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Young Homeowner Question-ADVICE NEEDED

Sevan Hoshor
Posted Jul 22 2023, 12:14

Hello all, 

I would like some advice. I am 24 years old. A few years ago I purchased a duplex as primary residence. The interest-rate I got is 2.625%. The Principle, interest, taxes and insurance is 2,000$ per month. I lease the other unit for 1,650$ per month and assume I can get the same for the unit I live in at the time of relocating This is a fixed rate and since I have lived here two out of the last five years. By selling, I would avoid paying capital gains. I’m going to be moving out of state within the next nine months. Taking into consideration agent fees and closing costs. I would bet roughly 200k from selling. Considering my age, I could use parts of this money for my relocating. (Down payment towards a new place). Being a landlord is stressful for me, so I would most likely resort to using a property management company. Between their cut, maintenance, property issues such as roof replacement etc. I am left with the question. Keep it because it’s a good rate, good investment as it would be paid off by retirement age, the opportunity to move back here at some point and have a place secured. Or sell and have the excess funds , not worry about maintenance and landlording. Any advice and insight would be certainly appreciated. My other concern is if our market sees a correction that 200k i would net now, could dwindle down if I’m left in a position of having to sell. 

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ModeratorReplied Jul 22 2023, 19:07

@Sevan Hoshor sinc eyou are moving the value of this being your home is not a consideration. Now it ias a matter of what is your best use of the equity in the property. 

A good way to look at this is What is your return on investment. Given that the value of the property has risen, you should look at the return on Equity.  If you have $200K in equity what could you invest that in today, and what kind of return would you get?  Compare this with what you would receive if you turn the other unit into a rental. 

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Replied Jul 22 2023, 19:25

Interesting dilemma. I like to work backwards and start with the goal in mind.

If the goal is to build a portfolio of properties that build wealth over the long run, then keeping the property makes sense as the property value is very likely to rebound from any corrections in the short term. 

As far as cash flow, the year over year increases and fix debt will ensure healthier positive cash flows the longer you keep it.

On the other side, if being a landlord not your thing even with property management and you have another investment vehicle to achieve your goals, selling the property may be best.

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Replied Jul 22 2023, 19:30

You do not value this as the ROI on pulling out. You view this as an absolutely hell of an asset that you locked in. I'm assuming this in Seattle in a decent area? If so, you know what these kids say these days-- hold on for deal life. And yes, you put this in a trust first then your trust will be the manager of your LLC and you transfer into that. Then hire a PM company.

This is a golden asset(if my assumption on details are correct). Don't be a chicken and sell out for today and cost yourself tomorrow. That'll be the real definition of missing the forest for the trees.

Next place you move to, start saving money up and do this again. I am very confident you'll regret selling. Selling is how you get how rich quick, holding is how you get wealthy. Weather the storm, you're young. 

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Replied Jul 23 2023, 05:46

Why did you buy a duplex to begin with?

How committed are you to real estate investing?

Even if you hire a PMC, a rental is not a passive investment. You'll always need 2-4 hours/month commitment to review what's happening and respond to your PMC.

I you need funds to buy where you move, you should line up a HELOC before you move. You can tap those funds for a down payment.

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Replied Jul 27 2023, 13:39

Most homes I sold (that weren't flips) looking back I wished I still had kept them in my portfolio. As a young man with a W2 job I think you can whether the small financial storm of not having the big payout. It sounds like you will end up with a monthly profit of $1200 a month along with your reg income. Over time rents will increase and principal will decrease. The cool thing about renting is the rent doesn't change because the market values dip. Values may dip but they will return.  Lastly, I say hold on to the plow and keep your eyes forward.

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Replied Jul 30 2023, 11:43

@Sevan Hoshor, it goes back to your end goal. If you plan to have a big portfolio by your retirement age, keep it.

If you are not fan of dealing with tenants or even dealing with property managers and the whole process is stressful for you, sell it

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Replied Jul 30 2023, 12:44

@Sevan Hoshor  aside from is this a good investment and do the numbers work ask yourself are you going back to this area. If you have alot of ties to the area and think the move may not be permanent you don't have to make a decision right away. You could rent for a year and re-evaluate providing you not going in the hole to do so.. 

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Replied Aug 1 2023, 08:19

Let's look at it from a bird's eye view. 

Life is a function of time and energy

You only have a specific amount of time 

But you can control what you put your energy into. 

How do you want to spend your energy within the 86,400 seconds in a day?