Advice Please – Hold and Rent or Cash Out and Reinvest

[Matt Joplin]

Hello,

I am a new investor and I am looking for advice on what to do with my second investment property (House Hack / BRRR). Specifically, I am weighing my options and trying to figure out if I should keep my property and rent it or sell it and reinvest in new properties. Currently, I live and invest in Skagit County located in Western Washington 1 hour north of Seattle. I am hoping for advice from people who have experienced multiple economic cycles who can provide input based upon their experience. For years now, we have heard many people say we are reaching the top of a cycle and I feel like now might be a good time to get out of this house.

Here is some information about the home.

     Value: $345,000 - $380,000

     Purchase Price: $140,000

     Mortgage Amount: $165,000

     Rate: 4.875%

     Mort. Maturity Date: 2048

    Remodel cost: $54,000

    Home Size: 2000 sqft

    Unit A: 

     Occupied by my family

     1400 sqft

     3 br / 3 ba

     Fully renovated new condition with updated bathrooms and kitchen.

     Stainless appliances, solid cherry cabinets, concrete counters.

     Unit B 

     Rented at $1200 / month

     600 sqft

     1 br / 1 bath

     Fully renovated new condition with updated bathrooms and kitchen.

     Quality white appliances, custom cabinets, butcher block kitchen counters and marble

     Bathroom countertops.

I purchased the home as a REO utilizing a private loan of $140,000. I performed a major renovation (down to studs) changing the interior layout, rewiring, and plumbing. During the renovation, I converted 600 square feet of the home to be an attached 1 BR, 1 BA self-sufficient ADU with its own full kitchen and laundry facility. I have been able to rent the ADU while I have been living in the adjoining unit with my family of 4. The house is a single story rambler with both units side by side.

After completing the renovation, we did a cash out refinance and setup a $130,000 line of credit that we have used to renovate our current remodel project. While living in the house, we have been able to consistently rent our ADU for $1200 / month which has been so helpful to our family. One negative is that our community allows for ADUs only if the owner occupies the property. If we move out we will not be able to rent our ADU per code. Our lot is too small to meet current code for a legal duplex.

The area we live in is growing with many new businesses coming to our small town. I see this as an appreciation market and there currently is a lack of housing inventory in the area.

Here are the options that I can see at the moment:

Option 1 – Sell

     Estimated Sale Price $360,000

     Loan Payoff -$165,000

FSBO Closing Costs (3% Buyers Agent) -$10,800

     Misc Closing Costs - 1200

     Proceeds $180,000

     Additional Info:

•      We have lived in this house for 2 years so we will not have capital gains tax
•      With the level of finish and quality, it might be nice to sell while everything is still in new condition

     Concerns:

• We will lose our $130,000 HELOC
•      In an appreciation market, we might regret selling at a future date

Option 2 – Rent Unit A

     Monthly Income $1800

     Monthly Expenses -$1390

     Monthly Cash Flow $413

     Additional Info:

• We can continue to use our HELOC for investment purposes
• Unit B would be kept as a guest house for family and friends who visit from out of town.

Option 3 – Rent Entire house as one unit

     Monthly Income $2050

     Monthly Expenses -$1390

     Monthly Cash Flow $660

     Concerns

•      I worry about tenants possibly subletting the house with the second kitchen in it.

Thank you for any advice you can provide. I sincerely appreciate your time and your feedback.

Best Regards,

Matt