Should I sell I or keep it?

Question

Hi everyone!  I have been struggling with whether I should sell my triplex.  I bought it for 189k 2 years ago.  I currently live in the 3/1 unit and rent the 1/1 for 475 (about 300 dollars below market value but this tenant was inherited) and the other 1/1 is a vacation rental that generates a minimum of 1100 a month and during busy season it generates 3k a month.  If I rented the 3/1 it would go for about 1350 a month.  My fiancé is a realtor and we believe we could sell if for 400k since it is now commercial property and Dunedin, Florida is booming at the moment. If I sold it is reinvest into other properties.  Any guidance would be great.  Thanks!

Michael Beinetti · Answer

Without breaking things down too terribly much...what about getting the 1st 1/1 up to speed in rent and renting out your 3/1?  You could leverage the property to reinvest and keep the cash-flow active.  Just a quick thought.

Dave Foster · Answer

@Nick Miehe, The primary residence exclusion on gain will not totally eliminate the tax on profit from the sale of your triplex.  The only gain that would be tax free is the gain apportioned to the part you actually lived in.  The remainder would be taxable unless you did a 1031 exchange on that portion and purchased some new real estate.

In a really rough estimate, if you made 150K and the square footage roughly follows the # of bedrooms you would get 3/5 or 90K of the profit tax free.  The other 60K would be taxable.  And there will be depreciation recapture from the portion used for investment.

Tamara Elliott-Deering · Answer

If you kept both properties and something bad happened the worst that could happen is you'd have to sell the single family and move back into the triplex. So don't be afraid of that. With the numbers you've given me I'd keep the tri-plex, try and get the inherited tenant out if it's possible and keep it rented. If appreciation continues you could try and refi the tri-plex in a few years and pull some equity out of it. My final piece of unsolicited advice is to buy your single family home with the idea that it's a two year flip. Buy the worst house in the best neighborhood, fix it up when you're living in it and sell that in two years, tax free if you don't make more than $250k if you're not married when you sell or $500k if you are. Use the equity from that sale to buy two more houses, one to do another two year flip on and the 2nd can be any kind of investment property that interests you.

Please realize that I am not you. I have my own biases around money that reflect decisions I would make to be comfortable and you have to figure out yours. You're doing great you've already got a tri-plex so just keep doing what you've been doing and don't second guess yourself.

Nick Miehe · Answer

Hi Tamara we are planning on moving into a single family home that will carry a 1400 dollar mortgage.  The triplex does cash flow really well.  The mortgage there is 1350...after renting the 3/1 I'd be making close to 1500 a month in the slow season.  If I do sell I've been told I'll avoid capital gains since it was my primary residence for 2 years.  Though I'd still plan on rolling the funds into other properties....I guess I'm just nervous having so much debt between my 4 properties.

Nick Miehe · Answer

Hi Michael I have thought about it.  The tenant pays a week early and never has had an issue but I think he knows he has had cheap rent for the past 15 years.  If I rented at current market value the property would make more sense to keep.

Tamara Elliott-Deering · Answer

I'm sorry I don't have enough information to give you. Is the unit cash flowing after you pay mortgage? What will happen to your living expenses when you leave? Unless you have a tax strategy in place like an exchange you could be hit with a big tax bill. Why are you thinking of selling? Does this place meet your investing goals and fit in with your investing strategy? Whenever you pull your equity out of a place it means that the market is stronger than when you bought it so if you remain in the same place your purchase power will be diminished.

The only advice I can give you is to know your plan and work your plan. If this property still meets your fundamental goals don't drop it just to chase the new thing. If selling opens a path to your true investing goals then sell.

Should I sell I or keep it?

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