To Sell or Rent in a hot market??

Question

Hey BP Fam!!

I'm in a tough predicament and am seeking advice on what to do in the following scenario:

I bought a primary townhouse in a nice desirable community in Charlotte NC  in December of 2019 with specs of 4 beds/2.5 baths for $239,500 at 5% down. While living there I house hacked 2 rooms at $750 and $800 bringing in $1,550 and living in the master bedroom.

This April I closed on a GREAT deal in the heart of a hot market here right outside of Charlotte and rented out my master for another $750 a month now collecting $2,300 a month on the property (I'm paying the utilities). With one tenant moving out at the end of this month, I'd like to avoid renting by the room moving forward and rent to a family/ someone else longterm.

With owning it for only 1.5 years, there are very similar comps on the same street selling anywhere from $310-$339k a unit. Knowing that capital gains will take a solid chunk, do I hold on or take the cash and dump into my current primary that is a 1930 fixer upper but can yield a very high return as well?

Pieter T Van Zyl · Answer

@Adam Venditti

Adam this is a great problem to have! I actually found myself in the same scenario you are in about a year ago. Had my primary residence with roommates, planned to move out and rent, but with the market so hot I ended up selling it and making around 75k before taxes.

I think this decision really has to come down to the numbers, what would your rent-expenses be in this house if you rented it to a family long term? What would your rent be if you did something more medium term like furnished rental for traveling nurses/corporate leases? How confident are you in the returns of the house you are looking into? And as the other post mentioned have you considered 1031 exchange?

Ultimately I sold my primary as my rental income would only be about 100$-150$/month and I wanted higher returns. I turned the 75k before taxes into 3 doors making around 1000$/mo in pure cash flow.

Adam Venditti · Answer

@Bob Okenwa Hey Bob/ Appreciate the note and I have considered a 1031 but have been thinking about using the cash to renovate my current primary and potentially adding an ADU to rent out which I don’t think you’re able to apply the 1031 to?

Kimberly Gopp · Answer

@Adam Venditti

I am with @Andrew Freed on keeping the home.

4 green house & 1 red hotel, as Robert Kiyosaki says… that’s the path/game if you are looking to build wealth.

Cash-out refi for the long hold. Use that captial for improvements on your new property. Rinse, repeat. That’s 2 green houses.

Buying as a primary (less skin in the game- higher COC return ) house-hack that until you roll into a new primary which shifts the prior house over to your asset column. Smart Adam! Keep going. Any small multifamily around you? Scale a bit faster. Good luck!

Andrew Freed · Answer

@Adam Venditti - Have you considered utilizing a HELOC or cash out refinance to fund your 1930 rehab while keeping the townhouse. It seems you want to access the underlying equity, but you can do that without selling. For instance, I opened up a HELOC on my primary and used it to buy my next 3 deals as well as utilize it as a reserve fund for repairs or upgrades. Interests rates are super low. But if you feel interest rates are on the rise, you can always lock in the interest rate with a 30 year fixed and take some cash out. Lastly, a 1031 is a great tool, but it does kick the tax liability down the road and might force you into purchasing a subpar deal. In any event, if you do a 1031, get the new purchase locked in before you sell you 1031 the property so you can avoid a stressful closing.

Bob Okenwa · Answer

Why not do a 1031 exchange?

Basit Siddiqi · Answer

@Adam VendittiYou may have been better off staying in the house until the 2 year mark being eligible for section 121 exclusion.The tax on the excluded gain would prolly have been close to $10,000.With that said, if you sell for $310, you may expect 10% of the selling price to be gone with fees & expenses(seller agent fees, title work cost, transfer taxes, etc). Still a great profit over 1.5 years.If you decide to rent to one family, you should prolly expect your rents to decrease which may potentially make this property not cash-flow. Cash-flow isin't everything if you are expecting this property to be an appreciation play.best of luck

Adam Venditti · Answer

@Kimberly Gopp thanks so much Kimberly!!! And yes, you’re right! I’d hate to sell but also scares me with the HOA’s being on the higher side at $300+ / month comp’s are really showering closer to $2,000 and $2100 on the higher side which doesn’t yield a very good return. If I do sell, the goal would be to dump renovate my primary and cash out refinance into multi family!

Adam Venditti · Answer

@Andrew Freed thanks Andrew!! Really appreciate the insight! And yes, I’ve since bought a new primary so if I refinance my only option would be to refinance into an investment property taking the interest rate from a 3.75% to a 4.3% and the cash out would only yield 15k since I initially only put 5% on the primary!

Seon Gilding · Answer

@Adam Venditti Have you considered doing a 1031 tax exchange?

Bob Okenwa · Answer

I am not a 1031 expert so you'll have to see if anyone else here can answer or if there is someone local you can talk to about that. Too bad you couldn't hold out for a few more months so you wouldn't have to worry about capital gains.

To Sell or Rent in a hot market??

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