Sell high value properties and reinvest or hold?

[Daniel Delanty]

BP community, I could use your wisdom. A few years ago we bought two 3 bedroom two bath houses for 220k and 289k. They are now both worth about $350-360k. Both are CF positive. Equity is $195k in one and $155k in the other. In the Mount Pleasant community of Charleston we feel these properties will not continue to appreciate at such fast rates so we are considering selling and reinvesting into properties with more opportunity for adding value and fixing up. The other option is to consider accelerating pay off of these two mortgages over 5 years and have $50,000 in annual income coming in. Thoughts?

[David Faulkner]

Selling is very expensive with transaction fees and capital gains taxes. You can defer capital gains with a 1031 exchange, however there will still be transaction fees and you will need to find a replacement property within a tight time frame, which may make it difficult to find a great deal with value add opportunity. If you want to expand and like the area, you could cash out refinance to obtain another down payment (or multiple) ... either that or just save the down payment from savings and cash flow. If your portfolio is already large enough to meet your financial goals if they were paid off, then accelerating the mortgage paydown could be a good and conservative option, but only if you don't need/want to grow your portfolio further.