Selling for the equity Vs Keeping for the monthly rent

[Ron K.]

Hello everyone,

Here's my dilemma.  I own this nice 3/2 SF, it's in a very nice neighborhood.  House worth about 450 and my mtg bal is at 95 so there is a nice size equity here.  My tenant just left $2,300 a month and I could probably rent it for $2,500 - $2,700.  I know that rule of thumb saying if rent is 0.5% of house value it's time to sell.  I'm interested in building up my cash reserve for new opportunities rather than the monthly income.  Would like to sell and wonder if that's the right thing to do.   

Thanks,

Ron

[Dave Foster]

@Ron K., When an asset is that underperforming you're only going to marginally improve your ROE with a refinance.  Plus in a refi you'll probably leave a significant amount of equity in the property which further hinders improving that return.

You might be better off selling and doing a 1031 and using all $350K in cash to go buy several value add or cash flow opportunities using more leverage than you could with a refi.

Or another option  that many of our skittish clients are using is to sell, 1031, and then use the $350K to purchase say a $200K property that will generate at least 7-8% net of all expenses  for cash and use the other $150K with maximum leverage to purchase an additional $500K of investment real estate which throws off a very superior return due to the leverage and sector.  Meanwhile the paid for property gives you good cash flow and almost zero risk.