Take 100k equity or cashflow 800/mo??

Take 100k equity or cashflow 800/mo??

Springfield, MO · Member since 2017 · 8 posts · 2 votes

Hello BP!

I am new to the forums. First and foremost, I want to thank everyone for such amazing content. I am hooked on the podcasts and have started listening and learning everyday. I've always had a passion for real estate investing but only recently have I found Bigger Pockets. My long term goals are to build a portfolio of multi-family properties, and exit the rat race as I am a terrible employee. My current predicament is deciding whether it is best to sell or rent my current home which is my first home. 

The property is in NW Austin, a hot market, and has appreciated significantly. I have owned it for 5 and half years. It consist of a 1350sq ft main house, with a 1000 sq ft guest house. Ive always rented the guest house to help pay the mortgage. It currently rents for $1100/ mo. The mortgage is $1650. Earlier this year, I refinanced to pay off credit card debts and both vehicles. The cash-out left me with little money to invest after paying debts. Otherwise I wouldn't have this question. I would have used the money for a down payment on a duplex and keep this one as a rental.


As of recently, my fiance and I have decided to move back to Arkansas, where we are from. Looking into the NW Arkansas area, which is also an up and coming region. At first, my mind was made up to sell the house and take the equity to purchase a duplex or two, but now I'm second guessing it. 

Currently I owe $210k. Appraisal came back at 280k, but the property is so unique that appraisers aren't sure how to value it. There are no comps. There are other homes in the neighborhood with identical floor plans, but obviously no guest house in the back yard. Those floor plans are selling around 265k-280k. Going off of dollar per sq ft in the neighborhood, I should be closer to the $310k - $340k range. Plus, I assume there has to be a premium for such a unique property that someone else might want to house hack as well. Maybe I'm wrong, but its not cheap to live in Austin city limits.

Therefore, I am looking at selling and taking roughly 100k equity to start my dream of investing or I could rent it and cashflow approximately $800/mo. The main house alone would rent for $1700. With the guest house, total rent would be closer to $2500/mo. I've never rented both units as a whole. Doing so would be the only way to make it an easy transition. I've rented them both out separately in the past but luckily it was to some friends and it made it easier to be a long distance landlord. 

Which brings me to my next problem. I'm not thrilled to be a long distance landlord, hence why i want to start investing in areas closer to where I'm from. I'm very handy and for the time being, prefer maintaining my own properties. On the other hand, I know I will probably regret not holding on to this property given how much Austin is growing and appreciating. Another factor is that I don't have a high income job. I work on a commission only basis, and typically gross 45k/yr. Taking 800/mo and not having significant savings to tap into if something were to come up, would be difficult. On the other hand, with selling the property I would have plenty of cash to take care of any unsuspecting problems. 

Sorry for being so long winded. I think it helps to write this all out, and think "out loud' so to speak. I'm leaning more toward selling, but looking to get some insight from someone who has more experience. Are there any other options that maybe I haven't thought of? 

Thank you for any help!

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Member since 2016 · 13k+ posts · 12k+ votes
9y

Every thing you have stated points in only one direction....sell.

There are other options.. all bad in your situation.

Holding on to a long distance property valued  at $340 K with a potential rent of only $2500 makes no sense. You will be financially stressed and will regret the decision to hold. Many will say if you own it hold it. That is illogical advice in a situation where you have pointed out so many reasons as to why that is a very poor decision.

You already know your appropriate course of action. Don't be swayed by others that give advice but have no vested risk in your personal situation.

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  • Member since 2016 · 13k+ posts · 12k+ votes
    9y

    Every thing you have stated points in only one direction....sell.

    There are other options.. all bad in your situation.

    Holding on to a long distance property valued  at $340 K with a potential rent of only $2500 makes no sense. You will be financially stressed and will regret the decision to hold. Many will say if you own it hold it. That is illogical advice in a situation where you have pointed out so many reasons as to why that is a very poor decision.

    You already know your appropriate course of action. Don't be swayed by others that give advice but have no vested risk in your personal situation.

  • Specialist · Tampa, FL · Member since 2015 · 84 posts · 47 votes
    9y

    If it were me, I would probably sell and use that equity to get things moving in a new market. We live and invest in Northwest Arkansas, and it's an amazing area! If you get the price you want for your property, it sounds like you'd have a nice nest egg to get started investing over here where you have boots on the ground.

    If you need any connections getting started, we are plugged in down here and can recommend some great people. We also have an awesome REIA group that you should check out and network in.

    Here's the local REIA website: http://www.rei-nwa.com/

    Message me if we can be of any help!  

    And welcome to Arkansas! Looking forward to meeting you! 

  • Springfield, MO · Member since 2017 · 8 posts · 2 votes
    9y

    Thank you. Thats pretty much what I have been thinking. All signs point to selling and not having the burden of being 10 hours away with little cash to cover unexpected large expenses. The second guessing it came into play when I started to think of the bigger picture. Holding with great potential to continually increase in value. My end goal is to build a positive cashflow portfolio. Selling would give me a comfortable head start, where as keeping it would set me back a year or two.

  • Springfield, MO · Member since 2017 · 8 posts · 2 votes
    9y

    Thank you, Sarah! I'm excited for the NW Arkansas area. It seems to be a great spot for us to get started. The growth there reminds me of Austin over the last 10 years. I will definitely check out the group and stay in contact!

  • Jonathan KlemmBusiness Member
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    Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes
    9y

    @Will Maddox I was almost in an identical situation one year ago.  And I sold and started over where I am living now and it was for sure the way to go!  I recommending selling!  Converting a permanent residence to a rental property never works....you didn't buy the home as an investment thus you should try to turn it into one, unless the numbers absolutely make sense, which it does not seem like they do.

  • Investor · Sugar Land, TX · Member since 2012 · 554 posts · 232 votes
    9y

    Same advice here - sell. One more reason to consider selling is turning your personal residence into an investment property may cause you to lose tax benefits on capital gains after a certain amount of time. Sell and reinvest the cash.

  • Denver, CO · Member since 2017 · 265 posts · 234 votes
    9y

    @Will Maddox , search the BP forums....I saw Austin TX investors talking about the desirability of owning the house + guest house (aka ADU). Your future Buyer may already be on BP???

  • Rental Property Investor · Redford, MI · Member since 2016 · 34 posts · 18 votes
    9y

    @Will Maddox

    Welcome to the BP forums, and congrats on being in a great position to get started investing!

    I will also voice my opinion on the sell vs. hold question. All of the information you're providing is pointing towards selling the property, even if it is in a great appreciating area. Having a potential rent of $2,500/mo on a $310k+ property is not the best use of your capital at all, and if you can take out that $100k in equity and put towards other, better cash flowing properties, all the more power to you.

    It hasn't been stated in this thread yet but is worth stating now: don't forget to take into account other expenses such as taxes, insurance, repairs/maintenance, CapEx, vacancy, and possible property management. Just looking at numbers like 8% vacancy, 5% repairs, and 10% CapEx, reduce your cash flow number by $575, leaving you with just $225. Include property management (10%) and you're now in the red in cash flow. Vacancy and CapEx might be able to be reduced if it's in a desirable area and you get good tenants, but one of the most important rules in REI is never underestimate expenses!

    Good luck, and keep us informed on what you decide to do!

  • Investor · Bonney Lake, WA · Member since 2014 · 22 posts · 32 votes
    9y

    For me, easy math.  $100K now or $100k/$800=125 months to get the same money.  

    I want mine now thank you!  

    If you are really interested in holding the property for appreciation, perhaps reduce some cash flow and take out a HELOC or do a cash out refi.

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