What Would Brandon Do? (WWBD)

[Patrick O'Connell]

Hello BP community - This is my first post where I am reaching out to the BP community for help and could use some advice on the situation I am in. I am an avid BP listener and really need to start leveraging this great community/platform more.

My story: I house hacked a duplex 2 years ago in a city outside of Boston (Metrowest). I bought it with 10% down, lived in it for almost 1 year and then moved out where I now rent out both sides. Based on comps, the property is now worth $75k more than I bought it for. I have great tenants who pay on time (knock on wood) but I barely break even in cashflow. The cashflow considers the mortgage (P&I), Insurance, Water, Vacancy allowance (5% of rent), Escrow payment, Repairs & maintenance (4% of rent), CapEx (4% of rent), an association fee since it is on a private driveway and a mandatory plow fee (due to the private drive). Buying on a private drive was my first mistake but it is what it is on my first duplex purchase (live & learn).

I could very well see this property continuing to appreciate due to the location and history of real estate in this area (although I know I should not factor in my numbers).  Brandon and David always seem to go back and forth on appreciation vs cash flow.  This property in particular falls under the appreciation side.

It is also important to note that I will be leveraging a portion of my HELOC (~$20k) I was able to get on this property to go in on a deal with a business partner on a 3 family where we are projecting 10%+ in returns.

The question I have is, what would @Brandon Turner do?  

Would you keep the property & let it run its course? Re-evaluate in a couple more years - Reap the benefits of my tenants paying the rent/premium, tax write off, etc? Could also use more of the HELOC to invest in other properties.

OR

Would you sell and invest into another property with higher returns? (And not purchase a property on a private driveway for starters...)

OR something else?

Interested in hearing your thoughts!

Also - Please feel free to connect! Looking to leverage this platform a lot more!

Best,

Pat

[Mark H. Porter]

If you're including projected, subjective, expenditures such as vacancy and CAPEX then you should also include the appreciation as well as the mortgage principal being paid off.

This really is not a rule, its more how you want to cover yourself. Most sellers would never list CAPEX when calculating expenses, leaving the buyer to make sure it's accounted for.

I'll take it this is an older property as you have a total of 8% to maintain the operation.  $75M is not much appreciation when you consider the transactional costs to get at it (sellers costs - 6% commission, etc...).  I would wait, keep raising rents to market rates, keep reducing your expenses by optimizing where you can.