Paying off a mortgage or selling the property?

[Jason Renda]

hello all,  

This may be the wrong forum but I thought i'd take a chance and ask for your insight.  Apologizing in advance for long-winded post.

A couple years ago I started a home renovation/flip company.  In the last few months we were able to secure a couple houses at off-market deals and lucked into a situation where the demand in the area is at a rapid growth not locally seen before.  We suspect much of it has to do with Covid and the exodus of people out of cramped cities into smaller towns that offer more space and more house for less money.  The challenge is that until Covid, this area was not appreciating at the same rate as other areas.  Something has clearly created a shift - almost overnight.  And to be diligent investors we want to be sure that we examine how quickly things may revert to the time pre-Covid when house prices had a very modest yearly incline.  Of course we may find out that people continue to stay in this area even after Covid, but we have to plan that they won't or that at least some of the incredible growth will subside.

So now my question: this area is a good distance from where I live.  And we cannot financially play in the areas near my current home.  Even if we could, the margins are very low and competition is incredibly high.  We have to overbid to get above cash buyers and use hard money which obviously reduces our ability to meet basic margins to keep us afloat.  So I can move the business to this new area and take one of the flip houses for myself.

What I am struggling with is the following scenario:

I am 47, my current home is valued at about $385k and I owe $270k.  Assuming a 4% commission etc I could pocket roughly $75k if I sold it. Then move into the flip property and live mortgage free.

If we sell the flip property I would net almost $150k since we paid for it all cash.    But i'd still have my $270k mortgage for my current house.  Certainly extra money is good but that does not change that we still cannot play in the local markets - and truthfully we prefer the smaller areas for our business.

I could move into the flip house that is in the area we will be focusing on, and have no mortgage.  I'd also have not much in terms of cash flow as I have to pay my partner out.  Leaves me roughly $50-100k.  But again no monthly housing debt besides insurance and utilities.  We can still focus on running 2 properties concurrently as that is our strategy.

I am truly torn as I love the flip house and the area, and it is where our business will be centered.  It's also an hour from my kids but i can make that work as my schedule is my own.  What I cannot decide is what is a better long term option: I know the house I am in currently will always have a strong resale value as it is not far from Boston. The flip house has an immediate boon happening but i cannot imagine that being sustainable.  That said, I would immediately own a property in a fantastic Class A neighborhood, fully remodeled and full of character, period details etc free and clear allowing me to use my cash funds to keep the business going.  I cannot refi my current loan as we do not have enough business history for me to qualify.  I have no problem moving - i just don't know what makes more sense financially.

sorry for long winded post.  I am usually good with numbers but i truly am lost from a long and short term financial prudency decision.

thank you for any advice. 

-jason