Why am I selling? Should I be doing something more strategic?

Question

Thanks in advance to any/all feedback.  I presently own a two family rental in the North burbs of Boston.  I have a little over 100k in equity but the market here has been crazy and I was thinking of selling it to buy something I could rent / use in NH vacation/ski country.  I had the epiphany today (I'm not a finance guru) why not take the equity to make this second rental purchase and do a smaller (condo maybe) in ski country and keep my rental.

Part of the proceeds that I make each month from the rental pay my student loan debt and my truck payment so the proceeds from the sale were going to pay them both off and the rest would be re-investment capital.

There is another part of me that thought of selling the the 2 family and using the capital to buy land and building multiple units up north or buy a couple condos.

Are there other options I'm too much of a newb to think of ?

Thanks John

Ben Wilkins · Answer

@John D. - seems like you're in a good conundrum

Pros for selling: 1031 tax benefits. If you sell an investment property and use the proceeds as down payments for other investment properties, you get taxed differently than if you were to simply sell. With 100k equity, you could put down 20% on two properties if you so choose.

Pros for pulling equity out: Depending on the ARV of your current property, you could pull out enough for one or two other investment properties. If you already have a strong cash-flowing property in your first duplex, you'll have to see what the impact will be if you pull out equity. Obviously, your cash flow for the duplex will go down - however, you're not realizing all of your potential if you keep the equity in that duplex.

Bottom line: 100k equity in your duplex is actually slowing you down. Equity in a property is unrealized cash flow in other possible investments. Pull out equity, or sell - it really depends on your own long term goals. Will you be able to manage the duplex and other investment properties if they are in separate areas? Will the duplex continue to cash flow if you pull equity out? Those are the types of questions to start looking into.

John D. · Answer

More details on this:

First:  Thank you to all that respond for your time, attention and patience.

Second: I am NOT a finance person nor am I RE person... I'm in healthcare and have about a 120k a year FT job, a wife and two kids under 8.  I grew up working construction and can build / repair anything, I have my hoisting and hydrolics license as well.

I'm a property owner of a two family (house I grew up in) that I know rent out.

I owe 160k on it and have it on the market and have been offered 400k in cash for it.  I have come to the epiphany that instead of selling maybe I should take out the equity to purchase another property with a friend/partner/investor. ( He is also in healthcare same salary job, also owns two other 2 families and is just as handy).

I have 50K in student loan debt and owe 15k on my truck and use the extra rental income from this property each month to pay those bills which total about 1400.00 per month.

I also have a 35k lean for a home healthcare company that I own that I used the property as collateral for...

SOOO the question I have is what is the best way to leverage all of this and IF I pull out the equity.. does my monthly payment on this property change?  Will I lose that 1400 a month that I use to pay those other debts?  What form does that equity I take out come in (credit or cash).

A little more detail in the numbers:

Mortgage include Taxes, and insurance.

1300.00

Mortgage Intrest 2016: $ 6,596.60

RE Taxes: 2,508.89

Payoff: ( 9/1/2017) 162,733.53

Income: Unit #1: $1875.00

Unit #2:  $800.00

Yearly  Water/Sewer  550 per unit. (Yes I know it's cheap but that is really what it is )

So far this year:

Driveway repair (1,800.00)

NOW: Needs a new roof Estimates of (11,000.00)* this is NOT a new home the 800 unit is a consistent rent but if that person left I'm looking at 5 K in update costs.* both front and back units are accepting section 8--------------------------------------------------------------------------

Needs a new roof Estimates of (11,000.00)

* this is NOT a new home the 800 unit is a consistent rent but if that person left I'm looking at 5 K in update costs.

* both front and back units are accepting section 8

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Thanks John

Greg Scott · Answer

@John D.   Equity is usually lazy and doesn't make you much money.  I'm sure that $100K can be put to much better use.

There is not enough in your post to analyze whether it makes more sense to sell or cash-out-refi this property.

However, I would suggest an alternate plan.  If you somehow extract some or all of that equity, why not just focus on the most profitable buy & hold real estate you can find?   I'm not clear why it needs to be  in a ski area.   A profitable real estate purchase would likely fund any skiing you would like to do, and you end up with an asset working harder for your future.

John D. · Answer

Thanks Ben.. great points... I'm so glad BP has so many people like yourself.. much appreciated!  Keep the info coming!