Rent out my property or sell it?

Question

Hey guy! This is my first post so bare with me as I am new to this. So I have a property in Delray Beach Florida that my wife and I currently live at. We live exactly one mile from the beach, trader Joe's and a bunch of other stores in the surrounding area, gym, Michael's, new whole foods ECT that we can walk too... We only owe $135k our Morgage is $1350 including $125 HOA. We are moving to Minnesota and we have two options... Sell for $335k and get around $190k net profit and use that to invest in MN (house hack a duplex, buy another single fam,Reno and rent out) or refinance it get $75 and use that to invest in MN and rent out my place in Florida...rent in my neighborhood is going for $2250 maybe I'm doing the formula wrong but the cap rate seems low...maybe $700 a month extra after expenses. Any tips?

Tim Swierczek · Answer

@Victor Bradford unless there is a reason to believe there will be a crazy appreciation in your FL property in the next year or two I would sell. 190K is a lot of untapped equity. As I have learned more about investing I realize that most investors are poor managers of equity.

PS-I live and invest in MN, PM me if you would like to network

Ola Dantis · Answer

Hey @Victor Bradford, welcome to BP!

Personally, I will do both. Take the 75k with you to MN and leverage that using FHA to buy the largest unit count (4plex preferably) MF building you can find there in MN. Since you are moving to another state you should be able to use FHA again.

As for the FL property, I'm assuming it is an SFR, so when you secure that $2250/month tenant, make sure you get a tenant to sign a 2-year lease so that you have to worry about turn over anytime soon and keep a robust escrow in case the tenant moves out. You can definitely make the out-of-state management work, especially for a property you know since you lived there.

You get the best of both worlds!

Now, if you didn't need to pull out any equity from the FL property, then that could have been ideal because your cash flow from the property would really help to either pay down the principal quicker or subsidize your income in MN. A $335k property with a 135k mortgage is worth paying down or paying off if it is possible for you.

Hope it works out for you and your wife. Good luck...

Eric Martel · Answer

I calculate the return on equity of alternative investments and pick the investment with the highest return. If 700/mo is your net cashflow after opex, financing, etc. then the return on your 200k in equity is about 4%. can you reposition that 200K to achieve a higher return? It could include maxing out on  the mortgage in FL and use the proceeds for an alternative investment, getting a HELOC, or selling.

Shaun Weekes · Answer

If you did a cash out refinance at 70% your new loan amount would be approximately 234,500.  If closing costs are about 5k you'll have roughly 94.5K in the bank 30 days from now.  I don't know where in MN you're moving to and I don't know the market out there but if you can do an FHA loan on a 4 plex that's worth 400K you're down payment will be around 14K.  If you can find one that cash flows now your mortgage is being paid for and you're making cash off of that investment.  Now you sill have 80K to play with.  You can buy another 4 plex in MN for that same price point and have 7 units that are income producing that you can manage since it's close buy.  Or you can have someone else manage depending on your business plan.

Finally I wouldn't rent a home that's 1 mile from the beach in Florida monthly.  If you can get 2.2K for this place then I would do the research as to what you can get weekly with doing an Air bnb type deal.  If it's $750 a week with a 25% vacancy factor you're looking at 2.6K per month over a 52 week period.

Now you have 3 properties that are all cash flowing and a vacation spot 2 weeks out of the year.  I grew up in Toronto and the winter out that way is no joke.  You'll be happy to see Florida with your wife 2 weeks every year!  Make sure you pay the weekly fee as well.

One thing that will make a HUGE difference is that you mentioned you had an HOA.  Make sure that the HOA has 50% or more owner occupants than renters or the condo/townhouse/PUD will be non warrantable.  This will take Fannie and Freddie financing out of the picture and you'll have to look for a non qm lender.  If you go the Air bnb route you should still cash flow but the profit will be lower.

Just my 2 cents.

Sam Shueh · Answer

If you are not returning to Florida I suggest you cash out your equity and do something in Minnesota.

Trin Nagireddy · Answer

@Victor Bradford : l lived in Minnesota (maple grove) for 8 years and moved to Atlanta last year. I still have my property there ( built in 2012. 4bed 3.5 bath ) town home , it worth around 310k.. awesome location, walkable to over 30 restaurants , library , Central Park , gym, cub foods) let me know if you any idea to swap..we can talk..PM me.

Thanks

Trin

Victor Bradford · Answer

Thanks guys, that's what I initially thought of Eric! If my place is only giving me around 4% I could just sell it and get a different place in MN for less with a higher return. I've seen some duplex go for 180k mind you it might need a little TLC, and probably not the best neighborhood but they rent out close to $3000 for both units minus exps and morgage easily get around $1400 back a month as appose to $700 in Florida...

Jeff Kao · Answer

@Tim Swierczek

I thought your statement, "most investors are poor managers of equity" was interesting. Do you have a few examples? Thanks in advance for your reply.

Theresa Harris · Answer

@Victor Bradford  Does the mortgage include property taxes?  You also need to factor in vacancies, insurance, repairs, maintenance and management.  Given how much equity you have in the property and that if you sell it now vs 5 years down the road, the tax implications are different; I'd sell it and use it to buy either another single family rental (in addition to your primary residence) or a duplex in Minnesota.

Victor Bradford · Answer

Wow! I didn't expect feed back this quickly lol thank you guys! So yes it does include taxes and I subtracted 15% for expenses, capex, and vacancy to total 15%.

we just got a new roof, new wh, and ac just got an overhaul maintenance on it so it's all good...I have my mentor doing property management and I trust him.

Rent out my property or sell it?

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