Keep or sell?

[Keegan Darby]

Hi BP, 

I have a property that I’ve been holding for 5 years. It’s on a 30-year mortgage with ~$130k remaining at a 5.25% interest rate. 

my monthly mortgage + expenses = 1,350/month and I bring in $2,800/month in rental income. Leaving me about a 10% ROE. 

I could sell the property and net $170k and then reinvest that and earn 9% interest annually via lending hard money. 

Given these numbers and solely financially speaking, should I sell or hold the property? I don’t need the cash, but would it make more sense to cash out on the equity and invest that? 

The area is class C and I don’t expect much appreciation. 

[Tim Delaney]

Lending money at 9% seems a bit riskier than making 10% ROE on a property you have owned for 5 years and know well at this point. With $170k to deploy you most likely will have that all in one, maybe two deals, if it doesn’t go well you could end up way worse off.

That said, if there are other factors like the property is a huge pain to manage or you are worried the neighborhood may actually get worse or you know you need a new roof in a couple years, then I’d consider selling.

Also, even though you said it’s not a high appreciating area, do you think 1-2% is fair? That amount and the debt pay down that your tenants are making for you should also be added to cash flow for your ROE calculation. That would put it up to 13-15% roughly.