Sell before it hits the fan?

Question

I purchased a SFR near a military base in Georgia. Purchased it for 90k and put 6k to bring it up to snuff and comps are funny due to its sqft (1251). I was told by the realtor that I may have an ARV of 120-130k. Comps for the sqft are just barely above 90k but they are old, beat up homes or even mobile homes. This house was built in 2010 in a new subdivision near the base and new construction is popping up through my town. With this all in mind, here lays the problem.

1) The government is drawing down on it's Department of Defense personnel numbers meaning jobs cuts for the next 6-10 years. A "worst case scenario" report was published last week claiming a potential 3/4 cut in personnel at this base meaning less jobs, less military rentals and possibly tanking in that market which evolves around the military. Worst case is very slim but even it it were to cut jobs by 20%, wouldn't that still wreck the market there?

2) After bringing this article up to my realtor, she adds that their is rumor that FEMA might turn the area into a flood zone. She told the builder of that subdivision this and he claims that they are full of it and he has engineering specs showing that the homes were built higher than the "flood prone" level.

With this all being said, I may be jumping the gun, but do not like the week I just had hearing this news. I have served in 2 war zones to save money and would be crushed if it was flushed down the drain. I have an excellent tenant and draw double of my mortgage (1/3 down payment). I wish to continue investing mainly in long term rentals and this news doesn't seems like a good foot in the door. What do you guys/gals think? I love this site and value all opinions…..Thank you!

Elizabeth Colegrove · Answer

My husband is also active duty military. We are increasing our presence near Nas Lemoore because the numbers are only making more and more sense. I would take a deep breath and wake a couple of weeks. Buying is scary but the key is to hold on during the storms but to also let go. I don't know your area so I can't speak to it. I would definitely do some research before you "dump" the house.

Joe G. · Answer

@Rich Cee

A few questions for you to consider if have not already;

-what would you do with the money if you sell?  Do you have another plan to purchase or pay off some debt?  I would ask where would you be getting a higher return on your money (newly identified project/pay off debt OR with current project and maybe a slightly higher vacancy rate)

-are you able to lower your rate and still cash flow?  If the area is drawing down you could remain, with slightly less cash flow.  A good tenant is a good thing and keeping one is easier than finding a new one.  What is the tenant's job?  Is it at risk?  What is the length of the current lease?

-what base in GA?  I can give you my assessment on it if you would like.

Good success with your decision, please keep the forum posted about what you do…at least I am curious.

Jeff S. · Answer

I'd be selling. Growth is what makes the financial world go around. Without it everything dies.

David Krulac · Answer

@Rich Cee

The difference between Long Term Capital Gains and Short Term (Ordinary Income rates) is holding the property for at least 1 year and 1 day.  Hang in there for at least that.

FEMA flood lines are being re-drawn everywhere and Flood Insurance rates under Waters Act, even with recent mitigation legislation will be increasing in the future until the program is self sufficient.

Talk to the builder see what he has to say about flood zone.  Check with FEMA, see what they have to say.  Don't rely on second hand info, go to the source of the info.

Re:  BRAC, if all the flood research you do is favorable, then do some DOD research.  How have past draw downs affected the GA base?  What other bases do the same work?  what are population growth or decline in the area?  Are there new industries coming into the area?

Don't rush into a decision based on hearsay, do your own research and operate from a point of knowledge.

Rich Cee · Answer

@Philip Williams It is cash flowing well and that one of the reasons I have to keep it for at least the 1 year/ 1 day as @David Krulac  suggests. @Joe G. , I was wanting to reinvest over in Thurston or Pierce County if the right deal was found and the tenant is in the Air Force. Most of my prospective tenants will be military. I do not have any debt except for the small mortgage on the GA home. @Jeff  S.

@Jeff  S. undefined I appreciate your outlook on growth. This BRAC will not happen over night so I will hold on to the home until the present lease is up in April 2015, then assess that market and decide whether to continue investing in that area or not.

Thank you everyone for your input. I will hold on to it until the end of the present lease  which puts me past the 1 year/1 day tax, then assess after.

Rich Cee · Answer

PS: I purchased the home in Feb. 2014. What penalties are there if any for selling so soon if any? If I buy another property will I be pardoned? My loan is not through FHA which I've read you must sell 90 days after purchase to avoid "flipping" tax although I may be off due to my knowledge scope. Thank you again!

Sell before it hits the fan?

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