Should I sell converted primary to rental after 1yr?

Question

So I have been on this site and missed out on a several opportunities.

I am in Denver, CO.  In 2008, I bought my house for $188k. In 2014, cashout refi For $300k. In 2018, we moved to new house and rented out old house at great price.  Tenants now need to move out.  I made a mistake doing month to month after their year lease.

We can sell the rental for at least $430k and net at least $120k. Wife is a realtor so no seller agent fees. However we are bushing up on $250k limit for 2/5 primary residence.

If we continue to rent it is about $700 net per month down from tenants who are leaving and I am expecting 1 month vacancy.

Whether we sell or continue to rent, we would like to pull out the equity.  I am from midwest and my family is still there, so we are think of buying more rentals either there or in CO Springs.  Maybe do a flip if price is right.  With wife being CO realtor, she has a high investor as client, and a few contractors, so we can make some moves locally.

I would like to turn the equity into at least $2000 net per month/20k per year.  Is that a reach? Being from midwest, I know I can grab a few houses under $150k. However, I rather invest in areas with possibility of real appreciation.  So I am thinking of splitting it, at least one in midwest and one in area I think will appreciate within 5 years or flip in CO.

As an attorney, I also looked at some of the note threads and will look at wholesaling too; however I don’t have too much time to do the legwork on these areas.

Our current house also has a 100k equity (not including dp of 20%) which we need to remodel (about $100k).  So I don’t to stretch ourselves to thin. I would like to out equity or sell rental, buy more rental property, and then next year take equity from our current house to remodel.

Rodolfo Canon · Answer

If you want to speak to the best professional, in my opinion, in the area about using trapped equity to finance the purchase of additional rental property, I would contact Joe Massey at Castle and Cooke Mortgage in Denver.

Until you do that look at this simple example of how using that equity can help you build wealth:

Hypothetical Situation Analysis

Current home purchased 10 years ago for $500,000 with 20% down.

If you were to refinance your home at its current value with a 30-year fixed rate mortgage, two things would happen. One, you would have cash available to purchase an investment property and two, your debt would increase. When this is complete, someone else is paying for your asset. Now you are set up to watch your asset appreciate and the principal go down and it pays for your additional mortgage payment.

Next step. Refinance

Assume the following:

Total Monthly payment $3,339

Payment Increase$1,192

Cash Available to Purchase Investment Property$315,000

You still have your $250,000 in savings plus access to the “cash available” of $315,000 to use to purchase a commercial property. Now you must find the property. Where do you look? What is the asset class? How much “deferred maintenance” is acceptable? What will the renovation costs be? How much can you increase the rents? These are all questions that need to be answered and you will need some expert advice.

We can help

Dave Foster · Answer

@John Sheil, cmon down.  You're dollar goes a bit farther here than in Denver.  The water's fine.  And Summer in the Rockies and Winters here is the mac daddio!

Michael Reynolds · Answer

It has a good positive cash flow. I'd hang on to it.  However if you the cash would help spring board your next move I would do it sooner then later. The market seems to be softening.

John Sheil · Answer

Thanks Dave.  I thought it was 250k but I will double check.  We have our account running some figures.  Fyi, I have been to St. Pete a few years go and eanted to invest down there and still think about it.  I may reach out to one day.

Dave Foster · Answer

@John Sheil, Nice problem to have - and in Denver!!  If you and your wife both lived in that old house between 08 and 18 then you would get to take the first $500K of gain tax free.  And you could rent it probably for almost two more years and still qualify as living there for 2 out of the last 5 years.    You may be in better shape than you think.