First Rental Hold or Sell?

5 Replies

Ok y’all, I’m new-ish to the game and looking for some help on what to do with my first rental. I’m going to put in a ton of numbers, and I’m looking to answer the sell or hold question. Thanks for your help!!

Property Info:

3 BR / 1.5 Bath / 1200sq ft

Bought in 2017 for $163500

Down payment of 5% + $3k in closing costs

30 yr FHA loan @ 4.375%

Remaining Principle Balance: $145k

Monthly rent: $1500

Vacancy: it’s never even had to go to market to fill, but I’ll say 1%/mo just to be safe

Cap Ex: I bought it freshly renovated, but I’ll use 5%/ mo to be safe

Repairs: 5%/mo to be safe, but in 3 years of owning it I’ve probably spent $100 total on repairs.

Yearly Figures:

Gross rent: 18,000

Operating Cost: 3,794 (21% of gross)

NOI: 14,026

Cap Rate: 8.6%

CoC return: 31.3%

Cash Flow: 4,099 (342/ mo)

Okay that's a lot of numbers. This house doesn't pass the 2% test, but if I charged that much in Roanoke VA I'd never have tenants. Also at this very moment, my realtor is telling me that pretty much any SFH in my area listed for less than $250k has a good chance of going for asking price. The kicker being that there aren't really any deals on the market right now.

I’m torn between some options:

- Hold and HELOC

- I'm considering holding to keep the cash flow, but getting the house reappraised and taking out a HELOC to use when the right deal comes along. If I tried to cash out and refi, I'd lose my FHA interest rate.

- Sell & 1031:

- I think I could sell right away for at least $225k for an $80k profit (not including closing or realtor fees). We're in a peak surge of home sales right now because so little is on the market. The caveat is the house is on an FHA loan and I didn't live in it for 2 years. So I'd have to do the 1031 exchange, and I'm deeply concerned I won't find any identifiable deals within 45 days.

Maybe this is a black and white situation, but I keep going in circles on it. What do you think?

Originally posted by @Eric Imhof :

Ok y’all, I’m new-ish to the game and looking for some help on what to do with my first rental. I’m going to put in a ton of numbers, and I’m looking to answer the sell or hold question. Thanks for your help!!

Property Info:

3 BR / 1.5 Bath / 1200sq ft

Bought in 2017 for $163500

Down payment of 5% + $3k in closing costs

30 yr FHA loan @ 4.375%

Remaining Principle Balance: $145k

Monthly rent: $1500

Vacancy: it’s never even had to go to market to fill, but I’ll say 1%/mo just to be safe

Cap Ex: I bought it freshly renovated, but I’ll use 5%/ mo to be safe

Repairs: 5%/mo to be safe, but in 3 years of owning it I’ve probably spent $100 total on repairs.

Yearly Figures:

Gross rent: 18,000

Operating Cost: 3,794 (21% of gross)

NOI: 14,026

Cap Rate: 8.6%

CoC return: 31.3%

Cash Flow: 4,099 (342/ mo)

Okay that's a lot of numbers. This house doesn't pass the 2% test, but if I charged that much in Roanoke VA I'd never have tenants. Also at this very moment, my realtor is telling me that pretty much any SFH in my area listed for less than $250k has a good chance of going for asking price. The kicker being that there aren't really any deals on the market right now.

I’m torn between some options:

- Hold and HELOC

- I'm considering holding to keep the cash flow, but getting the house reappraised and taking out a HELOC to use when the right deal comes along. If I tried to cash out and refi, I'd lose my FHA interest rate.

- Sell & 1031:

- I think I could sell right away for at least $225k for an $80k profit (not including closing or realtor fees). We're in a peak surge of home sales right now because so little is on the market. The caveat is the house is on an FHA loan and I didn't live in it for 2 years. So I'd have to do the 1031 exchange, and I'm deeply concerned I won't find any identifiable deals within 45 days.

Maybe this is a black and white situation, but I keep going in circles on it. What do you think?



Eric, let's start with a few points:

a) what kind of investor are you.

b) Real estate is a marathon, not a sprint.

c) Who is giving you advice [Realtor] who makes money selling homes?


I'm going to skip your post and numbers and focus on the cash flow. You have already purchased the property lower than what the market is at right now. If you exit you would start over and at a higher price point. You are letting someone speak in your ear without giving you the entire picture. I would hold. 

 

Originally posted by @Eric Imhof :

Ok y’all, I’m new-ish to the game and looking for some help on what to do with my first rental. I’m going to put in a ton of numbers, and I’m looking to answer the sell or hold question. Thanks for your help!!

Property Info:

3 BR / 1.5 Bath / 1200sq ft

Bought in 2017 for $163500

Down payment of 5% + $3k in closing costs

30 yr FHA loan @ 4.375%

Remaining Principle Balance: $145k

Monthly rent: $1500

Vacancy: it’s never even had to go to market to fill, but I’ll say 1%/mo just to be safe

Cap Ex: I bought it freshly renovated, but I’ll use 5%/ mo to be safe

Repairs: 5%/mo to be safe, but in 3 years of owning it I’ve probably spent $100 total on repairs.

Yearly Figures:

Gross rent: 18,000

Operating Cost: 3,794 (21% of gross)

NOI: 14,026

Cap Rate: 8.6%

CoC return: 31.3%

Cash Flow: 4,099 (342/ mo)

Okay that's a lot of numbers. This house doesn't pass the 2% test, but if I charged that much in Roanoke VA I'd never have tenants. Also at this very moment, my realtor is telling me that pretty much any SFH in my area listed for less than $250k has a good chance of going for asking price. The kicker being that there aren't really any deals on the market right now.

I’m torn between some options:

- Hold and HELOC

- I'm considering holding to keep the cash flow, but getting the house reappraised and taking out a HELOC to use when the right deal comes along. If I tried to cash out and refi, I'd lose my FHA interest rate.

- Sell & 1031:

- I think I could sell right away for at least $225k for an $80k profit (not including closing or realtor fees). We're in a peak surge of home sales right now because so little is on the market. The caveat is the house is on an FHA loan and I didn't live in it for 2 years. So I'd have to do the 1031 exchange, and I'm deeply concerned I won't find any identifiable deals within 45 days.

Maybe this is a black and white situation, but I keep going in circles on it. What do you think?



@Eric Imhof

 Question: Do you live in this property as well or is this a pure rental? If you live in it, I would refinance IMMEDIATELY. 4.4% interest is crazy for an owner occupied home. I just refinance my home, and I paid 3.5% interest now. I am doing a house hack on it, and I increased the cash flow by $250 just by refinancing it.

It sounds like getting a HELOC is the right way to go if your property is performing so well and you know there wont be any cap X issues for a while. Additionally, if its appreciating that much, why would you dump it off ad lose out on future appreciation?

I'd hold the property, get the HELOC, and try to make a great deal somewhere with the money. With this whole Covid thing happening, there should be some good deals coming down the pike in the future.

Happy Housing,

Matt

@Matt Nico

Hey Matt thanks for your reply.

I do not live in it anymore, so if I refinance I won't qualify for a new FHA loan.

My wife and I have decided to hold the house, increase rent, and work on getting a heloc so we can pounce on a good deal in the future.