Appreciation Vs. Cashflow?

[Carter Thomas]

Hello BP,

I am debating what I should do to maximize my real estate investments and need some help. Here is the situation:

My girlfriend and I currently own 2 single family rentals in Vancouver WA. The 1st house cash flows $700/mo and has $150k in equity. The 2nd house cash flows $250/mo and has $100k in equity. We both separately lived in them for 2 out of the last 5 years so we could potentially sell them w/o paying cap gains and walk away with around $250k.

Here are the options I am considering:

A. Keep them and enjoy the $950/mo cash flow and let them appreciate in the awesome market of Portland/Vancouver.

B. Sell them, take our $250k and use it as 20% down on $1.25M worth of SFH, Duplexes and triplexes in a cash flow market in the Midwest or South.

C. Refinance the 1st house and use another $60-70k to buy another house in my back yard?

D. Find a partner to join with and buy a bigger apartment building.

I would love and appreciate any input!

Thanks,

Carter

[Jay Hinrichs]

Originally posted by @Ronan Donnelly:

Hi @Carter Thomas, some good options there. So long as properties are cash flowing my preference is always to get cash out via a refinance to avoid the significant transaction fees of selling real estate. That way you can also continue to enjoy any appreciation on the asset and the cash that you get is tax free. 

As for what to do with the cash it really depends on your preferences. Buying more assets locally means that you will likely be more involved in managing them. Investing out of state allows you to select markets with the best fundamentals for real estate investing but you have to get good at vetting and managing a remote team. 

Good luck, all of your options are good ones!

Ronan

keep in mind the refi proceeds are TAX Differed NOT tax free.. the only tax free is the owner exemption that you described above.. I would look at that before refi personally.. were else can you make 250k large with NOT ONE bit of tax bite.. IE recapture cap gain etc. 

the new Opportunity zones will have some pretty nice tax benefits.. so get your tax free from those.. and invest in Opp zone wo in 10 years you wont have any tax on those..  that's a thought right?

Also keep in mind grass is not always greener.. you can go out of state but buy high quality.. low quality and you will wonder why you sold easy to manage Couv props for hard to manage low value or quality property 2 miles away..  if you buy on the top end of those markets they will perform tenant wise pretty much like your Couv..  but if you buy low end high yield it will be a roller coaster. and you could potential lose money..