Should I sell?

Question

Hi all!

Love the forums, and the openess of everyone on here.

So, here's my situation.

I have a full time job, making $75k a year.  Rock solid job, good benefits, blah, blah.

I currently own 3 rentals.

Rental one:  A few miles from my house, bought in 2011 for $110k, put 20% down, rents out for $995 a month, netting $250 a month.  Refinanced it when the market took off, pulled $40k out, now currently owe $125k, rents for $1020 a month, netting me around $45 a month.  Currently worth $176k.

Rental two:  In another state, listed for $45k, bought for $40k.  Put $10k down plus closing costs, in September.  Tenant moved in on December 5th, first rental check will arrive first week of January.  Rents for $795 a month, netting $366 a month.

Rental three:  In another state, bought for $57k, put down $14,250 plus closing costs in November.  Tenant moving in next week, should get first check around mid January.  This place had much higher costs than I anticipated, so netting $142 a month.  This one was a learning experience of what questions to ask. :)

So, the question is:  Should I sell the first rental, take my roughly $50k, and buy 3-4 more places in the other state, and pull in significantly more rental income?  I don't anticipate these places growing in terms of value, just in raw monthly rental income.

Rental two was the gold standard for what I'm looking for, so I'm going to keep my eyes on that style of place, as well as rent vs. price ratios.

If I were to find another place like Rental Two, which there are lots of them around, I would be going from $45 a month, to around $1098 to $1464 a month.  Depending on if I get 3 rentals or 4.

Rental One will likely have growth of around 3-4% per year in property value.

Thanks everyone for your input!

Brad Boone · Answer

Keep your winners sell the losers

Travis Beehler · Answer

Hi Jerry,

I probably should have mentioned, I bought the first rental as a short sale in the absolute bottom of the market implosion here in 2011.  The only reason it went back up in value is because the market recovered.  Honestly, I don't think I'll see that kind of deal in my lifetime again, unless there's some kind of catastrophic market implosion again (Although seeing Congress screwing up lately with regards to laws passed recently, that may actually happen)

If rental one WAS gaining 20k a year, every year, then you bet, I'd keep it in a heart beat.  In the second market, appreciation will basically be nil.  I have no anticipation of there being much movement one way or the other.  This will be strictly what I can get out of it for monthly cash flow.

Also, I just bought rental 3, and because of the little things that have added up to it, I will likely jettison that one as soon as is feasible.  Thank you though for your thoughts!  I appreciate it!

Travis

Joe Villeneuve · Answer

REI is a lot like Poker.  Not because they are both gambling, but because the number one rule for both is the same..."stay in the game".

Poker:  How long are you going remain in the game, when you continue to throw money into a the pot of a losing/bad hand?  No matter how much you add to the pot, you're cards won't change.

REI:  How long are you going to remain in the game, when you throw more money into bad deals (negative cash flow)?  No matter how long you carry that property, the numbers won't change.

Travis Beehler · Answer

Hey Chris,

I think you're right.  I was leaning heavily towards selling, but wanted to make sure I was making the right choice. :)  Thanks!

Jerry W. · Answer

@Travis Beehler, I am not an expert but here is my take on it.  Your first rental has gone up in value $66K in three years.  Unless you expect the market to drop why sale a property gaining over 20K in value a year?  Are you going to make that kind of appreciation in the market where you bought rental two and three?  Next you have just bought your last 2 rentals in the last few months.  Why not let them run for a year and see how they perform before you put all of your eggs in one market?  Are you managing those yourself or using a property manager?  You are netting $250 per month on unit one but only $142 in unit three so why not look at getting rid of unit 3 instead?  Anyway good luck whichever way you go.

Chris L. · Answer

Travis,

My general rule of thumb is that I am always willing to well at the right price.  How do I determine the right price?  Let me put this another way, I sell when I have a better place to put my assets.

You have already done the cash flow and have determined that you can make a better return by selling #1 and reinvesting.

I think you have already answered your own question and just need a little nudge.

Good luck

Chris

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