Do I Sell or Rent A Property I own That Has Appreciated In Value?

[Joseph Castaneda]

Ok her is the situation. I purchased this single family home in North Miami Beach, FL five years ago for $120K (Cash no Mortgage) and immediately rented it to the previous owner for $1,500 per month (Aproximatley 10% return per year in cashflow). The tenant recently moved out and I have just invested another $30K in renovations to the home. So my total investment into it is $150K. The two options I'm debating between is: 1. Do I sell it for $280K and take the capital gains? 2. Put a tenant in there for $1,800 per month and do a 70% LTV cash out refinance which will give me money to buy another property and do it over and over again? I am more geared towards a buy and hold investment strategy with a few fix and flips thrown into the mix. I'm not looking for a ton of cash flow right now but I am more concerned with building long term wealth by buying more properties. Right now I have the property listed for rent. These are the questions that go through my head. I want to manage my real estate investment portfolio in all the right ways. Your input is greatly appreciated!

[Brendan J.]

@Joseph Castaneda . I'd look at a buy/hold for this one. @Evan Bell hinted at BRRRR (Buy, Repair, Rent, Refinance, & Repeat) and he's right.

I wouldn't max out on the 70%LTV though, your P&I would be too high to make sure this thing was cashflowing (w/ a little extra cushion). Here's how I would look at it if I was in your shoes....

Rent for $1800, Plan on expenses making up $900 (Management, maintenance, capital ex, vacancy, taxes, insurance, minor utilities, etc...

Refi 149k (only 1k left of your money) for 30 years @ 5%. Principle and interest would be $800/month. This would leave $100/month cashflow, but we aren't close to the fun part.

$1200 annual cashflow (120% returns on your $1k invested)

$2300 annual principle paydown by tenant (230% returns)

$5000 in appreciation at a modest 1.8% appreciation rate over the 1st year... (500% returns)

Total of $8500 in wealth creation (850% returns)....With $130k in equity still in the house. You also have $149k to go buy another property in cash to BRRRR that one as well.

Just my $0.02 Joseph!