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To sell or not to sell.
My current portfolio-
Home #1 Cache, OK, Rented out for the past 2.5 years (VA loan)
Home # 2 Lacey, WA, Primary home for the past 2 years on the 23rd of December (VA loan)
Zero cash flow
Option 1- Sell my home in Washington State under a Sole propriety for minor tax benefits to my understanding. Use the net proceeds to invest but how much? I must keep in mind I need to pay down my own debt or at least that’s my belief. Get utilization down so I can apply for bigger loans to invest into passive income.
Option 2- Hold on to my home in Washington State... Wait for the market to sell at the right time, then invest into more real estate. Downside is, I wouldn't have a lot of capitol to use. I would still have higher amounts of credit card utilization. And I'd probably be paying a property management team to collect my rent. I've looked at different rent calculators, but the information looks really skewed.
Option 3- Sell my home in Oklahoma. I owe approx. 140K, the market says I could potentially get 190K. Use the capitol to invest into real estate and possibly a house depending on the right situation. I've thought about doing a 1031 like-kind property but have no clue how it works other than a 3rd party handles the transaction, and you have 45 days to identify replacement property.
Goals- I want to start my own LLC and see that it could possibly help me out financially. I spoke with a CPA advisor from wealth ability, and I only see benefits, thank you bigger pockets podcast! I need to come up with about 8K more to retain the CPA for this year's taxes. What I didn't know is that tax deductions based on legal entity has no meaning when filing for deductions.
#4 All Forums Contributor
- Plymouth, MI
No where near enough info..as in numbers with $$$ in front.
Home #1 Cache, OK, Rented out for the past 2.5 years (VA loan)
Original Principal balance-162,000
Current- 144,000
Home # 2 Lacey, WA, Primary home for the past 2 years on the 23rd of December (VA loan)
Original Principal balance-549,000
Current- 528, 000
Buying with VA loans every PCS is a great strategy and I've been successful myself doing the same.
I think you need to figure out what your priorities and goals are in investing first, and move backwards from there.
Do you want to invest in brrrs? Flips? Short term rentals? Long term rentals? House hacks? Which area do you want to invest in? What is your timeline for purchasing?
Once you have these questions sorted out it may likely be easier to see what is more obvious to do in the future.
For some of the more short term investing strategies HELOC's could be utilized as well.
- Carl Davis
Hey Carl!
I think you need to figure out what your priorities and goals are in investing first, and move backwards from there.
My goals-
Purchase another primary home (El Paso, TX) in the next 3 months. Use the capitol from house here in Lacey, Washington. BRRR the home for a year then move out after a year.
I would love to do STR but I have no clue how to invest into that. So Im playing it safe with what I know. I don't want to wait on buying homes so I'm making that priority.
I have tenants in my home in Cache, Oklahoma. However, I'm wanting to sell that home and use a 1031 exchange for an investment home. This won't happen until December this year...I don't need the capitol from that home immediately, so I want to invest into another rental or duplex if the numbers look good.
HELOC's sound nice. But I don't where to begin on that.
#2 BRRRR - Buy, Rehab, Rent, Refinance, Repeat Contributor
- Property Manager
- Royal Oak, MI
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#2 BRRRR - Buy, Rehab, Rent, Refinance, Repeat Contributor
- Property Manager
- Royal Oak, MI
@Benjamin Gonzales what does "zero cashflow" actually mean?
Have you raised rents?
What are your goals?
You need to post a LOT more info so we can give you actual advice as opposed to general advice.
- Drew Sygit
- [email protected]
- 248-209-6824
Hey Carl!
I think you need to figure out what your priorities and goals are in investing first, and move backwards from there.
My goals-
Purchase another primary home (El Paso, TX) in the next 3 months. Use the capitol from house here in Lacey, Washington. BRRR the home for a year then move out after a year.
I would love to do STR but I have no clue how to invest into that. So Im playing it safe with what I know. I don't want to wait on buying homes so I'm making that priority.
I have tenants in my home in Cache, Oklahoma. However, I'm wanting to sell that home and use a 1031 exchange for an investment home. This won't happen until December this year...I don't need the capitol from that home immediately, so I want to invest into another rental or duplex if the numbers look good.
HELOC's sound nice. But I don't where to begin on that.
Hey Drew!
So what I meant by zero cash flow is…
mortgage is- 1040
Rent - 1250 ( I have not raised rent in 2.5 years)
Property management- $125
Cash flow- $85
Goals- I want to 1031 my Oklahoma property for an investment property in El Paso, TX ( new duty station). I want manage it myself. Which is why I want the investment property close to me.
2) Sell home in Lacey, WA, 98516
Going to list for $620,000
Financed at 550,000
Current amount owed- 528,000
I hoping that based off of the size of my home 5 bed, 3 bath, 2900 Sq ft. That I have potential buyers get into a bidding war for my home. (This is advice from my realtor). I go live on 18 October, 2022.
After I secure these two transactions I want to create more passive income by getting into STR lease arbitrage. I have not researched this at the moment as I'm trying to focus all my attention to making my first two goals happen. I'm planning for both transactions to be complete in 6 months.
I sold my motorcycle because I'm currently deciding what type of company I'm going start. I sold my motorcycle for $4800. And I'm going to start my LLC but I'm currently back and forth with myself because…I don't know if I should make it a realty company or an investment group because I want to make several investments after I gain this capitol.
Quote from @Benjamin Gonzales:
Hey Drew!
So what I meant by zero cash flow is…
mortgage is- 1040
Rent - 1250 ( I have not raised rent in 2.5 years)
Property management- $125
Cash flow- $85
Goals- I want to 1031 my Oklahoma property for an investment property in El Paso, TX ( new duty station). I want manage it myself. Which is why I want the investment property close to me.
2) Sell home in Lacey, WA, 98516
Going to list for $620,000
Financed at 550,000
Current amount owed- 528,000
I hoping that based off of the size of my home 5 bed, 3 bath, 2900 Sq ft. That I have potential buyers get into a bidding war for my home. (This is advice from my realtor). I go live on 18 October, 2022.
After I secure these two transactions I want to create more passive income by getting into STR lease arbitrage. I have not researched this at the moment as I'm trying to focus all my attention to making my first two goals happen. I'm planning for both transactions to be complete in 6 months.
I sold my motorcycle because I'm currently deciding what type of company I'm going start. I sold my motorcycle for $4800. And I'm going to start my LLC but I'm currently back and forth with myself because…I don't know if I should make it a realty company or an investment group because I want to make several investments after I gain this capitol.
This is what I would do in your scenario but keep in mind everyone is a little bit different on how they prefer to do things.
1. Property in Oklahoma - You are not cash flowing much but have you looked at comparable rents in the area? Can you raise the rents? Can you actually turn this property into a STR thus increasing the ROI on this with little out of pocket cost? Are the STR restrictions that make medium term renting more viable? Is there a way to add value to increase rents? I think if you could figure out a way to cashflow this property it may be easier than doing a 1031. The property you buy at your new duty station could be a house hack if you don't already have a primary residence. This will decrease your monthly expenses, and increase your revenue plus you'll be able to keep a higher producing property now. If you're worried about having capital to purchase your next primary and you're using all of your VA entitlements look into USDA loans, and Navy Federal also has a zero down loan option with no PMI for military members as well.(homebuyers choice and military choice loans)
2. Property in Washington - If you are set on selling this property it seems like you'll net around 50k after paying fees and commissions (just using average numbers). If you want to get into STR arbitrage from there it is definitely doable but I honestly don't think this will be more passive than what you are currently doing. I currently own a STR and it is about the same time demand as my other long term rentals. Obviously there are more variables involved but especially if you are managing them yourself it will not be a more passive in my opinion.
If you really want the income to be passive, I suggest REIT's. If you do not mind self-managing or paying a property manager than I would continue purchasing.
I hope this helps a bit.
- Carl Davis
Yes this makes tons of sense! I appreciate the information.
I am pretty set on selling the home in Washington. I need to lower my DTI by paying off my debts (high credit usuage).
Home in Oklahoma-
My tenants lease ends this December. And if I could plan the STR I will have more than enough cash to invest into furnishing my home.
I've done some research about STR, my ROI has potential, based on more hot times of the year.
How did you structure your business around your STR's? And approximately how much money do you keep to the side to cover your mortgage in low times of the year?
In regards to your first question, I am not sure I fully understand what you are asking specifically. Do you mean how do I structure my business as a realtor or how do we manage it?
Some investors like to save a percentage of their cashflow for vacancies/repairs but we actually save every penny we get extra for the first two years then start to save a smaller percentage. In about two years we haven't had a month that we made less than our expenses. If the seasonality is hitting really hard and you have vacant months saving every dime in the beginning should more than help. than after your first year you can better budget based on the previous years performance.
- Carl Davis
Yes how is your legal entity structured? And how is that allowing you to operate in your current space?
I’m also curious as to how you manage your properties as well?
I’m not trying to reinvent the wheel here with STRs and I’m really interested in getting started. I’ve looked at Airdna for properties in my area and it sounds good. But planning for no tenants is a great and I will have to create a network down in Oklahoma.
Quote from @Benjamin Gonzales:
Yes how is your legal entity structured? And how is that allowing you to operate in your current space?
I’m also curious as to how you manage your properties as well?
I’m not trying to reinvent the wheel here with STRs and I’m really interested in getting started. I’ve looked at Airdna for properties in my area and it sounds good. But planning for no tenants is a great and I will have to create a network down in Oklahoma.
Currently the home is in my name because I bought it in my name. We are in the process of doing a quit claim in order to get it into our LLC that we have our properties in. Biggerpockets has a video on asset protection I am not a professional in this realm and speaking to a lawyer or someone who does that professionally is your best bet. I have a separate LLC for my sales business. We keep everything separate in separate business accounts.
Each property has its own account, each business has its own account all separate from personal finances. Once again I can't give you advice on this but co-mingling is a terrible idea in my opinion.
Management wise it is a lot easier in our experience than some make it seem. We have automated messages that go out whenever people book, then we have two cleaners to choose from whenever we are setting up our turnover. My mother in law will go behind the cleaners and refill simple things like toilet paper and what not (we pay her a fair price). As far as maintenance goes our home was built brand new in 2020 and the builders warranty covered everything we may have had trouble with in the beginning but we will need to source maintenance personnel in the future, most times if we need my wife's family helps us out.
That being said having someone on the ground to handle simple things is paramount. On thanksgiving last year our tenants wanted to grill on the one we had and asked if we could get them propane...If it were me I would just fill it up but since they asked we went ahead and asked her brother to fill up the tank and bring it to them.
We want to hand off the property management in the near future with someone that has a good team in place as we do not want to put unnecessary stress on our family but most of the people we interviewed managed from out of state which is the same thing we do. We don't want to pay 20 percent to someone that will do the same thing as us.
Just some things to keep in mind. By no means are we exceptionally great at managing STR's this is just our experience from owning this one. Talk to other hosts in the area, join facebook groups and ask them what obstacles they faced as well.
- Carl Davis
@Benjamin Gonzales With 0 cash flow essentially I would definitely sell your Cache OK place and 1031 Exchange into a cash flowing market. I can show you several examples of where this has worked and I have a 1031 exchange doc for that tells you the basics. The 1031 Like Kind exchange is the best tool you can use to build wealth by selling a property you don't want and can defer all capital gains (money you would make on the sale price vs equity you have in the building) into a new property that does cash flow. I hope that helps and happy to talk more via DM.
Thank you for the information. I will need to seek out a lawyer for sure! Thank you for the Non- Lawyer advice! I currently don't have people that could look at my properties. So I am thinking I have to go down there and create these connections with people. I've heard some people say the use care.com for hiring cleaners and maintainers but this is not a solution for a handyman to fix things immediately.
Huge pointers that will show me the way for sure! I appreciate your view on things. I know every situation is different and depending on the location can make or break you. I'll be reaching out to local people in the area to start out. Eventually I will need to talk to someone in person and start my team.
Is there any ROI calculators you use?
Or any calculators in general that you would recommend? I know bigger pockets has 5 freebies. And I have used a couple already but I am still going to take things slow. I'm confident about this being the way I need to grow my portfolio and I'm glad I have forums like this. Thank you @Carl Davis
Quote from @Benjamin Gonzales:
Hey Drew!
So what I meant by zero cash flow is…
mortgage is- 1040
Rent - 1250 ( I have not raised rent in 2.5 years)
Property management- $125
Cash flow- $85
Goals- I want to 1031 my Oklahoma property for an investment property in El Paso, TX ( new duty station). I want manage it myself. Which is why I want the investment property close to me.
2) Sell home in Lacey, WA, 98516
Going to list for $620,000
Financed at 550,000
Current amount owed- 528,000
I hoping that based off of the size of my home 5 bed, 3 bath, 2900 Sq ft. That I have potential buyers get into a bidding war for my home. (This is advice from my realtor). I go live on 18 October, 2022.
After I secure these two transactions I want to create more passive income by getting into STR lease arbitrage. I have not researched this at the moment as I'm trying to focus all my attention to making my first two goals happen. I'm planning for both transactions to be complete in 6 months.
I sold my motorcycle because I'm currently deciding what type of company I'm going start. I sold my motorcycle for $4800. And I'm going to start my LLC but I'm currently back and forth with myself because…I don't know if I should make it a realty company or an investment group because I want to make several investments after I gain this capitol.
The OK home is in reality loosing money when factoring in maintenance/cap ex, vacancy, misc. hopefully the payment includes property tax and insurance (is PITI) otherwise the property is loosing even more. Hopefully the property has appreciated a lot so there is some decent return.
I suspect STR would not make this property have good cash flow. Would you self manage? Do you know what STR PM costs are in that area (going rate in my market is 25%)?
With as good return as RE has provided in recent years, this seems like a property that should be sold. Residential RE is not passive. If the returns are far worse than syndicators have been providing, why go through the effort of owning residential RE?
The Washington property has appreciated $70k. With the high LTV of VA loan you should have a good ROI. Will the appreciation continue? My view is the last 10 years have had outstanding appreciation that likely will not be matched going forward.
Use a decent rental calculator to project return. If the return is not greater than syndication returns you need to ask is it worth the effort?
Good luck
If you decide to pick Option 1, you can always explore out of state investing to park your funds working with a turnkey company. If that is something you want to discuss, feel free to reach out.
#1 1031 Exchanges Contributor
- Qualified Intermediary for 1031 Exchanges
- St. Petersburg, FL
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#1 1031 Exchanges Contributor
- Qualified Intermediary for 1031 Exchanges
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@Benjamin Gonzales, wait till December and sell WA. Proceeds will be tax free. Rent a place to live for a while to let the DTI correct. Use yhe 80K on an investment property. OK is ready any time for a 1031 once you've figured out where you want to go. Buy the investment place and then buy a new primary.
Or combine the 1031 proceeds with your tax free proceeds and buy a multifamily of 4 or fewer units. Get primary financing rates on it. And live in one unit and rent the others out.
- Dave Foster
Quote from @Dan H.:
Quote from @Benjamin Gonzales:
Hey Drew!
So what I meant by zero cash flow is…
mortgage is- 1040
Rent - 1250 ( I have not raised rent in 2.5 years)
Property management- $125
Cash flow- $85
Goals- I want to 1031 my Oklahoma property for an investment property in El Paso, TX ( new duty station). I want manage it myself. Which is why I want the investment property close to me.
2) Sell home in Lacey, WA, 98516
Going to list for $620,000
Financed at 550,000
Current amount owed- 528,000
I hoping that based off of the size of my home 5 bed, 3 bath, 2900 Sq ft. That I have potential buyers get into a bidding war for my home. (This is advice from my realtor). I go live on 18 October, 2022.
After I secure these two transactions I want to create more passive income by getting into STR lease arbitrage. I have not researched this at the moment as I'm trying to focus all my attention to making my first two goals happen. I'm planning for both transactions to be complete in 6 months.
I sold my motorcycle because I'm currently deciding what type of company I'm going start. I sold my motorcycle for $4800. And I'm going to start my LLC but I'm currently back and forth with myself because…I don't know if I should make it a realty company or an investment group because I want to make several investments after I gain this capitol.
The OK home is in reality loosing money when factoring in maintenance/cap ex, vacancy, misc. hopefully the payment includes property tax and insurance (is PITI) otherwise the property is loosing even more. Hopefully the property has appreciated a lot so there is some decent return.
I suspect STR would not make this property have good cash flow. Would you self manage? Do you know what STR PM costs are in that area (going rate in my market is 25%)?
With as good return as RE has provided in recent years, this seems like a property that should be sold. Residential RE is not passive. If the returns are far worse than syndicators have been providing, why go through the effort of owning residential RE?
The Washington property has appreciated $70k. With the high LTV of VA loan you should have a good ROI. Will the appreciation continue? My view is the last 10 years have had outstanding appreciation that likely will not be matched going forward.
Use a decent rental calculator to project return. If the return is not greater than syndication returns you need to ask is it worth the effort?
Good luck
To me at this moment it makes sense to do a 1031 and find a better flowing market. These types of transactions I will need help with because I'm just getting started and I appreciate the feedback!
Quote from @Dave Foster:
@Benjamin Gonzales, wait till December and sell WA. Proceeds will be tax free. Rent a place to live for a while to let the DTI correct. Use yhe 80K on an investment property. OK is ready any time for a 1031 once you've figured out where you want to go. Buy the investment place and then buy a new primary.
Or combine the 1031 proceeds with your tax free proceeds and buy a multifamily of 4 or fewer units. Get primary financing rates on it. And live in one unit and rent the others out.
Thank you @Dave Foster!
Looking forward to future advice.
Quote from @Aj Parikh:
If you decide to pick Option 1, you can always explore out of state investing to park your funds working with a turnkey company. If that is something you want to discuss, feel free to reach out.
I'm weighing the options out currently. I just have really high CC utilization and making those debts disappear is what I am leaning towards.
@Aj Parikh What would you do if you were in my position?