Running the numbers again on my vacant property... Still Confused

[Mike Lynch]

Hi,

I have been sitting here running the numbers again for the 4th time and I'm still confused.

Years ago, we took out a mortgage to buy a home for $107,000. We owe $39,000 on it now. Our interest rate is 3.6%. The sale price estimate today is around $250,000 maybe. Since we lived in it 2 of the last 5 years, we would not have to pay around $25,000 of Capital Gains Tax.

I have been making repairs to it, new shingles were $8,500. New appliances were $5000.00, but it will need new windows and HVAC unit pretty soon as they are timed out. ( $ 20,000 )

Monthly Rents in this area for a 1,385 sq. ft. home is around $1000.00 to maybe $1500.00 per month.

Yes, I could sell it and put 20% down and maybe get DSCR loans to buy more properties, but there is no inventory. Junk homes are listed for $90,000. Decent double wide mobile homes with land are selling for $180,000, which means I would have to try and get $1,500 to $1,800 rent each month for a mobile home and I think that would be very hard to do here. Decent 3 / 2 homes here are selling for $350,000 plus, and it would be very hard to get $3,000.00 plus rent here unless it is a beach rental or VRBO. Homes near the beach are now over $500,000. Homes on the beach are $800,000 plus.

So, my home has been sitting and waiting empty for months as I can't figure out what to do. If I don't sell soon, I will have to pay capital gains. So, if I sell and put down 20% buy more properties, I am worried that the homes cost so much that people are not going to be able to pay the high rents. They might only be able to pay half of what I need them to pay.

What do I do? ..... I feel like I am between a rock and a hard place. What am I missing?

[Greg Scott]

Fortunately, you are not between a rock and a hard place.  You have two good options in front of you and one bad one, and you are just letting fear get in your way.  Fear is costing you time and money.  In any event, if you don't make a decision, one of the two good options will be eliminated.  I just hope that you wont let fear push you to select the worst possible option.

My take...

Option 1)  Sell now.  Avoid the capital gains.  Pocket $200K and you now can search for a rental.  Yes, the market is tight.  Yes, prices are high.  Yes, there isn't much inventory.....right now.  Things will change.  Just keep looking and you will find something.  Good deals are out there now.  The rise in interest rates is already cooling the market.  I predict you will see a lot more opportunities in just a few months.

Option 2) Turn your property into a rental.  Do a cash out refi to pay for the upgrades and turn it into a rental. Yes, you lose the $25K capital gains deduction, but if the price in a few years has gone up $50K or more, you won't care.  Based on the numbers you shared, it looks like it will have positive cashflow which is also great.

Option 3) The only bad option is to continue stalling, then getting cold feet and sell anyway.  That will cost you $25K with no upside.

Don't let fear beat you.  Make a decision and take action.