Sell or Rent/HELOC in Washington D.C. Suburbs?

[Tim Kane]

I keep going back and forth on what I should do with my current residence.  The situation is as follows:

We have a 20 year loan on our primary, which is worth 535k.  We got a 20 year note because we thought this would be our forever home.  Even though my home is in a mature single family home community, some not so desirable homes/communities feed the area schools which make them not great.  This is the reason we are planning to move into a better school district.  We have already been pre-approved, even with my current residence being held against me.

The rate on the current note is 3.75% and we owe roughly 380k. PITI is just at $3,000. We have lived in the home just over two years.

Other items to note.  We currently have a townhouse that cash-flows $400 per month.  I am also involved in fix and flipping, which we are in the process of scaling up, looking to do multiple properties at once.  My goal is to slowly obtain buy and hold properties, while continuing the also do the fix and flips.

So the question becomes do we hold on to our current residence, market rent would be $3,000 which is unfortunately our PITI for the property. With other expenses, this would surely have negative cash-flow, but we do have the other rental that could offset that? If we keep the current property, before we put it up for rent, I would apply for a HELOC. With a 90% LTV HELOC, I would get roughly 100k, which I would invest in the fix and flip portion of my investment strategy.

The other option would be to sell my current home.  If we sold for 535k, minus selling costs, we would walk with just over 100k, which I would similarly invest in fix and flip.

I personally am leaning toward keeping it as a rental and pulling out the equity.  Then again, it will negative cash flow but does the fact that I can leverage the equity out weigh that?  I go back and forth on this everyday, any insight is helpful.

Let me know if further information is needed.  Thanks.

[Russell Brazil]

Depending on the location....Id keep it and rent it out at break even. If it is in a high demand area of the metro...chances are you will make more money owning this property over the long term than what you will make redeploying the capital to some place else.

[Russell Brazil]

Depending on the location....Id keep it and rent it out at break even. If it is in a high demand area of the metro...chances are you will make more money owning this property over the long term than what you will make redeploying the capital to some place else.

[Tim Kane]

Russell Brazil it's a 4/2.5 SFR in the Newington/Springfield area, close to Ft. Belvoir and the new NGA complex. Does this information change your original recommendation? Thanks.

[Tim Kane]

Doesn't have to be specific to the northern Virginia or DC market, does anyone else have thoughts on my logic in general? See original post, thanks.

[William Brown]

Tim Kane while I don't have experience or insight to offer on this subject matter, I just wanted to wish you my condolences for a tough election fought last year. You almost made it to VP man.

...

What is life if a few jokes aren't sprinkled in now and then? ;)

[Stanley Parsley]

Tim

have you fallen in love with your property?

this is a serious question especially for investors- this will make a savvy investor make mistakes

have you fallen in love with this property or is this your home?

these are questions you have to be honest about

once you come up with the answer youll make the right move

Great investing and good luck keep up the good work

[Tim Kane]

Stanley Parsley
This is our primary home, but just as we did with our TH, once we decided we were going to rent it out, it became strictly business. So I don't think I am making this decision emotionally.

I just want to make sure I am making a rational decision, since this property will not cash flow but it lines up with my long term goal of buy and hold.

If this were a 30 year loan, I don't think I would even have these concerns.

Thanks for the feedback.

[Leo Gonzalez]

Tim Kane

I should preface this by saying I'm a newbie with no deals under my belt. I'm in the process of looking for my first buy and hold deal and my opinion is solely based on the education I've received from BP books, podcasts, and forums.

There's a lot of benefits to owning in that area especially with the base nearby as well as the Springfield mall. Not to mention Quantico being a little further out. I say that to point out that I don't think you'll have much of a problem with vacancy. So with that being said all you would have to worry about is your townhome offsetting the difference in expenses. If you run the numbers to the very last dollar and it's doable, holding it would be the better option because your goal is to have more buy and holds. At the very least the mortgage is being paid off and you already have significant equity in the property. The HELOC will allow you to work on another deal and if worst comes to worst you can always refinance down the line to get the property to break even on its own or maybe even cash flow. Hope that helps. Good luck!

[Kevin Hunter]

@Tim Kane, a couple of questions come to mind that could drive my opinion in the other direction. What shape are the big ticket items in? Roof, driveway, HVAC, furnace, windows, siding....Second question, who is going to manage the property? PM or you? Either way, both of these items need to be accounted for in your property analysis. 10% is a good starting point for both, although negotiable (PM) and variable (CAPEX, but over time it will likely fall right around this number). Lastly, you have to take into account everyday repairs (toilets, appliances, electrical, etc...)

So on paper, without knowing anything else, you will be in the red about $900 per month.  After taking into account your townhouse cash flow of $400 per month (your decision not mine), you will be losing about $500 per month overall.  If you are going to manage it yourself, that will save you $300 and bring that number to $200 per month out of pocket.  In my opinion, $200 per month, for a property in an extremely sought after area, with a tenant base that is extremely consistent, with military and government in the area not going anywhere, is a reasonable investment to stick with.

I agree with @Russell Brazil, that you should hold the property in your portfolio.  But I will also tell you that he and I are in the minority on this site.  The majority of people will likely tell you to sell because you are not cash flowing and can better utilize that money in an investment that cash flows better.  

You will obviously have to do your own homework and make your own decisions, so use people's opinions as just that. For example, one of the commentors above mentioned a HELOC. That won't be an option for you because you don't have enough equity. You only have 29% equity in the property and I don't think you will find a bank that will give you a heloc on that little equity. Most will lend only up to 70%, with some going to 75%. Even if you found one to do more, you are going to see an increased interest rate from the 3.75% you currently have so I don't think the tradeoff would work.....

I believe that this property, in that area, is a sound investment and one you want to hold on to to build long term wealth, vice short term income.  Good luck and let us know what you decide!!

[Tim Kane]

Kevin Hunter
Great points and I am leaning towards keeping it and renting. Our capex should be relatively low because we bought this property off market and then did new roof, blown in insulation, windows, kitchen with new appliances. The hvac and water heater are newer, 5-7 years old.

I do plan to PM myself, same as my current TH.

In regard to the heloc, this is still my primary and I have a lender that will go 90% LTV so I should be able to pull a fair amount of cash.

With all that said I am feeling better and better about keeping this as a rental, thanks for the good conversation.

[Tim Kane]

Just giving an update as some on this thread requested.

I have done a complete 180, when months ago I planned to rent this property, I have decided to to sell and redeploy the capital elsewhere. The school district has not changed and many experts have determined the northern Virginia area to be overpriced so I feel it is time to get out.

Looking to gain rentals in Charles county as this area offers more opportunities. Any previous commenters, feel free to rejoin and offer your thoughts. Thanks.

[Malcolm Lawson]

Hi Tim,

The truth is, not all homes make good rentals. If your property does not cash flow and might even give you a negative cash flow, then I would pull your money out and invest in something that does cash flow and hopefully appreciates.   

Often times renting out your primary residence has a major advantage because you get to keep your ridiculously low interested rate, I am assuming 4%, compared to purchasing a home as an investment property with a 7%-8% interest rate.  The fact that you still won't cash flow even with your current interest rate shows how bad the rental market is for your specific property.  

There is probably too many rentals like your OR there is just no demand for a rental like yours there.  I know in Arlington there are a lot of large luxury condo units you will be competing with.   Because there are so many of them, they can afford to cut their rental prices to compete.   There are literally thousands of condos in Arlington and more and more are still being built.

You also have to ask yourself what your goal is right now.  Are you trying to get consistent passive income in which case cash flow will be your primary goal or are you wanting to keep this as part of your retirement plan and expect it to appreciate next 20 years?  For me personally, I am trying to get to a place where I cash flow $5,000 a month and that dictates how I currently invest.

If you will net $100K after the sale and you can get an investment loan with 80% LTV then you can purchase around a $500K investment property. I would start looking at some potential properties and crunching numbers. I am confident you could find some that will both cashflow positive AND you think will appreciate in value.

I hope this helped, good luck

[Heather Skowronsky]

Tim Kane what made you decide to sell? The hot market? Just wondering. We have substantial equity in our home too and I think everyday about utilizing it.

[Tim Kane]

Heather Skowronsky poorly rated schools and the fact that I would lose about $50-100 a month, as reasons for deciding to sell instead of rent. I will take the gain from the sale and continue to flip and hopefully accumulate some rentals that cash flow nicely.

I pulled a HELOC on my current property and have been using that but with the opportunity to sell in a hot market, I will basically have the same amount to work with after the sale.

[Michael P.]

@Tim Kane I'm waiting to see if Amazon HQ2 comes to Arlington (you never know) before offloading anything there.