Should I sell a SFH to try brrrr method?

Question

We have a single family home that we have rented for past 2 years. At first cash flow was great. However the previous owner had a tax exemption so After 1st year it increased and taxes went up so much that our cash flow is literally $24.00 each month after paying mortgage. It is a 30 year mortgage and we were thinking of selling and trying another route with real estate investing such as the BRRRR method. The good thing is the value has increased so we would walk away with an extra 20k after deducting our down payment originally invested. Any advice is appreciated. We are in San Antonio market.

Joseph Cacciapaglia · Answer

@Valerie Longoria I think it's interesting that you've made $20K in only 2 years of ownership, but are worried about the cash flow. We're in a rapidly appreciating market here in San Antonio, so if you've got a positive cash flow, your total returns should be great, just due to appreciation, until that slows down. Before you make the decision to sell, I would suggst looking at how hard it is to find a good BRRRR deal in this market. A lot of the profit has been bid out of BRRRR type deals in the last several months. I've seen several investors investing in essentially zero cash flow BRRRRs, just to expand their portfolio and get more exposure to the market growth.

As @Dan Hunter hinted at, I would also suggest you look at your rental rate and be sure it's market. We've experienced a lot of rent growth in the past two years. If you haven't bumped your rent each time you renewed the lease, then there is probably room to push that. You're only a couple rent bumps away from having a decent cash flowing property.

Also, have you looked into refinancing? You may be able to reduce your payment, or pull out a little bit of equity and keep the same payment, if your rate is higher than the current rate.

Dan Hunter · Answer

@Valerie Longoria

I’d sell if your rent is near market rate. If there’s barely any cash flow, it’s not worth it. You should be able to find something else that cash flows better.

Christopher Campbell · Answer

I think it'd be best to clarify your end game. Are you purely looking for cash flow? I ask because at the moment, and as Joseph eluded to, with how little inventory there is to purchase here coupled with the massive (and still growing) demand for housing both on the investment and retail side, solid deals that will produce good cash flow are fewer and farther between and so heavily sought after that when they go to a multiple offer situations the margins dry up pretty quickly. You having something that is achieving positive cash flow at all is pretty rare to find in this market currently.

For one, it's a historically strong seller's market so you could sell and possibly sell for more than you might initially think if your house is in a good area and in good condition. In some cases, even those things don't matter.

You mentioned how fast the value of your property has potentially appreciated in such a short amount of time. With this crazy supply/demand imbalance, rapidly growing population, maintained low interest rates for 30 and 15 yr mortgages, and the overall desirability of Texas / our particular region of Texas, our market shows NO SIGNS of a slow down in this appreciation for the foreseeable future barring some type of cataclysmic breakdown. What I'm getting at is, would it not be of better interest to hold on to this property and ride the wave and capture a greater absolute return rather than the quick buck you could make on the sale now?

Lastly, is there any way you can adjust the situation as it sits currently to increase your cashflow. Could you change it to a STR? Could you make any cost effective improvements to the property that could fetch higher rents? Could you restructure the financials to make it a little better? Have you explored all the other options outside of just bowing out?

A key thing to remember is the issue of competition and inflation. Pulling your cash out of the bird in your hand to try and find a better one in the bush can be pretty tough these days - especially if that bird in the bush is something 1000 other people want and have the means to obtain. Letting your cash sit for too long will decrease it's purchasing power, especially in this current climate.

I'd say clarify your end game and take in all the options before making a decision. I hope this helps!

Cheers!

Valerie Longoria · Answer

@Christopher Campbell. We decided to keep the property and see what we could do to increase cash flow. I feel so much better about our decision after all your advice. The plan is to do a cash refinance with the other sfh and purchasing another multi family. I am just starting to study the brrrr method and can maybe do a heloc to get that started in a year after educating myself and making contacts with contractors for when we dive into that! I added up our annual cash flow from our rentals and the end goal is to have financial freedom and I believe we are definitely on our way so far it’s at 13k annually with the ($24) included. This is so much fun. Thanks again I appreciate your time.

Joseph Cacciapaglia · Answer

I think taking cash out of the other one first sounds like a good idea. I expect San Antonio to do very well in the long run, so I'm a net buyer in this market. All of my successful investor clients have taken a similar stance. By taking cash out but keeping your other property, you'd be able to expand your portfolio without having to give up on continued appreciation of the property you already have.

Caleb Brown · Answer

Texas has been exploding. I'd keep let it accumulate more appreciation and rent will be increasing. Network and maybe in 1/1.5 years try BRRR. By then you the money you walk away with could double or more. Another option is hold then pull a HELOC out after a few years.

Valerie Longoria · Answer

Thank you so much. I love studying and learning how to improve. I’m just glad we finally started. Are you in the San Antonio area?

Danny Webber · Answer

1031 it maybe

Jaron Walling · Answer

Congrats on the decision to hold that investment. The growth of Texas is currently insane.

Christopher Campbell · Answer

@Valerie Longoria Awesome! Congrats, I'm glad this forum could help. Feel free to reach out if you have any other questions. I'd be glad to share knowledge and experience.

Cheers!

Should I sell a SFH to try brrrr method?

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