Would you rather $200k now OR $800/mo cash flow + future sale?

Washington Real Estate Q&A Discussion Forum

Would you rather $200k now OR $800/mo cash flow + future sale?

Engineer/Real Estate Investor · Renton, WA · Member since 2015 · 368 posts · 120 votes

Would you rather have $200k (after taxes) right now, or would you rather have $800/mo cash flow + money from future sale? I am anticipating "Well, it depends on what your goals are" as an answer. I want to know what YOU would prefer? Why?

I've got one rental property that has $270k in equity and I am considering selling it, because I'd rather have the cash. I'd feel a lot better flipping a house with that much money behind me.

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MRay Kay

Member since 2021 · 1 post · 7 votes

Easy answer. I would go with cash, because you can make more with 200k if you invest it. At 10% annul return (easy return) you can make ~$1,200/mo.

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Kim McGinnis
Real Estate Agent · North Bend, WA · Member since 2013 · 32 posts · 26 votes
4y
I personally would keep the $800/month cash flow and get a heloc to buy a flip... but I am 52 so the positive cash flow is what would be most interesting to me.
3 Reply
MRay Kay
Member since 2021 · 1 post · 7 votes
4y
Easy answer. I would go with cash, because you can make more with 200k if you invest it. At 10% annul return (easy return) you can make ~$1,200/mo.
7 Reply
Kelly Iannone
Rental Property Investor · Orlando, FL · Member since 2018 · 301 posts · 354 votes
4y
@MRay Kay agreed. I can make more with the $200k @ 10% return AND future sale then $800/mo and future sale.
2 Reply
Sharon Rosendahl
Investor · Quilcene, WA · Member since 2017 · 235 posts · 169 votes
4y
Probably my age showing, at 56 I would likely keep the $800 month knowing that at a later date I would still have that equity and be able to sell for something similar (while there are ups and downs I choose not to sell when the market is horrible).
0 Reply
Terry Alexander
Rental Property Investor · Windsor, CA · Member since 2015 · 28 posts · 11 votes
4y
I am keeping the cashflow unless I find a deal that's better then 1031 into new property.
1 Reply
Adam Martin
Rental Property Investor · Member since 2020 · 1k+ posts · 1k+ votes
4y
I'd do a mix of both. I would cash out refinance to pull my equity and use it to put 20% down on several more properties. This may decrease my cash flow from that property some but I would net more with the additional properties plus more appreciation spreading my risk over multiple properties. My current situation is somewhat similar, I have equity in 2 properties as prices are way up over the past few years since I bought them. I am practicing what I am preaching here and refinancing to get about 120k and intend to purchase additional houses.
2 Reply
JD MartinBusiness Member
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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
4y
That's an easy answer - I'd take the $200k after taxes right now.

1. There's no guarantee that future sale figures are higher than what you have now;

2. The time value of money means that inflation may destroy your future profit relative to today;

3. It takes over 20 years of $800/month cash flow to make $200k.

4. If you chose to reinvest that money you should be able to make it make much more than $800/month.
An alternative approach if you strongly believe that future value will be much higher would be to harvest the equity and keep the property, but the new mortgage would essentially destroy your cash flow.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
4y
Originally posted by @JD Martin:
That's an easy answer - I'd take the $200k after taxes right now.

1. There's no guarantee that future sale figures are higher than what you have now;

2. The time value of money means that inflation may destroy your future profit relative to today;

3. It takes over 20 years of $800/month cash flow to make $200k.

4. If you chose to reinvest that money you should be able to make it make much more than $800/month.
An alternative approach if you strongly believe that future value will be much higher would be to harvest the equity and keep the property, but the new mortgage would essentially destroy your cash flow.

agreed sometimes its just best to take the cash there will always be rentals to buy.. and you lock in profit.. so risk of future real estate retreat is taken off the table.
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Naz Hossain
Developer · San Antonio, TX · Member since 2019 · 177 posts · 81 votes
4y
It would depend on how much cash reserves you currently have. If you already have a strong cash reserve, I'd do a LOC on the property. You will access to 80% of that equity and you get to keep the house. You will still have that "cash" behind you and your $800 cash flow can be payment for that interest - so basically just cash.
Everyone's situation is different but you are in a great spot. All the best!
0 Reply
Bjorn AhlbladPro Member
Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
4y
I'm 76; got enough cash flowing rentals so I'd take the 200k.
1 Reply
Ken Naim
Investor · Lake Worth, FL · Member since 2016 · 233 posts · 140 votes
4y
@Pete Perez i was in a similar situation, took the cash snd stsrted buying bigger properties to get higher cashflow and equity buildup
0 Reply
Mollie Hess
New to Real Estate · Columbus, OH · Member since 2021 · 36 posts · 19 votes
4y
@Pete Perez I'd go with the $800/month cash flow because my goals deal with increasing passive income. If you can sell and buy more properties that would cash flow more then I would consider the sale more heavily as an option. Best of luck!
0 Reply
Jacob Pereira
Real Estate Agent · Austin, TX · Member since 2014 · 636 posts · 486 votes
4y
@MRay Kay, you're forgetting about the potential appreciation of the property. If the OP's estimates are correct AND they're in a fast-appreciating area, it might make sense to hold it. Without that (and smaller benefits such as tax advantages) you're right and $800 a month is a poor return on a 270k asset.
0 Reply
John Barrett
Rental Property Investor · Everett, WA · Member since 2015 · 458 posts · 386 votes
4y
@Pete Perez I would be looking to do either a cash out refinance or a 1031 exchange. I monitor our equity position in each property and as the equity has grown we have used both to continue growing our portfolio. The real key is deciding whether or not you want to own the existing asset long term. We recently did a 1031 on a property because we decided we didn't want to hold the asset (it was harder to manage than our other units due to distance). It took some time to find the replacement property but after we have completed renovations, our cash flow will have doubled, equity has grown and it will be easier to manage.
Best of luck,
John
2 Reply
Shehzad S.
Investor · Indianapolis, IN · Member since 2017 · 41 posts · 34 votes
4y
Take 200k and buy 1 million in MF all day any day
@Pete Perez
1 Reply
Michael King
Rental Property Investor · Navarre, FL · Member since 2019 · 913 posts · 640 votes
4y
I think @John Barrett made an important point; whether or not you want to own the existing asset.
I had a similar decision to make 6 months ago; take the big cash vs cashflow and keep the asset. I kept the asset but have wished at least a dozen times I took the money. I'm sure if I had taken the money I would have wished 6 times that I had kept the building.

1 Reply
Marian Smith
Real Estate Investor · Williamson County, TX · Member since 2011 · 1k+ posts · 961 votes
4y
@Pete Perez I am in the same situation but I don't know what I'd do with the cash. I don't think stocks are any safer than real estate that has appreciated so much in such a short period. Both seem risky. (Thing about stocks, you can sell part of your position.) Since you want to flip, I would sell in your situation. Selling would allow a flip project to operate with less risk of financial stress. But that is me and I hate stress. It can motivate others, so I am told.
1 Reply
Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
4y
So $800/mo if everything goes perfectly while tethered to a landlord leash? That's a lot different than an index fund.

I'd keep it and have a few like yours, but its what I do and would be one of many in a portfolio. It's difficult to redeploy capital in this market

If this was my one rental and not my passion at all I'd sell it in season. You're timing right now in the PNW isn't optimal.

1 Reply
Jessica Tsao
Lender · CA · Member since 2019 · 82 posts · 46 votes
4y
@Pete Perez
I wouldn’t pay taxes. Why would you pay uncle sam. I would cash out refi and buy another rental. Depending on how much you invested, after cash out refi, you probably now own it for next to $0 out of pocket. Even if it cash flows $100. Rent will continue to go up as inflation is here. I would take the cash out refi money and buy a rental that would cash flow $800. Now you have 2 properties that cash flow $800 or more. And market appreciation on 2 properties. Win win in my books.
0 Reply
Jonathan R McLaughlin
Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
4y
@Pete Perez when u say 200k after taxes how much would you lose to taxes?
Sell, exchange, refi
0 Reply
Joe Martella
Rental Property Investor · Cherry Hill, NJ · Member since 2015 · 626 posts · 495 votes
4y
You can always split the baby and do a cash out refinancing. Take enough money out that reduces your cashflow a bit to $300 - $400 a month and then you should have some tax free money to use for investments. Also, remember you pay a bunch more taxes with flips (up to 51% I believe). I am not an accountant, but I have read Advanced Tax Strategies and Tax Free Wealth.
You cash out a bit, still have cashflow, deductions and can still do some other investing. Then again, I am a buy and hold guy.
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Pete Perez
OP
Engineer/Real Estate Investor · Renton, WA · Member since 2015 · 368 posts · 120 votes
4y
Wow! I was not anticipating this kind of response. Thank you to everyone who posted.
1 Reply
Pete Perez
OP
Engineer/Real Estate Investor · Renton, WA · Member since 2015 · 368 posts · 120 votes
4y
Originally posted by @JD Martin:
That's an easy answer - I'd take the $200k after taxes right now.

1. There's no guarantee that future sale figures are higher than what you have now;

2. The time value of money means that inflation may destroy your future profit relative to today;

3. It takes over 20 years of $800/month cash flow to make $200k.

4. If you chose to reinvest that money you should be able to make it make much more than $800/month.
An alternative approach if you strongly believe that future value will be much higher would be to harvest the equity and keep the property, but the new mortgage would essentially destroy your cash flow.

This aligns most with what I have been thinking. I'd rather have the $200k now and use most of it to reinvest in Real Estate & other assets. Plus having the liquid cash when forclosures start is going to be very useful to me (I think).
I did want to note that the $800/mo is factoring in a newer, slightly higher mortgage after pulling cash out to fund a rehab to the property. After renting both units out and deducting VIMR (Vacancy, Insurance, Mortgage, Repairs) I'll cash flow $800/mo. Still, I'd rather have the cash so I can jump on a good opportunity when it arises.

1 Reply
Pete Perez
OP
Engineer/Real Estate Investor · Renton, WA · Member since 2015 · 368 posts · 120 votes
4y
Originally posted by @Jay Hinrichs:
Originally posted by @JD Martin:
That's an easy answer - I'd take the $200k after taxes right now.

1. There's no guarantee that future sale figures are higher than what you have now;

2. The time value of money means that inflation may destroy your future profit relative to today;

3. It takes over 20 years of $800/month cash flow to make $200k.

4. If you chose to reinvest that money you should be able to make it make much more than $800/month.
An alternative approach if you strongly believe that future value will be much higher would be to harvest the equity and keep the property, but the new mortgage would essentially destroy your cash flow.

agreed sometimes its just best to take the cash there will always be rentals to buy.. and you lock in profit.. so risk of future real estate retreat is taken off the table.

Thanks for the response Jay! That is where my mind is as well. Eventually I'll want to accumulate cash flowing properties, but harvesting profits now is where my gut is telling me to go.
0 Reply
Pete Perez
OP
Engineer/Real Estate Investor · Renton, WA · Member since 2015 · 368 posts · 120 votes
4y
Originally posted by @Ken Naim:
@Pete Perez i was in a similar situation, took the cash snd stsrted buying bigger properties to get higher cashflow and equity buildup

Has that turned out to be a good decision?
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