Should I SELL or HOLD?

Question

Hi BP'ers! I purchased a home with the original intent of it being a long-term investment in October, 2020 in the Boise, ID area. We've seen insane gains in the past handful of months. My wife and I are in the process of building a new home for ourselves in the area as well (we're relocating from Southern California). Due to the insane market and the equity gains we're half thinking about selling the rental and then parceling those gains out to a) handle the down payment of our personal home and b) parcel out into other (potentially smaller) investments. I'm not sure what the best decision is at this point.

Here are a bit more details:

Bought the home in October, 2020. Purchase price: $410K. All-in investment: $31K
Mortgage is $2000/mo
Rents for $2795/mo

Home could sell today for $530K
Potential growth in next few months - upward of $550-$570K
If I sold in the Summer I'd likely have a profit of $80-90K and get my original investment of $31K back.

What would you do in this situation? Hold and keep renting? Sell and take the money to spread amongst personal and other investments? Thanks for taking the time to read this post and for any and all thoughts.

Home could sell today for $530KPotential growth in next few months - upward of $550-$570KIf I sold in the Summer I'd likely have a profit of $80-90K and get my original investment of $31K back. What would you do in this situation? Hold and keep renting? Sell and take the money to spread amongst personal and other investments? Thanks for taking the time to read this post and for any and all thoughts.

Anthony Terrones · Answer

Cheryl, thank you so much for the feedback! This is exactly the sort of feedback I was hoping to get. We're building in Eagle, in the Legacy Community. We're so excited to be able to relocate and grow our family in ID! I'd love to chat further about this if you're willing... Would it make sense to share contact information via DM here?

Anthony Terrones · Answer

I'm so glad you mentioned the 1031. In the back of my mind I was thinking that the 1031 would work for my own personal property. I knew better, but I needed reminding. Original intent of this property was not to cashflow immediately, but rather for long-term appreciation and to eventually cashflow. I'll certainly be tossing around these ideas and looking at the numbers and advantageous much more closely before deciding. Thanks for the great reminder and sage advice.

Patrick Britton · Answer

Seems like you have a pretty good problem to have. :)

I might suggest you look at it both from a quantitative point as well as a qualitative.  for instance, the numbers might tell you that hanging on to the property is the best move financially, but do you really want to be a landlord going forward with this property?

And assuming you actually could sell and walk away with a nice chunk of change, are you only interested in other real estate investments?  I know certain things like Tesla and Bitcoin are a little bit expensive right now but there are a couple of people on this planet who think that those prices have a long way to go yet…perhaps something truly passive and headache-free might be an option?  In other words, make your money in real estate and put it in something that isn't quite so involved or risky?

Also, just getting back to some initial assumptions here, how do you know your home could sell today for $530,000?  And what evidence supports the notion that over the next few months this estimate will increase?   Oh, wait, you said Boise ID? Never mind, enough said :)

but seriously though, you purchased the property four months ago and it's now worth $120,000 more?  I would get a couple of opinions on that from independent, unbiased sources.

Chris Davidson · Answer

@Anthony Terrones

I feel like you are definitely in a win win situation. I would like to ask what drove the long term investment purchase. Were you looking for the monthly cash flow or hoping for long term appreciation with cashflow? If you were looking for the cash flow what has changed that makes you not want it?

One thing to not forget though if you sell it Uncle Sam will want his cut so it won't be a straight 80-90K in the summer to use on your personal down payment. However a 1031 would let you take that equity and put it to down payments of other investments.

I would just spend some time thinking and tossing ideas around to see what is the best for you long term and achieving those goals.

Cheryl Faber · Answer

@Anthony Terrones Absolutely! I’ll shoot you my number 😃

Anthony Terrones · Answer

@Trevor Greene valid point about finding another asset/investment that would have as good returns as this home. Grateful for your feedback and this is very useful as I consider my options!

Anthony Terrones · Answer

@Patrick Britton Great points. I've absolutely been thinking about diversifying my investments into some stocks as well as real estate. I do not personally want to be landlording a bunch of properties over the long-haul, but rather will be using property management to do so. In regards to the value, I keep my eye on the market very closely and I also have a very savvy agent I work with. As you jokingly mentioned, Boise is nutty right now. I'm seeing very adequate comps (most of which are slightly smaller, have worse views or are in slightly worse conditions than mine) selling in the exact range that I'm talking about. Great feedback, much appreciated.

Trevor Greene · Answer

Hi Anthony,

Congrats. The down payment for your new house is a complicating factor that might change things, but if you are just looking to cash out and invest your profits somewhere else, my immediate reaction is that it would be hard to find something else that will have better returns than this house you've already bought.

Cheryl Faber · Answer

@Anthony Terrones I’m an investor here in Boise too and dealing with a similar choice...I have 6 homes here and am considering selling the own that I have lived in recently and will allow me to pocket $250k tax free. If you sell now/soon you’ll be looking at paying the short term capital gains taxes which are pretty steep! Foe that reason alone, personally, I’d hold it! Happy to chat with you more about the ins and outs! I’m building too! Where is your new place?

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