Finally Joining Bigger Pockets Forum!
Hi All,
My name is Connor Guinn, I am a 25 years old. I grew up in the Spokane, WA/Coeur d'Alene, ID area, which I will be moving back to shortly. I currently own a home in Hopkins, MN with a small detached Airbnb unit on site as well. I have listened to the BP podcast for quite some time, and I am joining the forums today because I have a question I want to get some insight on.
As mentioned I own a house in Minnesota, and I am planning on moving back to my home town (Spokane/Coeur d'Alene) just before Christmas this year. I am trying to determine whether to hold or sell my property. Without the Airbnb revenues, the property has a negative cash flow (numbers are below), however with the airbnb producing income the cashflow is pretty substantial. Given the situation I am looking for some advice and insight as to what others would consider doing. Do you consider short term rental income in the cashflow equation or do you avoid that due to its volatility? Maybe some of the pros and cons of hold vs sell? Should I consider the fact that PMI will go away in a few years and help improve the numbers? Any advice or insight would be great! Thank y'all in advance!
Purchase Price: $287,000
Renovations: $40,000 (5-yr loan)
ARV: $350,000-375,000 (accounting for the fact that it is not a great time to sell)
Mortgage Payment (P&I, taxes, insurance, PMI included, 30yr fixed): $1,910
If I rent:
Costs (Maintenance, vacancy, management fees, mortgage, renovation loan): $2,910
Estimated Primary Rental Income: $2,200-$2,400
AirBnB: Averaged $1,300/mo (October & November)
Summary:
With PMI and Renovation loan payment
Net cashflow without airbnb: -$710 or -$510
Net cashflow with airbnb: $590
After PMI and Reno loan are gone:
Net cashflow without airbnb: -$230 or break even
Net cashflow with airbnb: $1070
@Connor Guinn welcome! I am in the hold camp unless you have a good plan for what to do with the proceeds. if you've lived in it for 2 of the last 5 years you should be able to avoid capital gains on the sale of whatever portion you lived in. You could, with that cash flow, just hire a STR property manager. I'm sure there's a way to make keeping it a desirable option. Hopkins is nuts for rentals.
@Connor Guinn I agree with Jeff on holding it unless you have identified a better investment opportunity or maybe you would just prefer to start building a portfolio back home. While the Airbnb income is variable it is still considered when determining cash flow. Given the location, price point and income potential, you'd be able to find a buyer but I'd stay on the lower end of your ARV and wait until the spring if you are considering selling. Not sure of your current life circumstances or equity but based on the details you provided I'd recommend not cashing out yet.
Thank you for your input @Jeff Schemmel and @Alyssa Strom. I have been leaning in that direction, I am just trying to justify it with the distance. I have never done long distance real estate and I may or may not like it, but I think this is as good a time to find out as any! I can always sell and reinvest later! Thank y'all again!
Connor
Personally I’d look into selling, beyond the math the mental / emotional value in getting the liquidity back out to then use with my investing locally has greater value than a little cash flow. I’ve held stuff I wanted to sell and when you’re at 1-2 doors, holding a property doesn’t change your life on its own, only having a path towards scale can do that. To each their own, however, and, I wish you well either way.
I prefer holding until you have a solid plan to reinvest the equity in a better-performing vehicle. Keep in mind some of that equity is likely to disappear as the market continues to slow.
@Connor Guinn I would dig into what the cost of holding it is. If you have months in the airbnb were you are vacant (december-february) and you are losing potentially $800/ month that is a concern to me. Also, have you factored in cleaning costs, repairs, vacancy in your $1,300 airbnb income? Do you have a property manager that will manage the short term and long term units? I do not know any that will do both (and do it well).
Another thing to consider have you lived in the property for 2 years yet, or even 1 year? If you have not, consider capital gains tax in your equation for the buy VS sell.
Obviously, at the end of the day this is an extremely personal choice so you will make the best decision for you. I do not think we have enough information to truly suggest one way or the other.
Welcome to the forums! Please let me know how I can help you get plugged in.