Should I Hold or Sell? Here is the quick breakdown.

Question

I bought a SFH in 2011 in the Sacramento (Antelope) area rehabbed it and have it rented. I owe $162K and can sell for $350K and still exempt myself from the gains. The PITI is $1,004 with a 30 year @ 3.62%, it is currently rented for $1,495 (A bit under market but have excellent tenants). It was built in 1998 and has been rehabbed so I do not anticipate any major repairs, I have a home warranty in case the HVAC goes.

I am a real estate broker and plan on expanding my rental portfolio over the next 10 years and in my opinion this is an excellent rental to have in the portfolio. However, I am considering selling along with my now wife's house to put +$250K down on a primary residence. Now is the time to sell so we can both exempt our gains and get setup in a "dreamish" house with a low mortgage payment and rate. But it has been such a good rental so far and it is my escape plan if things ever go bad because we can afford a $1000 mortgage no problem.

So should I sell to have a large down for a new primary? Or just sell the wife's house (Net $60,000) and put the $60K along with saved money for a modest new primary? Thanks for advice in advance!

Gordon Cuffe · Answer

@Robert wa

@Robert WalmsleyIf you truly don't have to pay taxes then you could always take the 176k and pay 10 homes in cities like St Louis and Kansas City, etc at 70k each that rent for at least $800.0 to $850.0 each. You will net $3000.0 per month in positive cash flow. You can then take that $3000.0 per month and make extra payments on one house to pay it off within 18 months. You can keep repeating that to pay off every house within 12 years. In the meantime while you own extra homes free and clear you can take out equity lines and buy homes undervalued in any city that you choose to fix n flip or buy then rehab, refi, and keep as another rental. In 12 years you will own 10 homes free and clear worth at least 750k. You can then buy a apartment building with a 10% cap rate. You will still own other rental properties also. Then start traveling the world and have some fun.

Derek Jones · Answer

My vote goes to keeping it. You bought at a great time and I don't see another opportunity like that happening any time soon. Plus homes I'm seeing now don't come close to those numbers unless you are putting ~40%+ as a down payment.

David Hutson · Answer

I would keep it and sell the wife's home. You stated you want to build a portfolio and it sounds like this is a good home to start the portfolio. obviously we don't have all of the info but it sounds solid.

if you really want to build then keep this until your goals or something else changes then do a 1031 exchange so that you won't need to pay a large tax bill.

Account Closed · Answer

Hi Robert,

I have a similar situation in Sacramento, with my primary residence having a strong equity position much like your rental. I would definitely hold onto your property. You said it yourself; good tenants, appreciation/debt pay down, a bit of cashflow, and low maintenance. It has the characteristics of a property I would gladly hold for 20 years longer.

This question isn't really an investment one, though. If you and your wife want your dream home now, that's a personal decision that comes down to your financial personality.

I personally, lean towards the frugal side. I prefer not to use earnings from assets to purchase "wants" because I have a long way to go with my investment goals. My Carmichael home is sitting at a comfortable 50% LTV after 3 years, and with friends renting rooms I haven't made a single payment. I plan to open up a big equity line of credit on it soon to use towards cash purchases out of state, rent rehab/rent/and refi so I can pay that line of credit right off. It would rent now for 1700, and my PITI is 1100. I'm never getting rid of this sucker! It's propelled me into a world of real estate options.

Robert Walmsley · Answer

Thanks Dave & Derek, I know what you mean with the numbers, it is impossible to find a deal near this now. I am just a bit anxious because there are some beautiful homes in Fair Oaks and Roseville right now in the 500s and 600s and liquidating to put +$250K down and lock up a new primary in the 3 or 4%s is tempting.

BUT... I guess one of the critical traits of an investor is the ability to hold and not get excited over the ups and downs.

James Gorman IV · Answer

The answer to " Should I hold or sell " needs to be analyzed carefully including a Net Present Value NPV or Net Present Worth NPW analysis that include offsets for taxes; (Capital Gains tax, AFA tax, RE fees, Depreciation recapture (if applicable), & related transaction costs; together with some consideration of the use of funds, inflation & loss of purchasing power of the US dollar. See if allowed by BP - www.jimgorman4.info.

Jeremy Dolan · Answer

Keep it, sell the other property. Hard to come by a home with such great numbers these days.

Franklin Romine · Answer

Keep it and sell the wife property. Owning investment property is much more interesting than buying a primary.

Frank

JD Martin · Answer

My general rule of thumb is to (reasonably) spend as little as possible on purchases that don't make money. If your consideration was to sell and buy something that was even better than what you have, I would probably do it - but you are looking for a "dream" house, which generally doesn't equate well into an income-producing asset, and you look young enough and lacking in funds enough that you might consider building your portfolio longer before going that route.

Should I Hold or Sell? Here is the quick breakdown.

Should I Hold or Sell? Here is the quick breakdown.

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