[Calc Review] Help me analyze this deal

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I purchased a home in June that had a fire.  The previous owner sold this to me for $40k and I have rebuilt the entire home from the foundation up.  I will finish the house next week and be all in at $135k.  Retail value is $185k.  I am a Real Estate Broker and I would net $175k after the sale of this home.  The market is very strong and this will sell right away thus making $40k tax free back into my Self-Directed 401K.

My alternative is to keep this in my portfolio as a long term rental.  I can rent this for $1,400 monthly and property taxes are about $150 so I would net about $1,100 monthly after all expenses-also tax free into my 401K.  

All along I planned as keeping this as a long term rental, and the home came out great. I have about $2.8M in my 401K and have many assets and investments in it.  I do not NEED the $ in my account to allow me to do more deals, so this is not a concern either way.  

What do you think I should do?  Should I sell this and deposit $175K back into my 401K or make $1,100 net for the foreseeable future and consider selling it 5 or 10 years down the road???

THANK YOU FOR YOUR consideration!  Todd

@Todd Kruger , first you're not going to really cash flow $1100/month, even with no debt service. You have to figure in management (even if you plan to self-manage at first), repairs, capex (I know it was just renovated, but eventually things will break). Your vacancy looks very low, too.

The bigger issue is that even with your optimistic cash flow assumptions, your Return on Equity (ROE) is only ~7%. I think you can get your money to work a lot harder for you.

Bottom line: sell and redeploy this capital.

@Jaysen Medhurst

Jayden, thank you for your response. My office manages my portfolio and this is no added cost to me so I did not place property management in my equation. In addition, I will be able to get a 24 month minimum lease without any problem therefore I placed my vacancy rate very low as well.

Yes my cash in cash return is lower but I also factor in appreciation that adds to my willingness to keep this long term.

I have about $500k in idle cash in my 401k and finding viable deals is more and more difficult. So another $175k just compounds my cash position and need to spend.

That being said, sounds like you would still sell this asset.

I would, @Todd Kruger . With that return, I think it's better to keep the money liquid in an index fund. It's not like you need to diversify into RE.

As an aside, you've touched a lot of different areas of REI, what are you most focused on now?

@Jaysen Medhurst

I do all the above and everything I can. I will flip another 80-85 homes this year and have flipped over 1k now in my career.

I am trying to build up my rental portfolio and when I come across a SF home like this one I have been looking to hold more this year. This is in a great, stable area and the neighborhood is about 15 years old with a park and great schools.

I am looking into more multi family lately in a way to diversify in preparation of the pending softening on all markets and any down turn that seems like is the consensus.

I have about $1.3M of my 401k in hard money lending deals to other “flippers” & real estate brokers in my area etc.

@Todd Kruger

Thank you @Jaysen Medhurst for your advise. I ended up listing my house for sale for all the money at $195k and have it under contract for $193k closing in 30 days.

I will net about $50k profit and RE-deposit about $180k into my self directed 401k that I can re-deploy at a much greater return.

I appreciate your advise! Todd

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