Would you hold or sell this investment? Seeking advice

Question

I have a townhouse condo that I have owned for 11 years. It was my primary residence until I moved out of state 4 years ago. For the past 4 years, it has been a rental property that has served me well on a cash flow basis since moving; however, recently the market has demonstrated a notable jump in appreciation, specifically in the complex that this condo is located and I stand to make a nice return. I am trying to decide whether it makes more sense for me to continue collecting the cash flow or cash out on the appreciation and purchase other investments. I currently do not have other RE investments. I, however, work in real estate and plan to begin using BRRRR or flipping strategies to grow my wealth. Here are some details and I would love to hear opinions from others on whether you would continue holding or cash out.

I purchased the home for $184,000 in 2008 with $1,000 of my own money. I paid an FHA mortgage for 8 years before moving. While living in the home, I made $25,000 worth of upgrades so I calculate that I have invested $26,000 plus the interest, mortgage insurance, taxes, and HOA fees I paid while living in the home.

I have had tenants in the home for the past 4 years with only a two week vacancy. The rent is $1,395 per month and my expenses are $1,200 so my cash flow is $195 per month or $2,340 per year and I have had minimal maintenance costs in the past 4 years, totaling around $1,000. So in 4 years, my cash flow has been appx. $8,360, which I feel is a great return that is generally 8% to 9%.

Based on current market conditions, I believe that I can sell for a minimum of $225,000, and I do not anticipate such accelerated growth in the next 5 years. My remaining mortgage is $148,000. My closing costs will be very low as I will not need to hire a real estate broker so I stand to cash out with roughly $75,000. This is very enticing to me, but so is the return I am receiving on the property.

I feel the $75,000 can be employed to drive my new investment strategies as this home was never intended to be used as a rental until I moved, and now I have bigger ideas on how I would like to grow my investment portfolio.

What would you do if this was your investment? Thanks for your input!

Whitney Hutten · Answer

@Paul Hansen $2340 on $225K investment is 1.04% COC return annually. If you took that same equity into a market/property where you could get 8% COC, now you are getting $500 mth or $6k a year. If 12%, now you are getting $750 mth or $9K a year. OR you BRRRR and supercharge your returns or even get an infinite return (but you have to solve some problems for people ;).

Scott Wolf · Answer

@Paul Hansen, you could always 1031 exchange into another rental property or do a cash-out refi and use the money that way. Either way, these are good problems to have!

Peter Nikic · Answer

A lot of people made a lot of money buying and flipping etc. I on the other hand am not buyer/seller or buyer/flipper. I'm a buyer/keeper.

What type of person a re you? I think this is what you need to know.

The only time I sell, is when it makes more sense to sell a smaller property with equity and buy a larger property (using a 1031 exchange to avoid capital gains tax). My guess is you're now living in NY while your condo is out of state? I would suggest selling and buying something closer, easier to manage as well, but that might be difficult to do if it means investing in NYC.

You could however find good investment properties in Harlem and NYC suburbs. I own a condo in Halrem, I love it. I also have plenty of multifamily investments in westchester and dutchess counties.

Good luck.

Whitney Hutten · Answer

@Paul Hansen . Gotcha! COC is 9% then, BUT your return on equity is $2340 / $75000... 3.12%. You could definitely do better :)

Javier D. · Answer

@Paul Hansen

Id sell. First I’d find a property preferrably a 2-4plex . Id stay away from anything with an HOA.

I have done exactly as @Dave Foster recommended above and its worked out multiple times.

Tadeh Vartanian · Answer

@Paul Hansen

Calculate the Internal Rate of Return, or IRR. That calculation best captures your return with a time factor baked into it. I’d choose a time discount rate of something around 8% in the calculations. What you may see is that your IRR maxes out after a time period and that if the rents really aren’t going up that much but home prices are, might be better to sell.

Mary White · Answer

In my own experience finding a property first and then making an offer on something else contingent on the sale of the first house is the easiest route. I did this in 2017, and found myself with two great properties that I had to choose between. The biggest lesson I learned is that you need good powers of persuasion to convince a seller to take your contingent offer over another one. In my case, I was willing to pay $5000 more than other buyers if they'd work with me on the exchange. Also, the selling realtor wrote up a letter detailing the time on market of homes like mine. My home sold in a week and it took 3 months to close out the whole exchange. Best of luck and enjoy the process. My advice is definitely to sell and redeploy your capital.

Paul Hansen · Answer

@Boone Tyson thank you. That way of looking at it definitely helped.

@Dave Foster Excellent information, I appreciate it!

Thank you everyone, this has been very helpful!

Jeremy Taggart · Answer

@Paul Hansen No I haven't personally. But yeah you are right they are tricky with the whole timing aspect thrown in.

Boone Tyson · Answer

@Paul Hansen, I think @Whitney Hutten seems to make the most compelling argument from a mathematical standpoint. I’ll try to make a similar argument from a psychological standpoint by asking a different question.

If you had $75,000, would you buy this property in its present location and all other variables being the same for $225,000? If you wouldn’t, then I would absolutely sell it because that’s essentially what you are doing.

It sounds like you might want to sell it and take your money elsewhere so I would pull the trigger. Great problem to have and best of luck!

Would you hold or sell this investment? Seeking advice

Would you hold or sell this investment? Seeking advice

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