new to BP - seeing advice to make a move in the best direction

6 Replies

My first post on BP, so thanks in advance! 

I could really use some help on making a smart move with a rental property I own. 

It's a single-bedroom condo, owned free and clear in DC that I've had since I bought it 20 years ago. It's worth about $450k and cashflows about $19k/year in rent after all expenses - (a measly 4% return on cash, plus any appreciation). 

I know I can do better, and urgently need to leverage up into other property to increase equity and/or cashflow. I'm feeling a lot of pressure to do something but finding it difficult to decide what I should do. 

My goal is to increase cashflow with a long term hold on a larger property - in theory multi-unit, commercial, or perhaps a vacation rental where I now live on the Outer Banks of NC.  

Questions: 

1. Should I sell the property outright and 1031 exchange  to leverage into a $1m - $1.2m property with better cashflow? Or better to keep it and cash-out refi to reinvest in more property? I did try this once (running the numbers to buy a vacation home similar to below, that had good cashflow) but the lender said my debt to income was too high and would not let me do it.  

2. Would I even realistically be able to get a loan for a multi-unit property considering my lack of experience in that sector? 

I've read a few multi-unit investing books, lurked on this forum for years, and like the idea of multi-unit and commercial property.  But the reality I see is that finding a good deal on a multi-unit these days is next to impossible unless you've got insider track with property managers etc...There are zero multi-unit properties less than 2hrs drive from me. I've searched and considered locations around Virginia and NC - (it's unlikely that I would have the guts to buy my first multi-unit in a faraway state that I could not drive to in a few hours). 

So that leaves me with something I know a bit about - local vacation homes on the Outer Banks. The appreciation picture for where I'm considering is favorable, cashflow after taxes would be a little bit better. Here's actual numbers on a property that works on paper for me if I sold the DC condo outright:  

*The $96k income is last years rental numbers.  






                       
Property Information       Cost Information                  
Property XXXXXX    Building Cost   $ 820,000          
Location lighthouse dr   Land Cost     $ -          
Type of Property   Cost Basis     $ 820,000          
Size of Property 3892sf   Less Mortgages   $ 420,000          
            Equals Initial Investment $ 400,000          
            Amortization Period   27.5          
Ratio Information                              
Loan to Value     51%   Mortgage Information                  
Cashflow / Initial Investment   5%     Balance Payment Interest Loan
Term
Amtz
Period
Cashflow / Assets     2%   1st Mtg $420,000   $(2,128)   5%   30   360  
CAP Rate     6%                
                                 
# Description(All Figures are Annual) Annual
Amount
Notes
1 POTENTIAL RENTAL INCOME         $96,000   Total Potential Income if rented 100%  
2 Less: Vacancy           $(450)   Assumed 2% Vacancy Factor  
3 EFFECTIVE RENTAL INCOME         $95,550    
4 Plus: Other Income           $-   Other Fees, charges, etc  
5 GROSS OPERATING INCOME         $95,550   Total Revenue  
                   
OPERATING EXPENSES              
6 Real Estate Taxes         $5,000     Property Taxes  
7 Personal Property Taxes       $-      
8 Property Insurance         $5,000      
9 Off Site Management       $22,000      
10 Payroll         $-      
11 Expenses/Benefits         $-      
12 Taxes/Worker's Compensation       $-      
13 Repairs and Maintenance       $8,000      
14 Utilities         $6,000      
15 Accounting and Legal       $-      
16 Licenses/Permits         $-      
17 Advertising         $100      
18 Supplies         $-      
19 Lawn and Grounds Keeping       $2,500      
20 Miscellaneous         $1,000      
21            
22            
23            
24 TOTAL OPERATING EXPENSES         $49,600   Sum of Line 6 thru 23  
25 NET OPERATING INCOME         $45,950    
26 Less: Annual Debt Service         $(25,537)   Total Mortgage Payments  
27 CASH FLOW BEFORE TAXES         $20,413    
28 Add Back: Principal Payments         $6,637   Principal Paid on Loan  
29 - Depreciation           $(29,818)   Tax Depreciation on Building  
30 TAXABLE NET INCOME (LOSS)         $(2,768)    
                                 
 
































What do you guys think of these numbers above?

I kind of hate to sell the DC condo. I'd be more diversified keeping it. On the plus side it's in a very desirable downtown neighborhood in Washington DC (Dupont Circle) so I only deal with very professional high quality renters. It's been rented for 15 years and I've never had a single day of vacancy believe it or not, nor have I even had to meet any tenants since the last 3 turnovers over about 8 years. I live in NC, so that's why I haven't met them! 

The big vacation houses have added risk of a storm or something knocking out weeks of prime summer rental income, compared to a year-round tenants in multi-unit.  But these vacation homes in the $800k and up are the only thing I see near me that even comes close to a decent cashflow situation. 

1 vote for keep the condo! Is the rent currently as high as it can be? What did you pay for it 20 years ago? You are correct about the mf market, tough right now

I paid $116k for it, but being a 1BR I don't think it appreciated as much as a 2BR or larger would have. Maybe I could get $100-$150/month rent more, but being far away I like the low turnover. 

This post has been removed.

Hey Bryan! I think I've seen you out surfing down on the Outer Banks. 

Anyways, I would hold onto that property as it seems to do pretty well for you and that I feel like selling now to 1031 or invest in the Outer Banks is bad timing. You would make good $ on the sale in DC but buying something down here right now is getting weird. Lots and prefab houses are going for above pre crash prices (Over $100,000 for lots and 1,100 foot 3 br, 2 bath houses for $289,000)!! Its crazy. I would save as much $ now as possible and be ready to act in the next correction. 

If you ever want to get together and chat for coffee about real estate I'm down. I got a few properties and am always interested in what our local Outer Banks crew is up to. 

I would keep the condo and leverage the equity for the new deal. A well performing higher end condo around DuPont Circle is difficult to get into at a price that makes sense and they are competitive. Plus you are not surrounded by "Condoland" like Vernon Square and the Harbor are turning into so your not buried amongst 2000 units that make it difficult/expensive to market your home. Only thought I had on selling is it would help the DTI if great deal came across.

Originally posted by @Herman Hall :

Hey Bryan! I think I've seen you out surfing down on the Outer Banks. 

Anyways, I would hold onto that property as it seems to do pretty well for you and that I feel like selling now to 1031 or invest in the Outer Banks is bad timing. You would make good $ on the sale in DC but buying something down here right now is getting weird. Lots and prefab houses are going for above pre crash prices (Over $100,000 for lots and 1,100 foot 3 br, 2 bath houses for $289,000)!! Its crazy. I would save as much $ now as possible and be ready to act in the next correction. 

If you ever want to get together and chat for coffee about real estate I'm down. I got a few properties and am always interested in what our local Outer Banks crew is up to. 

 Hey Herman! Yeah we should grab a coffee sometime. I would like to hold the DC condo for sure, but it could come down to how much purchasing power I need for my next deal. The more expensive vacation properties in the OBX can make sense numbers-wise on paper, but for sure they are risky with the possibility of weather related events knocking out huge rental returns in the prime season. Also I'm trying to find out how often furnishings, kitchens, etc... need to be updated to remain competitive as this can get expensive. 

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