Should I sell or do short term rental on my primary resident!

Question

Hello I am a newer real estate agent. Right now my primary resident is close to Atlanta airport in an established subdivision. I am having a hard time making a decision on whether to sell and pull out the equity (can cap 50k or more). Or place the property on Airbnb and get a monthly income of around 1500 to 2000 mins expenses. I am thinking of taking the equity to invest in other real estate in the near future. Help me make a smart decision. Thanks

Eliott Elias · Answer

Cash out refi and Airbnb it

Johann Martinez · Answer

Hello Keita!

I'm also new to real estate, but depending on your timeline and goals, you have different solutions you can take. The main problem I'm seeing is that since you're new to being an agent, you won't have an established income source to receive a commercial loan, but please do call around and check up on that, as I might be mistaken. Another problem you could face is if this is your primary home, where will you live? Not in the street, I hope. Having some reserves for unexpected problems is also crucial for you not to fall unto the mistakes many tend to experience. Make sure to inform yourself of the legality involving renting on Airbnb. I am a little less knowledgeable on the HELOC side, so I cannot say much about them. If I were in this situation, I would save up a good amount of reserves and take advantage of you being an agent and get to know the players in your area; then, you can start doing house hacks on properties where you work and want to invest.

Theresa Harris · Answer

Run the numbers. If you sold it, you'd get $50K but what would you do with it?  If you did short term rentals, what would you make after expenses?

Luka Milicevic · Answer

When did you buy?

What is your depreciable basis? If it's really low because you bought it cheap then I typically don't like that due to tax purposes.

Does it qualify for the cap gains home sale exemption? If so, you need to factor in the taxes on the sale of the property.

Brenden Mitchum · Answer

Hey @Keita R. Eaddie, welcome to the BP community!

Like others have mentioned here, it really just comes down to the numbers (and your goals). Make this as scientific as possible.

STR:

$500/mo cash flow. What is your capital investment in this property (downpayment, closing costs, capex since buying)? Use that to calculate CoC.

Sell:

What is the ROI on paying off your debt? In other words, what is the interest rate? Is this better than the CoC you see from STR? How much do you have left over after paying off debt? What could you do with that? Remember Atlanta is pretty expensive now and a very tough market, especially for new investors. How much time and effort will it take to find something that produces a better return than the STR strategy above? "Flip the money later in other real estate properties" is not a solid enough plan to choose the sell route. That is not scientific at all and just you guessing/hoping.

Refi/HELOC:

Have you thought about this route? Since it's still your primary residence, you can refi at favorable rates and are still able to pull out a line of credit with a HELOC. This may allow you to pull out enough to pay off your debt and still allow a small amount of cash flow. Again, it's all about the numbers. If that HELOC has a higher interest rate than your debt, this wouldn't make sense. If the new mortgage has payments that put your cash flow in the red, this also wouldn't make sense.

Personally, I would take cash flow now, rather than cash. With inflation through the roof, having money in cash flowing assets with low rate debt would make me much more comfortable than having a pile of cash. But others would say take the cash because opportunity is on the horizon with a likely downturn coming. Only you can really decide what's best for you and your RE goals.

Hope this helps a bit thought. Please, feel free to reach out anytime if you have other questions or just want to chat!

Olivia Radziszewski · Answer

Hi- I would do a short term rental! Everyone’s path is a little different but I personally would do the short term rentals sounds like you would make good money on it monthly. It is definitely in the numbers!

Should I sell or do short term rental on my primary resident!

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