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Updated about 3 years ago,
Dwindling cap rate due to appreciation, cash in chips?
First off my goal;
My line of work is changing at some point at no fault of my own (finance) and what I do (which pays six figures) is the target replacement level income TO WALK AWAY FROM THE JOB. NOT RETIRE. I'd like to go to the local community college and brush up on plumbing, electrical,etc. so I can do that preventative maintenance when tenants are turning (that means on my watch lol). I've been 1031ing some of my more expensive assets ($130k SFR in 2013, now $230k) that were generating $1300-$1400 p/month (now $1600) to buy homes with better yields at small purchase prices, spreading the risk out while having a $70k/$1000. One was because I could sell the prop that was 4 hours away while buying the smaller SFRs here in my hometown (i.e. I'm closer to keep my eye on investment). The other was 1/2 of 2 foreclosures I bought in 2019 in the exact similar $ invest spread ($130k, now $230k). I again took funds to 1031 better cap rate smaller homes in a portfolio purchase that had tremendous equity and rehab potential. I just recently BRRRRd a $38k purchase now worth $74k with about $15k of invested. Rented it In one day for $950 with 30 calls in 24 hours of a FB marketplace listing.
The last house of those two is where my question is found. I have tenants in there who I moved on my dime because they lived in my Mothers previous home which we now live in. I cashed in on a larger home, renovated, and move the family in. We are now debt free except the loans on the rentals. I'm in no hurry to move them but they plan to leave this summer when the wife retires from the hospital.
I have about $1.3m in SFR that generates about $180k in rental sales. My intention was to sell that last foreclosure as it had the worst cap rate. I at most could rent this $230k for ex $1650 now. There is a local investor who built new houses in the target market bigger and nicer at $1700 some I'm tapped at that $1650. Im thinking take the $100k gain in the last two years and pay down debt. A set of maturities start rolling in 2-4 years. At that time I'll likely put about $50k toward balances each year. If I do that now I'll likely be down half the loan balance on the last maturity of that set. HOWEVER if I kept a tenant in there for perhaps another year at this level of appreciation I could see it go from $230k>$245 perhaps?
Again my goal is to get the houses to supplement my income ASAP with as little debt as possible. I'll likely never be debt free (because I'm a student of that thought, as long as the debt makes money). My question to some of the smartest people on the web is thoughts on % of appreciation that you'd say "sell" when my tenant leaves? Or should I do another 1 year lease and let it appreciate and taking those gains and get a bigger loan pay down. This question is based on my shrinking belief that the amount of appreciation we are seeing will eventually slow. I mean...they are appreciating at an unsustainable rate....right? Again what % of appreciation would make you want to cash in?