Hello friends! I'm just getting started in my real estate investing career and I'm at a fork in the road. I own a townhome and I'm trying to decide if I should make it a rental or sell it. I've been reading these forums for years so I know this is the best place on Earth to go to for advice. You guys and gals are insanely smart. Property details: 2/2.5 Townhome. Desirable community. Well funded HOA. It's my current homestead (first home! and the only property I own)Equity: ~50k (Market value 135k. I owe 82k.)PITI + HOA fees: $800/month Rental potential: $1250/monthMarket: Tampa, FL My newbie fork in the road.. Keep my townhome: Make it my first rental property. It will cashflow about $400/month (after I move out and lose my homestead exemption). Seems like solid solid cash flow to me (12-13% cap rate), but it also seems like all the wise investors steer clear of townhomes and condos. Sell my townhome: Take my 50k and sit on the sidelines for a year or two while the Tampa market gets softer. It seems like we've peaked in affordability and we're starting to see a lot of price drops in the MLS. Yay buyers market!!. I could also take my 50k starting BRRRR-ing. My thought process: The market has peaked (presumably). Prices will decline (presumably). Buy low sell hight right? I've lived in it for 2 of the last 5 years so I won't pay capital gains and I don't have to hurry into a new property via 1031 exchange. I've been obsessively digesting every real estate market headline, analysis chart, market outlook, and Case-Schiller index the internet can feed me and it seems certain that we're exiting the expansion phase of the real estate cycle. Maybe its the rookie in me, but heading into this phase of the real estate cycle with a bunch of cash to play with seems really appealing. But Jason, where would you live if you sold your property? Well I'm young(ish), single, heavily motivated by the bottom line, thrifty, and a hyper-frugal minimalist. Sooo... an Airstream of course! In fact I may enjoy it more than my townhome. It's like full time camping. It seems like Im in a win-win situation, but I'd like to know what YOU would do and WHY? I think I have a lot to learn for your experience and wisdom in analyzing my situation. My goal with investing in real estate (because I know you'll ask): 2-4years: aquire 7-10 rental homes cashflowing $3000-3500/month. Then make the leap and leave my career forever! [Financialy Independence] 4-7years - aquire a few more rentals and start doing some flips (becasue I really do love everything about it and Im like the perfect blend of Chip and Joanna Gaines. I grew up doing cabinetry and all types of home renovations)Thanks a ton,Jason

@Grant Rothenburger I agree. I already own it... through a renter in it and call it rental number 1! What I’ve been trying to dig into is weather or not in makes sense to sell this and buy a SFH if I can get the cash flow the same. I can’t recall the exact episodes and people that have said they avoid condos and townhomes, but I have definitely hear it twice in the past 2 weeks on the podcast. HELOC is looking pretty appetizing at the rates I was quoted though! Thanks

@Steve Vaughan thanks for the heloc suggestion. I contacted my mortgaging bank and I can borrow up to 90% of equity for 5.9% (and lower rate if I borrow less equity). That gives me access to the equity I was thinking about cashing out on pretty affordably (especially since I’ll be brrrr-ing and paying it off if 6month). This is why I came here to crowdsource some knowledge! Current mortgage rate is 3.75% so yes I definitely would losing when I got a mortgage on something else. I did mention tax ramifications, but they were buried deep in my novel up there. In Florida, I’ll pay a 15% capital gains if I sell it and haven’t lived in it for 2 of the previous 5 years. So if I don’t sell it now I’m holding it long term, because I think I’m 35 months from now I’ll be selling it at lower than I could now. We shall see! My biggest concern was deciding to hold a townhome in my portfolio long term. It seems like guests on the BP podcast are always saying “I never ever buy condos and townhomes for buy and hold properties”. All for very valid reasons (less appreciation upside, rents closely tied to the apartment market, HOA boards, etc).

@Jason Yamnitz $400 a month is not a bad thing. It all goes back to your goals, and it all goes back to how much equity you have producing that $4800 annually. If you have $50,000 in equity producing $4800 annually, I would leave well enough alone and not sell. If you have $250,000 in equity producing $4800 in cash flow, I would sell and re-deploy the capital.

@Jason Yamnitz Apologies if this is a repeat of another comment, I didn't have time to read through all of them. But my advice is to sell it. I don't mess with anything that has HOA fees (not only is it a big expense but they often have all kinds of other rules about refinancing, tenants, etc that can be a hassle). I also think your cashflow estimate is very generous. You're counting only the HOA and the PITI, not vacancy or maintenance assumptions, not any upfront rehab costs. Even just counting very basic vacancy and maintenance assumptions I think you'll find your take home is a lot smaller.Also, you may need to take a tougher look at the property (again sorry if this is just doubling up on someone else's comment). Many folks tend to be too generous when looking at their own homes - we overlook things that a tenant or a buyer would not. Look at it like you're considering investing in it - how old are the big-ticket items, what's the condition and age of the flooring, roofing, etc. How much money would you need to put into it to make it really tenant-ready in a way that competes with other rentals in your area at that price point? If you have $50k in equity, you could wait a bit if you want to stick to your home market. You could leverage it into a few props in a cheaper market (Turnkey or build a team of your own). I would NOT recommend trying to get into something that costs less than $50k just because it's what you can afford right now. Even in cheaper markets, you'll be dipping your toe into a class of property that typically has a lot more tenant issues, vacancy, evictions, move out costs, and general headache. Either wait until you have more cash or leverage your $50k to get something in a B/B+ area with a more stable tenant base.Good luck!

Let me know if you figure out who said it on what episodes. Curious the explanation of no Condos/townhomes. My best guess is HOA's being expensive and a PITA.

@Jason Yamnitz, you've got so much knowledge and research under your belt, but I reckon you are potentially leaning too far towards agreeing with generic comments you hear from multiple (sometimes contradictory) sources.By the way, can you answer my earlier question/s: "given that you're a 'single, heavily motivated by the bottom line, thrifty, and a hyper-frugal minimalist', can I ask: how much in savings do you have?ie. You should have saved a lot over the last 5 years, given that it seems you've also rented out your town home for much of the time?ie. You shouldn't need the extra $50k now in order to keep investing, right?"Ultimately, it's you who'll decide (and later take the blame/thanks).Us BP "crowdsource" can only point out so much, which you've been able to show you're already on top of. Seems to me you could be giving us advice!Having said that, one point that often comes up is: Would you buy your primary now, as a pure investment (taking cash flow and future appreciation into account - given where we are in the RE cycle)?Usually, for folk who have now gained better investment knowledge than they had when they first bought their primary, the answer is: no. ie. They might best be served by selling (and in future, buying primaries just based on investment wisdom).I suspect that you fit into that "usual" category. Good luck...

@Jason YamnitzI've been day trading for 7 years. I see all the things about a looming downturn you're talking about. I agree that a downturn is going to happen. As of September 2018, my plan was to sit on the sidelines and wait for the real estate market to sell off and then start buying. But at the end of this October I found bigger pockets. I've listened to about 45 podcasts and read 6 books in addition to articles and local real estate meetings I've attended. What all the information I've gathering attempting to "time" a market is not a great idea. In addition, analyzing, making offers, developing your team, closing, and managing properties are all skill sets that get developed and become better over time. If you hold back on the sidelines, you won't continue to develop those skill-sets. Of course that doesn't mean you buy any bad deals, but maybe buy properties that have multiple exit strategies. One of the biggest problems that investors put themselves in is they were over-leveraged when the 2007 crash happened. If you buy one rental and there is a crash similar to 2007, will you have enough reserves to outlast the downturn?. My guess is yes, I don't think a lot of people are making that mistake again.In addition to the advice I'm giving, just as an fyi, I just got an offer accepted for my first full time investment property. Just a straight rental. I also live in Florida, but closer to Miami, and have found that I can not successfully use the strategies I want to to invest in property down here. I'm going to be doing my first BRRR property sometime by February.Chad

@Chad Kastel see above ^ I haven’t figure out @ mentioning someone on desktop yet.

@Chad KastelI paid 83k. I used a first time home buyer program which gave me 10k down payment assistance at 0% interest for the life of the loan. I just pay the 10k back at the next closing. There’s 72k left on the note.I am reasonable convinced my market will sell off in the next few years. Obviously we can predict the future, but the price of homes in Tampa are close to double what they were in 2012-2013. We’re transitioning to a buyers market. Interest rates are rising. The stock market is nearing the end of the longest bull market ever. Recession is looming. Soooo... we can't predict the future, but we can learn from the past and make wise bets based probabilities.What's your opinion on a looming real estate marketing "crash"? Maybe its because Im young and I've only lived through one real estate cycle (as an adult) and that cycle happened to be quite dramatic, but it just feels like buying now would be like buying in 2005. I know all markets are different, but broadly speaking. Brrrr-ing is the only thing that feels safe right now since I'll have a ~30% equity cushion.

Ha, you are a rare breed. I migrated from Michigan.

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Jason YamnitzPoster

Tampa, FL

Starting Out

Sell my townhome for "brrrr" cash OR make it my first rental???

Jason YamnitzPoster

Tampa, FL

Posted December 10, 2018 21:08

Hello friends! I'm just getting started in my real estate investing career and I'm at a fork in the road. I own a townhome and I'm trying to decide if I should make it a rental or sell it. I've been reading these forums for years so I know this is the best place on Earth to go to for advice. You guys and gals are insanely smart.

Property details: 2/2.5 Townhome. Desirable community. Well funded HOA. It's my current homestead (first home! and the only property I own)
Equity: ~50k (Market value 135k. I owe 82k.)
PITI + HOA fees: $800/month
Rental potential: $1250/month
Market: Tampa, FL

My newbie fork in the road..

Keep my townhome: Make it my first rental property. It will cashflow about $400/month (after I move out and lose my homestead exemption). Seems like solid solid cash flow to me (12-13% cap rate), but it also seems like all the wise investors steer clear of townhomes and condos.
Sell my townhome: Take my 50k and sit on the sidelines for a year or two while the Tampa market gets softer. It seems like we've peaked in affordability and we're starting to see a lot of price drops in the MLS. Yay buyers market!!. I could also take my 50k starting BRRRR-ing.
My thought process: The market has peaked (presumably). Prices will decline (presumably). Buy low sell hight right? I've lived in it for 2 of the last 5 years so I won't pay capital gains and I don't have to hurry into a new property via 1031 exchange. I've been obsessively digesting every real estate market headline, analysis chart, market outlook, and Case-Schiller index the internet can feed me and it seems certain that we're exiting the expansion phase of the real estate cycle. Maybe its the rookie in me, but heading into this phase of the real estate cycle with a bunch of cash to play with seems really appealing. But Jason, where would you live if you sold your property? Well I'm young(ish), single, heavily motivated by the bottom line, thrifty, and a hyper-frugal minimalist. Sooo... an Airstream of course! In fact I may enjoy it more than my townhome. It's like full time camping.

It seems like Im in a win-win situation, but I'd like to know what YOU would do and WHY? I think I have a lot to learn for your experience and wisdom in analyzing my situation.

My goal with investing in real estate (because I know you'll ask):
2-4years: aquire 7-10 rental homes cashflowing $3000-3500/month. Then make the leap and leave my career forever! [Financialy Independence]
4-7years - aquire a few more rentals and start doing some flips (becasue I really do love everything about it and Im like the perfect blend of Chip and Joanna Gaines. I grew up doing cabinetry and all types of home renovations)

Thanks a ton,
Jason

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