Should I hold or should I sell my house to get started?

Question

Hi All,

I am struggling with a question on whether to sell my primary residence or hold it as a rental in order to start investing and could use some insight from more experienced investors. The back story is I live in a very hot town that is a high tech hot spot.  Burlington, a town outside Boston,  is building a lot of infrastructure and amenities which are attracting high income tech residents and the property values have been rising accordingly. A 4 bedroom 2 bath home sells for roughly 575-600K and in the neighboring towns the same house can go for 750-850K so there is room for the house to gain more value.  The rental income for a house like this is approximately 2700 a month which would give me about 500 a month in cash flow after running the numbers on the rental calculator based on my current mortgage.

If I sell I should clear about 200K. If I hold and pull a HE I'll get about 80K after paying off some other debts.  We need to make a decision rather soon as we are moving to another state for a new job in the next 6 weeks.

My question is does it make sense to hold a single family in a market that the rentals are low compared to the sell price and focus on the long term value increasing or should I sell and have a clean start in a new state?

Any advice would be very appreciated.  Thanks

Lien Vuong · Answer

Hi Alison,

I think this is a fairly common conundrum that you're in with anyone who owns property in a growing market and has a sizable equity stance. With that being said, I think it ultimately has to do with what your intentions are with your short and longterm goals for the property. Do you need the additional funds from the proceeds of the property to purchase your next home? What would you do with the funds with you were to cash out $200k on your home? Do you have the right network here to manage your property while you're remote?

If it were me, someone who is motivated in a buy and hold strategy, I would decide to keep the property which has many benefits such as growing equity, monthly cash flow, HELOC opportunity, tax benefits as a real estate investor (expenses and depreciations on home), and some others. In my opinion, keeping the home and getting that HELOC out would allow you to have a future asset which an increasing rental market (more potential cash flow), give you funds to proceed on your next deal and invest, and the diversification in your portfolio to shield you from some market risks.

I think that it would be really important for you to consult with a RE professional to evaluate the true price of your property to make sure that your numbers are correct as well as partner with a rental and property manager to know that your asset is well protected. Please let me know if your need any council in this.

Hope this helps you to weigh your options and best of luck!

Alison Crawford · Answer

Thanks Blake. This would be a long term hold for sure.  We spoke up a friend who is a money manager and his thought was holding the property gives options as well as diversifies our portfolio. His advice was even at a break even rate the option is worth something so we're going to ride it out. Then we can pull a heloc to buy a new multifamily in Florida. Thanks for your input!

Alison Crawford · Answer

Thanks Blake. This would be a long term hold for sure.  We spoke up a friend who is a money manager and his thought was holding the property also gives options as well as diversifies our portfolio. His advice was even at a break even rate the option is worth something so we're going to ride it out. Thanks for your input!

Blake Denman · Answer

Hey @Alison Crawford - If you can clear $200,000 by selling it, and can earn $6,000 a year renting it, you're technically getting a 3% return on your equity.  That return on equity isn't too great.

However, the upside is there, so the decision kind of depends on your long-term strategy.  Do you want to build up a big portfolio, or build up a lot of 0's at the end of your bank account?

Because it's hard to find much that will cashflow in the area (and because I'm bullish on the area overall), as a buy and hold investor I'd probably keep it, and get a HELOC to hopefully fund another deal with.

Alison Crawford · Answer

Thank you for your very insightful advice Cassi.  We had been including appreciation as a major driving factor.  Home values in sw florida are a fraction they are here so it's good food for thought.  Thanks again for your advice!

Cassi Justiz · Answer

I would look at what you would be able to do with that money in the state that you are moving to. There are a lot of places in the country where you could get $500/month cash flow with a portion of that equity. Does your $500/month cash flow include budgeting for maintenance/repairs or property management?

It would take a long time at $500/month to make up for the $200,000 in equity that you could re-invest into a lower cost of living area. Also, if the market changes or corrects the home values could stagnate or decline, so I wouldn't count on appreciation as a factor in your decision.