Should I Sell My First Property?

[Aaron Araujo]

Hey BP!

I've been contemplating this idea in my head for a few weeks now so I figured I'd take it to you guys. 

I bought my first property this past August; a 3-unit in Massachusetts. I've been collecting rent on 2 units while renovating the third unit up until this point and I'm approaching the finish line. I bought it with the intention to hold long term, but I'm now contemplating selling. 

Let me give a bit of context first. My goal is to own cash flowing real estate, enough to eventually reach financial independence and beyond (original, I know). I don't particularly care how I arrive there in regards to my distribution of units. Whether I have a bunch of 3-unit buildings or one 24 unit building is not a limiting concern. I just want to get there as efficiently as I can.

So, here I am with this 3-unit that I just bought. To better help with the discussion, here are my options in a nutshell:

A) Keep It 

If I decide to keep it, I will rent out all three units an implement property management. After accounting for expenses and reserves I will net cash flow between $300-$400. Not a screaming deal, but I am into the property fairly light so my cash on cash is decent. 

B) Sell it

Based on comps, if I were to sell I the near future I could make an initial gain of $60-75K. Not bad for a first flip if I go that route. Any profit from a sale would then be parlayed into another investment, ideally a larger building with greater cash flow potential. (via 1031 exchange)

An investor friend of mine opened me up to the idea that I could either hold it for 3-4K a year, or sell it and make 15 years of cash flow in one fell sweep. Obviously this doesn't consider equity gain or tax benefits, but it is an interesting perspective that I hadn't considered prior. It's like time travel!

C) Refinance 

I could refinance and lower my mortgage payment slightly, getting rid of PMI. However, since my LTV is around 80%, I wouldn't be able to pull any cash out to use towards another deal. I would simply gain about a 100 bucks of monthly cash flow.

So, I come to you, asking for insight and guidance. What would you guys do? Should I take the profit and grow my portfolio by finding something bigger and better? Or should I stick it out and wait until I have the funds to buy another one? 

Thanks for any feedback!

Aaron

[Felipe Ocampo]

@Aaron Araujo congrats. It seems like you did a great job on your first property. I think if you could find a deal on a larger building that would give you better returns then definitely sell it. Remember that for a 1031 exchange you only have 45 days to identify the replacing property so you have to move fairly quickly. Basically have things lined up. Also take into account that when you sell you will have to pay a large chunk for costs associated with the sale so you may not have as much money as you expect after the sale. If you cannot identify a larger property then maybe refinance it, but it depending on the fees and the terms that you are offered. 

Good luck!