Rental/AIRBNB on a 30yr 3.3% should I sell?

Question

Looking for insight.

New Investor. I had a house fire in the middle of covid to my primary residence. I needed a place for my family to live while primary was being rebuilt. I decided to purchase a single family 3/1 which I would rent once I was back in my primary. I was able to get a 30yr 3.3% mortgage with 5%down.

Its now been 5 months since I converted it to an Airbnb. It currently cash flows around $400mo including a 12% Mgmt fee I pay to a superhost.

If I self managed It would cashflow around $750mo.

I owe 181k on the mortgage and the house is comped at 250k currently.

I was dead set on selling as of an hour ago but had an idea about potentially partnering up on it. The partner would be able to get into an investment at a 3.3% rate. I would be able to get some sort of cash down in the agreement to free up some capital to buy another property.

Is this even possible? How would I go about figuring out this deal?

Sorry if this doesnt make sense. I just hate to get rid of a 30yr 3.3% with little money invested but taking home 50k on the sale will open up alot of opportunity for investment.

Basit Siddiqi · Answer

I would personally keep the property if you are able to get $400 a month doing nothing.$400 x 12 = $4,800It looks like your equity in the house is $70,000 which is $250,000 FMV less $180,000 loan balance.$4,800 / $70,000 = 6.8%Factor in appreciation of 3% or 4% and you are looking at a about a 10% or 11% return.This is assuming the $400 assumes cap ex / repair.if it doesn't, I would consider selling it.

Jonathan Schilling · Answer

Purchase price was 199k I owe 181k current comp is 250-264k. I lived in it for 2yrs. It would be tax free.

Your comment is almost word for word what my banker friend said.

Bill B. · Answer

If you lived in 2 years I would sell instantly, $400/mo just isn’t worth the work. You didn’t say what you paid for it and maybe there’s no capital gain after the selling costs anyway, but this your once chance to take the money tax free if you did live in it for 2 years.

You have $70k tied up there and you can make about $300/mo by putting it in the bank, doing STR to make $100/mo is a waste of your effort.  OTH, if you didn’t manage to live there 2 years you might not walk with enough to make selling worth it. Would your superhost buy it from you?

TLDR: I might keep a LTR that cash flowed $400/mo with a PM IF I couldn’t sell tax free, but not a STR. Good luck with whatever you decide.

Peter W. · Answer

A couple of questions (rhetorical)

Are you interested in using real estate as one of your primary investment vehicles?

How much work is the air bnb to you? How much stress does it generate. How much time do you have to handle the work it generates? How much emotional capacity do you have to manage the stress?

What are your expected returns if you hold?

What is the expected return (not necessarily only monetarily) of what you will do with the money if you sell.

My initial thought if you didn’t want to be in the REgame long term is to sell in 2 years. You still have high leverage which means your 70k in equity generates ~25% returns over the next two years assuming moderate appreciate (~5%) approximately 7% in cash flow and 17% in gained equity (mortgage pay down and appreciation). That way you can take advantage of tax free capital gains and get another year or two of outsized gains before switching to something more passive. But it really depends on the answers to the above questions. Of course if your ac goes it could end up wiping much of those gains.

Shiloh Lundahl · Answer

@Jonathan Schilling don’t sell the property. Do a declining lease option. You will get a much higher return doing this than you would by selling. Search YouTube for a video called “The Declining Lease Option is a Great Strategy Right Now in Real Estate.”

Logan Laperriere · Answer

If you sell would you make a greater rate of return on another property?

Have you considered keeping the property and taking out a HELOC to purchase another property? This may be your best option if you are looking to build your portfolio.

Nathan Harden · Answer

KEEEEEP.

Will it cash flow as a LTR? Look into a HELOC on that property if you want more capital but don't want to refi.

Here's the thing. What are you going to do with that extra $50k?      Invest it.

What if you refinanced before the end of the year (Hopefully rates get down to the mid 5s). Take a hit on the monthly payment, but you make up for the extra monthly payment by self managing to save yourself that management fee.

This could be the best of both worlds. Yes you have a higher mortgage payment. But you helped offset the majority of the cashflow difference by firing your manager and self managing. THEN you're cooking with peanut oil.

You will have one stable cashflowing property and capital for your next investment.

Jonathan Schilling · Answer

Bill, Thank you for your knowledge and insight!

Bill B. · Answer

Pay the $20k give or take to sell and walk with $60k in cash and a $40k tax free profit. That’s 100 months of income before considering the tax implications. Pretend you got paid $20k a year to live in the house, well done.

Rental/AIRBNB on a 30yr 3.3% should I sell?

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