Hold and rent out or sell?
I was offered 300K more than my house is worth (a 2 fam). Currently, my mortgage is 2000 a month and my rental income is 4600, which leaves me with 2600 a month income after mortgage. My calculations tell me to sell and reinvest the gains into the market and buy a 3 fam for the same price that my home sells for. The rent vs. sell calculator tells me to keep the house and rent out (http://renterswarehouse.com/rent-vs-sell-calculator/). Am I missing something, or is it because the calculator assumes I am getting market price?
Are you planning on doing a 1031 exchange ?
If you sold where would you purchase in NYC or out of State?
If they are offering you 300k more than market value I would sell and reinvest it. If you buy the 3 fam your rental income would be probably around 6,900 and assuming you're borrowing the same amount of money as you currently have on your mortgage then your monthly payment should still stay around 2000. You will have to pay higher property tax and utilities and maintenance will go up a bit but the extra unit is well worth it because you'r essentially upgrading for free.
You need to take into consideration the closing costs of selling your house, buying the 3 fam, and mortgage for the new house. Also check with the bank that you currently have a mortgage with to see if there is a penalty for early repayment. These costs should not be anything near 300k so it should be a good deal. The thing is why are they offering you 300k more than market value? You're basing the market value on recent sales of similar houses right? They're most likely trying to buy so they can demo and develop the land. Is the house on a large lot?
@Bin Chen Yes they are offering more as a demo/ develop. The house next door is a double lot, and they are already buying that lot, and want mine too.
What you said is generally what I was thinking, just wanted some reassurance before going through the pain of selling, moving, displacing tenants, etc.
300k is a lot of money and I think well worth the trouble. Since you have more cash on hand after the deal the next purchase you make will be easier. You can afford to invest in fixer uppers or even negotiate a lower price since you can put a larger down-payment but that all depends on where you are investing.
You might also want to consider if there are any 3 families on the market though, I like to invest in a certain area of the Bronx and in my area there aren't many 3 family houses so if you're planning to stay in the same area you might want to check out whats on the market/recently sold.
It seems like you are being given a gift. $300k over market value and you didn't even have to go through the trouble of listing the house and paying a realtor commission. Also, I would not want to be living next door to a property being demolished and redeveloped. That could be a nightmare. I have also heard 1031 exchanges are not the easiest processes to go through. I believe you must identify potential purchases within 45 days and must close on one of those properties within 6 months. For an extra $300k I would sell and upgrade. I would also ask the developer for some help finding a potential investment. They many come across something that doesn't fit their investment criteria but will work for you.
@Bin Chen @Chris Rosenberg Some more details: Turns out the guy who contacted me is actually the seller's agent for the guy next door who is selling his house, and to sell mine would charge a 4% commission. He says he has multiple offers on that house to demo and build, and says that he can get me 300K over market value so that they can expand their project.
Upon further research on my end, it seems like the price he suggested is really about 200K over market value, not 300K over (still a great deal). However, these investors have already had contact with this agent before he spoke with me. He didn't reveal who the buyers would be. Should I trust that he has my best interest in mind, or should I be asking for more money or asking more questions since he already has connections with the developer? He has not been pushy at all, essentially presented me the idea/price I could get and left it at that.
@Michael M. An agent never has your best interest in mind. They always have their best interest in mind and sometimes their interest and your interest just happens to align. This doesn't seem like a done deal it sounds like he has some buyers who are interested in the property next door for demo and redevelopment and he suggested to them that he might be able to get you property in the deal as well. He is probably charging them a commission as well so he is not your sellers agent he is the dual agent (they need to disclose this information usually have you sign a form saying you know about this) it is more likely that he works with the developer to keep the deal from falling apart than him standing up for you. You are just 1 guy while they are potential repeat customers. Keeping that in mind this is all a negotiation, and 200k above market is still good. You can try to have the buyer take care of the commission or reimburse you for the closing costs or something. You can't make a right or wrong decision since you don't have all the info.
How big is your/neighbors lot ? What is your zoning? If having your lot can allow them to build a significantly bigger building then you might have more leverage.
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