Sell it or Rent it??

Question

Hey guys, long time BP member just refreshed my Pro account, but have not pursued any deals yet… My question is this… We are getting ready to move from Dayton, Ohio to Milwaukee, WI. I own a 3b2b in Dayton that I need to make a decision on. Do I sell this property while the market in that area is pretty hot and pocket 20k-30k. Or rent this house out and use it as my first rental property? Ive run the numbers and outside of being 400 miles away renting it would net me 108$ cash per month after P&I, tax, maintenance, CapX and vacancies.

My concern is being 400 miles away if anything goes wrong with the property but i did not know if holding it would help with future deals that i want to pursue here in Milwaukee as it pertains to funding deals… Or would having 20-30k as cash in my pocket be a better route to pursue my first deal.

What are your guys thoughts?

Joe Villeneuve · Answer

Your concern should be that $108/mo; $1296/year cash flow would take you 15 - 23 years to equal what you could get if your sold it.  Why is that important?  Other than how little the CF is, and that $108/month is negative CF just waiting to happen, you are losing a tremendous amount of value from that $20-30k.

If you invested that $20-30k as a 20% DP, it would buy you $100-150k worth of PV...and the increased CF with it.  Not to mention the 400 miles or so you should no longer have to deal with.

John Thompson · Answer

Thanks @Joe Villeneuve Ive been leaning towards just selling it but an using that to fund my first deal in Wisconsin once we move. I just wanted to bounce this idea off a few more experienced guys and get some opinions.

Gordon Starr · Answer

I have been investing buy and hold style in Dayton. I would not advocate selling such a portfolio. Hold onto them dearly if you have dayton investments. Concerning my own personal residence, that is different. Only one property and the proceeds are tax free! I have the same issue except a different destination. My home was bought in 2013 for 14,700$ cash, it is now worth close to 200k. So don't, please don't believe the talk that dayton is not appreciating! There are too many rich here right now. Everyone is capitalized and we are making a killing.

John Thompson · Answer

thanks @James Konvalinka i think where my thought process is now after reading everyone’s thoughts is to sell the Ohio Property which is my current primary residents. We are under contract for a new primary residents here in Milwaukee. With the equity i’ll make off the sale of the Ohio Property i’ll have cash available to secure my first deal here in the Milwaukee once i research and learn the market here. Im still new to all this but after sitting on the sidelines hoping “one day” i’ll start investing i think i just need to get in and just take the plunge.

Robert Leonard · Answer

Plenty of good advice already given above. The only thing I’ll add is, when you sell your primary residence, you can make $250k ($500k if married) of capital gain that is not taxable. Your equity, minus the transaction cost, will all be in hands for whatever you plan to do next.

Axel Meierhoefer · Answer

@John Thompson I agree that the distance will be too far to manage it yourself if you were to rent it. You probably ned to assume about 10% of the rent for management. That's what I pay in the Dayton area. If your cash flow calculations are correct, that would probably eat most or all of it.

I am a long-term buy-and-hold investor and never bought my Dayton area properties for appreciation (even though there was a nice lift the last few years). Normally I always recommend keeping  properties you own but in this case, assuming all the numbers are correct and you seemingly want to start your investment journey with some owner property management I would agree that taking the gains from the sale, which will be tax-free and apply them to an investment property in Milwaukee so you can get experience managing it.

Feel free to PM me if you like to discuss my experience with Dayton rentals.

James Konvalinka · Answer

Being an agent and investor here in the Milwaukee market I can tell you that a duplex around $100-$150k can on average bring you in about $150 a door if you buy it right. It just depends on what your goals and strategies are. If your going to buy a straight investment property with your money it may be better to sell your current property and use the funds to buy something here in Milwaukee.

Also, how much equity do you have in your current rental? If you have enough equity, another option might be refinancing and using the extra cash from the refi to purchase another investment here in Milwaukee. That could be a way to keep your current property and buy another. However, only getting $108 in monthly cash flow does make it really tight if anything was to happen.

Michael Williams · Answer

Depends on what your long term goals are? Would you use the profit from the sell to purchase another investment property in Milwaukee, maybe a 2-4 unit that you can house hack or a permanent residence? Having an out of state property that only cash flows $100 per month is a little low, I would sell and get a feel of the new area to maybe purchase something closer that you could manage yourself. Also how much do you owe on the Dayton property? Maybe you could pay it off sooner and earn more cash flow from renting it.

Jeremy H. · Answer

I would sell - primary reason being you're a new investor and this property is far away. Essentially you'd be starting out with a long distance rental. Is this bad? No. Is it the easiest way to start out? Also no. There can be a lot of things pop up that you don't know simply because you don't know they can happen.

IMO - save the headache, budget that 20-30K and put it into a local property. The key here is budgeting the 20-30K. Use it for the new house and you're back to square 1. That will be a much easier way to start out, understand what you're doing, build confidence and repeat.

Gordon Starr · Answer

Could u wait till March to list it? The last few years have seen a big spring pop in single family houses. Move in ready places are sure to be in short supply again. I am fixing mine all up and waiting.