me 6 months rent up front. Good luck today. 

I think I will keep the house. 

The whole $515k, two homes and $140k in equities are embedded in a self directed IRA. so no taxes with what ever I do. Eventually, at 59 1/2 I will pay the taxes.

As soon as you stated you are renting the property below market it became a easy decision. It is clear that you are not in business to make money so selling and investing in a larger portfolio does not make any scenes. Your decision to rent to your handy man confirms this.

When money is not enough motivation to work at investing you do not have what it takes to successfully grow your business. It is best you stay as a hobby investor and keep your life simple.

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