High equity rental, should I cash in?

[Jason Martin]

Hello. I am new to the game. Looking for some feedback.

My wife and I started decided to take our primary residence (Florida) and rent it out 15 months back. It’s cash flowing very well, and so far so good. We are now hunting for our 2nd investment property (most likely a buy and hold)...Our current rental has approx. $175k in equity and the market has it priced the highest it’s been since we’ve owned it. ($320k)

Being so new to this, should I look to sell and cash in to have capital for other investments or continue to pay it down and build the equity?

Other notes: we are able and approved to get traditional funding. Considered an open line of credit as an option.

What would the pros do?? 🧐 * forgive me if this is a no brainer for some, I have a lot of mentors around me and they all have different strategies. So I’m interested to see what the bigger pockets community thinks.

Thanks!

[Bob Woelfel]

@Jason Martin...you will probably get a lot of different responses here as well. Without knowing your cash flow number or the terms of the loan you have in place it's somewhat difficult to say. If it were me though I would probably sell and here is why. Assuming you and your wife lived in the house for at least 2 years before vacating and renting you won't have to pay any capital gains tax at sale. All you would have to do a pay for depreciation recapture of one year and the rest of your gain is tax free. I did this on my old primary residence that I rented for a couple years and we did really well. If you were to hold onto this property for the next 2 years or more then whenever you went to sell you would have to pay capital gains tax on your profit. This will take a decent amount off the top of your profit. I think what you really have to find out is what you are going to do with those gains and are you further ahead by selling? Play with the numbers a little bit. One option with you selling and one with you taking out a LOC. Best of luck.