Short-Sighted or Prudent? Is it time to sell?

[David West]

Hi Friends,

Here's the sitch. I have a duplex in a prime location in San Diego. I run both units as an STR and make good cash flow (~$30k annually) but it is fairly labor intensive. I purchased the home for $720k w/ 20% down. I got the down payment from the proceeds from a successful live-in flip. The property has appreciated significantly due to sweat equity and standard growth in the neighborhood.

My master plan was to continue working my 9 to 5 and saving money for the next deal and continue to build my portfolio. I aimed to be financially free in 2 years and be able to focus solely on investment properties. Unfortunately, around 6 months ago I lost my good paying W2 job and have not yet replaced that income. My family and I have moved to a much more affordable area and we are just getting by for now. I've spent my severance and most of my savings at this point and I'm looking to right the ship. We are using the income from the rental to support our living expenses but some months we still need to put some expenses on credit cards which stresses me out. As the summer approaches, I know our income will increase and we'll pay off the cards and be fine but that doesn't get me closer to the goal of financial independence. 

The good news is we have options. 

1. We could sell. With approximately $400k equity, after closing costs and cap gains we'd probably walk with ~$300k. From there I would take $120k to start building my out-of-state BRRR empire. The remainder could be cash reserves and a new nest egg.

2. We could keep running it as STR. The returns are awesome, the appreciation has been great, and I anticipate that if I can hold on for at least a few more years I will be in a great position. I've learned a ton on this journey. The downside is it's been tough to find a lender that will recognize Airbnb earnings towards dti and now that I don't have W2 earnings it presents an additional challenge to pull money out. Also, as mentioned above, it is fairly labor-intensive.

3. We could rent it out long term. This would be much less labor once the tenants are placed but I cut my cash flow in half or more by going this route. The benefit is I've talked to many lenders that will recognize the rental income from a long term rental and they will give me 75% of that income towards DTI which would allow to pull out some cash. The other negative with a long term renter is I lose the flexibility that short term renting offers.

Currently, I'm in the process of obtaining my real estate license which I should have by this summer. My goal is to build $15k monthly passive income through real estate investments. I love real estate and to be honest, I'm a little attached to this property. If I sell it would be awesome to have that lump sum of cash, which I could really use right now and reinvest the proceeds. If I hold it I can easily see the property doubling (or more) in the long term.

Is it prudent to take my chips off the table and reinvest somewhere else? It's going to take so much hard work just to get back to $3k+ monthly income but I am down for the ride. Also, I love the idea of being able to use the same cash over and over again (BRRRR) to build the portfolio. Or am I being short-sighted by letting go of an income-generating asset in an awesome location?

What would you do if you were in my situation? Are there any other options besides the 3 above? Happy to provide any additional info you may need and I'm looking forward to your feedback. 

Cheers,

DW