160k in equity + cash flowing rental

[Jay Dotson]

Hi there! I’m moving out of our primary residence in ATX that has about 160k in equity after realtor fees if I sold today. I decided to lease out our space to a long term tenant and will now have $700/mo cash flow from the property. I understand I’ve got a window of 3 years before I would have to pay tax on the property if sold beyond 3 years and I could also 1031 if I wanted hold for the future. Rate is 3% and location is great near domain, which is exploding over the next 10 years.

The goal is eventual financial freedom. What would you do in this situation?

- hold and continue to rent for the long haul whether LT or STR

- sell within 3 years and use equity to buy larger and higher cash flowing property

- any other solution I’m not thinking of?

[Joe Scaparra]

Quote from @Jay Dotson:

Quote from @Mason Liu:

Hey Jay, congrats on all that built up equity! Would need a bit more information on your current income, savings and investment rate, what you'd do with the sale proceeds if you sold, if you have the ability to purchase another property without selling this one, what is the potential return on investment of the next purchase or investment etc...

If you are confident in that sub market's potential to grow and appreciate in the mid to long term, I'm leaning more towards keeping it, at least for now. You're cash flowing pretty decently and the tenant is paying down the mortgage (I'm assuming there is a mortgage) while you enjoy the appreciation and tax benefits associated. As long as you save that extra cash flow towards CAPEX/maintenance items that will come up in the future, you should be fine.

Thanks so much for your feedback. That’s what I’ve been thinking as well. Not really sure if it would be worthwhile to use the proceeds for a multi family property, I guess that was more of my question. 

I feel confident in the ATX market though it’s been rough the last year. I got in at a great time and still think the ceiling is high on the home. Just a question of 1 door for $700/mo and the appreciation of 1 home vs. using the proceeds from the house to go into a multi family or storage facility to have greater potential.

@Jay Dotson A couple things to think about.  Give more in-depth thought about your goal and Why.  The Why is important and will keep you focused on your goal of financial independence.  The Goal and Why will also lead you in your decision making.

Now:  Pros and cons look at your current situation.

Pros

160k equity in current property!!!!

3% loan!!!!!!

Property is turnkey and rented!

Cash flowing $700 monthly 

Your comfortable with property and is keenly aware of property and tenant issues.

Now before i go into the Cons about this property, I want to interject a thought.

Let's say you did not have this current property but you had 160 cash to invest in property.  If that was the case would you buy the current property for an investment.  You see, since it was your primary residence you probably had a different goal in mind when you bought it.  Although an easy transition from primary residence to investment property conversion, it usually is not the most effective pathway to financial independence.  However, it usually is the easiest pathway.

Cons: These are more items for thoughts because I personally don't know thoroughly know your situation. 

SFH usually is less profitable than a small multi-family property (duplex, triplex, four plex)

Re-deploying 160k could net you multiple properties vs your one SFH.

So here is the bottom line, Yes selling could very well move you faster on the timeline to becoming financially independent, but will mean more work and possibly stepping further out of your comfort zone compared to where you are now. If you have the time and energy to make that move then I would do it.  Your tax free gain will compensate for having to acquire a new loan at a higher interest rate.  

I am 68  and financially independent.  I don't have the interest to increase my portfolio.  I would stay put or sell and put the money in assets that don't have as many moving parts as rental real estate.  However, if I was younger and not financially independent, then yes I would seriously consider selling and re-deploying the equity and i would change property type to small multi-family.  But again, I don't know your desires, energy effort, goal or why.  Good luck and cheers!