Ok finance gurus: sell one of my rentals, or keep it? - Page 1

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[ARCHIVED THREAD] - Ok finance gurus: sell one of my rentals, or keep it?

Posted: 5/20/2022 1:49:48 PM EDT

Ok, so here's the situation: I've got 3 rentals and feel that the housing market has peaked, and I have an offer for a house I paid 79k for for 125k. I owe 72k, so that gives me 53k to play with. Taxes will be ~$6500, so that leaves me with 46.5k in pocket, free and clear.

I cash flow--after taxes, mortgage, maintenance, everything--about 380/month with the property, so it'd take me 10.2 years to make 46.5k in profit. I plan on buying land so I can build, and then turning my current house into a rental, which would probably cash flow ALOT; I bought bottom of the market and have a 2.99% rate on the mortgage, and it will probably cash flow about 800/month after taxes, mortgage, insurance, and maintenance.

It seems like a no-brainer to me...only way I get screwed is if costs to build go up SIGNIFICANTLY in the next year. So what say our finance experts?

Posted: 5/20/2022 2:13:53 PM EDT

[#1]

edited -

How bad is the area? What is your own cash flow situation?

If the area is improving, keep it

if the area is cratering, sell it

your personal cash flow is only $380 / month? Ouch

Can you rent some rooms out?

Posted: 5/20/2022 2:24:52 PM EDT

[#2]

I'd keep it, and reassess in 6-8 months. If the construction market crashes, it may be a good time to build.

You should be giving the financial advice here, not asking. Most people here wouldn't understand any of that.

Posted: 5/20/2022 2:26:44 PM EDT

[#3]

I'm taking the first week of June off to prep my rental to sell. I say sell and enjoy

Posted: 5/20/2022 2:27:52 PM EDT

[#4]

dump it. i agree the market has peaked.

Posted: 5/20/2022 2:28:56 PM EDT

[#5]

Did you depreciate your rental over time? Monthly profit currently?

Posted: 5/20/2022 2:29:37 PM EDT

[#6]

Quote History

Quoted:
I'd keep it, and reassess in 6-8 months. If the construction market crashes, it may be a good time to build.

You should be giving the financial advice here, not asking. Most people here wouldn't understand any of that.

View Quote

@lurchaddams So in my current market, the housing market is out of control; average income is in the 40's, but home prices have skyrocketed as much as 50% in the last year alone; I bought this house for 79 in 2018, and had an offer from an investor for 140 if I did seller financing. That's typical for this area right now, and has been for the last year or so.

Considering the rapidly increasing mortgage rates, everyone is being priced out of a house here, so I suspect the market has peaked--it's just not sustainable the way it is. I've gotten texts from some realtor friends of mine saying that they've noticed a fairly steep drop-off in offers with 24 hours of listing just in the last week or so. The home I bought for 150 in 2019 is now more than *I* could afford (~300k) and I make decent money, so yeah, again, my gut says prices either flat line for a bit before coming down, or they just start coming down now.

But "my gut" isn't real data and is a-rational, so I don't put too much stock in it, hence why I'm soliciting advice from other finance peeps.

Posted: 5/20/2022 2:29:51 PM EDT

[#7]

What are you going to do with the 46k?

Posted: 5/20/2022 2:31:32 PM EDT

[#8]

Quote History

Quoted:
What are you going to do with the 46k?

View Quote

Per the OP, build (hopefully pay for the land + house in cash) and then turn my current house into a rental. My current house would cash flow about 2.5x what the rental I'm considering selling does, assuming I can find another place to live of course.

Posted: 5/20/2022 2:33:20 PM EDT

[#9]

you did poorly buying that rental if your cash flow is so low.
rents have more than doubled in the last 6 years in most areas

Posted: 5/20/2022 2:33:28 PM EDT

[#10]

I would sell unless its in a hot area. Beach, or Bed and Breakfast tourist thing.

Posted: 5/20/2022 2:36:55 PM EDT

[#11]

Sell...the risks of the market plummeting is higher than the potential of more profits...

You are already seen a slow down in purchasing in some sectors...if inflations keeps going the way it is...you might not get what you got offer on...

I say...DUMP IT....but...you could also leverage that asset on a loan...so there is that...but owning land out right sounds pretty darn appealing especially if its land that you want...

Posted: 5/20/2022 2:38:35 PM EDT

[#12]

We plan on selling 3 in the next 9 months

Posted: 5/20/2022 2:38:37 PM EDT

[#13]

Sell it.

Wash rine repeat.

Can't you 1031 it into something else to avoid taxes anyways?

Posted: 5/20/2022 2:41:03 PM EDT

[#14]

No way I would have a rental now.

Remember when you couldn't evict renters because the .gov said you couldn't?

It getting ready to be worse than that.

Posted: 5/20/2022 2:42:17 PM EDT

[#15]

Quote History

Quoted:
you did poorly buying that rental if your cash flow is so low.
rents have more than doubled in the last 6 years in most areas

View Quote

Eh, it's probably more like $400; I've never done an actual assessment on maintenance costs, but gross profit each month is $550 after mortgage, taxes, insurance, etc. The only thing I've done to it is put about 2500 into a new HVAC system. I started renting it out in early 2019, so I guess that puts my maintenance costs at ~69/month, so after taxes (~15%) I guess I am making closer to $400/month on it.

That said, if you're calculating cap rate based on what I paid for it (79,900), that number comes out to about 6%, which is quite good, so I'm not sure what you're talking about. Part of what hurt me is that I bought at a 5.5% APR and put virtually nothing down on it, but it was a better opportunity than not so I went for it. It's $400/month vs., well, 0, so yeah, I don't know that I'd agree with you on that. Hell, considering I actually only had 3% of the purchase price in initial equity and have rented it out for longer than I lived in it, I think I'm doing pretty damn good.

Posted: 5/20/2022 2:44:59 PM EDT

[#16]

Quote History

Quoted:

Per the OP, build (hopefully pay for the land + house in cash) and then turn my current house into a rental. My current house would cash flow about 2.5x what the rental I'm considering selling does, assuming I can find another place to live of course.

View Quote View All Quotes

View All Quotes

Quote History

Quoted:

Quoted:
What are you going to do with the 46k?

Per the OP, build (hopefully pay for the land + house in cash) and then turn my current house into a rental. My current house would cash flow about 2.5x what the rental I'm considering selling does, assuming I can find another place to live of course.

Do it.

Posted: 5/20/2022 2:50:18 PM EDT

[#17]

I own 5 rentals. Reading your assessment you want to go from 400/month to 2500/month cash flow. All this with a more valuable piece of property.

I would sell given your low equity stake.

Posted: 5/20/2022 2:50:47 PM EDT

[#18]

keep it

Posted: 5/20/2022 3:00:58 PM EDT

[#19]

Quote History

Quoted:
I own 5 rentals. Reading your assessment you want to go from 400/month to 2500/month cash flow. All this with a more valuable piece of property.

I would sell given your low equity stake.

View Quote

Just out of curiosity, where are you getting the 2500 cash flow number? My current residence is ~760/month (mortgage taxes insurance), but the rental value on it is easily north of $1600/month (4 bedroom, newer construction, college town--need I say more?). I'd be flipping that into a rental if I 1) sold the rental in question and 2) managed to find suitable land and could build there.

Posted: 5/20/2022 3:11:44 PM EDT

[#20]

Quote History

Quoted:
No way I would have a rental now.

Remember when you couldn't evict renters because the .gov said you couldn't?

It getting ready to be worse than that.

View Quote

Pretty much my feelings on the subject.

Then you get into finding good renters. One bad one and your place gets torn up and keeping the security deposit is a drop in the bucket on the repair bill.

Personally I see owning a rental as a somewhat high stakes venture.

Posted: 5/20/2022 3:16:04 PM EDT

[#21]

I sold a rental today, closing was at 10am. Did the numbers and I've taken nearly all the profit out of this house, and renting would offer no value. Taxes and insurance were killing me at over $1300 per month.

Posted: 5/20/2022 3:20:11 PM EDT

[#22]

Sell.

Posted: 5/20/2022 3:20:29 PM EDT

[#23]

Quote History

Quoted:

Pretty much my feelings on the subject.

Then you get into finding good renters. One bad one and your place gets torn up and keeping the security deposit is a drop in the bucket on the repair bill.

Personally I see owning a rental as a somewhat high stakes venture.

View Quote

If you're smart, it's really not. I've had 0 damage done by renters (that they didn't pay for). 0 missed or late payments. The key is to list on Facebook so you can view their profiles when they message you. That's screening round one. After you find someone who doesn't have any red flags (e.g., self-identifying as a "dog-mom," or pictures of them hitting a bong), you run a detailed credit/background check on them that includes their credit score, monthly debt/income ratio, etc. etc.

With modern technology and screen techniques you'd have to be exceptionally unlucky to get burned. In the event you did, you'd still come out ahead in the long run.

Posted: 5/20/2022 3:30:48 PM EDT

[#24]

If I were in your situation I would sell this property. I would not consider holding a mortgage for the new buyer based on the current market.

I own several rentals. I do not plan on selling mine, but financially this one is not doing so well for you. You have the opportunity to sell with minimal taxes and you have a use for the money.

Your best time to do this is now.

Posted: 5/20/2022 3:31:10 PM EDT

[#25]

Quote History

Quoted:

Per the OP, build (hopefully pay for the land + house in cash) and then turn my current house into a rental. My current house would cash flow about 2.5x what the rental I'm considering selling does, assuming I can find another place to live of course.

View Quote View All Quotes

View All Quotes

Quote History

Quoted:

Quoted:
What are you going to do with the 46k?

Per the OP, build (hopefully pay for the land + house in cash) and then turn my current house into a rental. My current house would cash flow about 2.5x what the rental I'm considering selling does, assuming I can find another place to live of course.

Why not look into a HELOC for the rental, and raise the rent. Then use the cash to buy your next property