Hi BP family! 

My wife and I own a home in Vancouver, WA where there is huge demand for homes and low inventory and the markets really hot for selling. Most homes are going for well over asking and waving inspection.

We are feeling torn between selling our home and keeping it as a rental. If we sell it now after closing costs we should walk away with anywhere from $130,000 to 160,000 depending on sales price and closing costs. We put $60,000 down and have about $20,000 in repairs into it. We would take our money and look for a a duplex, triplex or four unit multi family we could brrrr.

If we keep the house as a rental we If we keep our house and rent it out the mortgage is $1390 and the average rent in our area for the same type of home of $1950. We would probably need to put at least $3500 into it now to redo the plumbing. We think it would cash flow $350/month.

We don't have cash and we want to keep investing so we would take out a HELOC but we would likely only qualify for 60-80k maybe 100k if we pay $700-800 for an in home appraisal and go with a higher rate around 4.5 variable to get 90% LTV.

Our goal is to have rentals and it seems unwise to walk away from a cash flowing rental but also it seems like if we can capitalize on all the equity and the market being so hot maybe we can take the money we walk away with and find more doors with higher cash flow and be able to invest at a faster rate.

Advice?

Just my two cents if you sell the property you keep all the money tax free since its your primary residence. You could take that tax free money and use as downpayments on a number of similar properties to rent out thus increasing your overall cash flow. If you sell it though do you have a place to live already otherwise? 

If you took 130k and loaned it out at a conservative 8% you would more than double your cash flow if you just rented the property and done right there's no headaches only upside. 

To me just looking at the numbers go ahead and sell it from a cash flow perspective it is the best thing to do. If you feel the area is going to continue to appreciate into the future it might make sense to rent it and collect smaller cash flow to sell at a larger profit at a later date. That's uncertain though. 

Easy. 

$350/mo cash flow on $130,000 in equity means you are getting a 3.2% return on equity.  That's terrible.  If you reinvested in rent properties in cashflowing markets, you could easily triple those returns and have greater diversification of income (more properties).

Also, since this was your primary residence, you are walking away from the capital gains deduction if you hold it as a rental for more than a couple years.

No question. Sell.

Wow thank you Dan and Greg, that’s super helpful! We’ve been trying to figure out how to best analyze each option and return on equity and comparing to loaning the money both make a ton of sense and definitely seems like selling is best.

Our market here is a buying frenzy...there is only 2 weeks of inventory and there are so many buyers and investors here. We also have about 5 main flippers in our city who buy almost every house that goes to auction and will outbid any newbies just to keep them away. The median single family home is going for $400,000. In terms of multi family’s we are probably looking at 400-600k purchase price on the low end if we found a deal, had all cash and could move quick. We also have 3 small kids so moving and house hacking requires quite a bit of work. Also we would likely need a place to rent in the interim between selling and finding a multi unless everything lined up just right. 

Any other thoughts or suggestions given our market on how to best take the next step as investors? We’ve thought about looking in other markets where it’s less competitive. 

So thankful for your input!

Hey @Paris Shewey , you're right, the market is nuts. We listed a home for $400k and had 15 offers in just a couple of days. The sellers accepted an offer that was well over asking price with very advantageous terms (exactly what they were hoping for). 

The MF market is also pretty tight and properties are going for over asking but not quite as high over asking. There are some areas of the market where you can find duplexes in the $400k range that have pretty solid numbers (for our market). 

People I've worked with in situations similar to yours (families) are finding large duplexes, or at least one side that's a 3/2, and house hacking them. You could sell (with a rent back option), buy a duplex to house hack, hack it for a few years, and then move into a bigger SFR while keeping the duplex. Then you could 1031 out of the duplex into larger properties in the future.