5 Units. Sell or Keep?

5 Replies

Hi Everyone!  I bought 5 units about 4 months ago.  2 duplexes and one home.  All on one tax lot.  I will generally buy one rental or one flip at a time, so I think I am letting the additional options of having 5 units throws my equilibrium off.  I am finding it difficult to commit to a decision, so I am looking for some feedback from experienced investors.         

I have submitted a plat review to divide into 2 tax lots, which should be finalized tomorrow, at the expiration of the public review.  I do not expect any objections.  One tax lot has one house and one duplex, the other tax lot with a duplex.  When all is said and done, the lot split only cost around $10K, including improvements and survey.  It also increased the value tremendously because now someone can buy from me without requiring a commercial loan, so the pool of buyers is exponentially larger. (5 units on one tax lots requires a commercial loan). 

I originally bought this not really knowing what I was going to do with it.  Keep as rentals or sell off one of the duplexes or the house.  My preference was to sell one of the duplexes or the house because then I would use that money towards my next flip.  However, i haven't owned it long enough to work for a 1031, so my taxes will be at 50%, which makes me feel sad, very sad. =)       

The house is worth $140K, each duplex is worth $110K.  Total value $360K.   My incoming rents are $3K.  $550 per unit on the 4 duplexes, and $800 for the house.  I purchased for $250K.  I am certain the values I am giving are conservative and would allow for quick sales.  If I finance it once the lot split is complete, my monthly payment will be  $1400 including taxes and insurance.  Lets assume my other expenses will total $400 a month (property management, garbage, random fixes and expenses), making my total out of pocket $1800. 

It is important to mention that the condition of duplexes and house are good, very clean.  

First, would you sell any units?  Second, if you decided to sell one of the tax lots, would you sell the duplex on its own lot ($1100 incoming rent), or the home and the duplex on one lot $1900 incoming rent)?         

Thank you for your help.    

@Kim Knox

Do you need to sell them?  Keep them\, it sounds like a good property.

My strategy is primarily buy and hold.  I don't want to be at a cocktail party 20 years from now talking about I wish I never sold.


Frank

@Kim Knox Keep them. It would appear they have positive cash flow currently, and equity. No reason to sell, other than to free up cash for investments. Which you should be able to do within the year with a refi, based on value estimates. Best of luck, sounds like your in a good position!

No, I do not need to sell.  I would use the proceeds towards another flip.  

My goal has always been to pay off at least 10 rentals and live on that money for my retirement, so I agree with your strategy.    

However, I do make very good money on flips, relatively quickly, which helps to fund my rental purchases.    

@Kim Knox the property and steps that you've taken has really done more for you in the long run by increasing the value immediately.  Imagine the value 5 years from now?  Even greater, I would assume.  That being said, the math makes this a simple one:

$3,000/ monthly income - $1,800/expenses = $1,200 net cash flow x 12 months = $14,400 divided by 2% bank CD rate = $720,000 what you'd need sitting in a 2-yr CD.

Use the excess net cash flow and build up another investment pool to find your next investment property to reach your goal of 10 free & clear rentals for retirement.

Awesome job by the way!

Aloha,

John

@Stuart Birdsong and @John Kai

Thank you.  The Realtor in me wants to sell everything, LOL.

Before this purchase, all of my other rentals BARELY pay for themselves, but I am very glad I have them.  I am pretty jazzed to have something that actually makes money. 

John, your calculations about CD rates blows me away.  Makes me love real estate even more!   Mind boggling.