Potentially selling a property advice on using profit to pay off

[Ian Russell]

Just looking for a bit of advice as I have found some really intelligent answers in this forum before.   I have a house in San Jose, California that I am contemplating selling and need to figure out the best use of the profit from the house.  I would have about 500,000 in equity if I sell the property.

So currently I make 1200 per month by renting out the San Jose property, which I am told is not a great return since I have 500,000 in equity.

I currently have 8 rental properties actually 6 but two triplexes I just purchased will close next week

1.  First duplex is all paid off   net 1200 per month

2. 2nd Duplex is almost paid off  I owe 35,000  and will net 1400 per month

3. 3rd Duplex I owe 100,000 and am positive 400 per month  When paid  off it will net 1300 per month

4. 4th Duplex I owe  100,000 and am positive 400 per month  when paid off will net 1300 per month

5. 5th duplex I owe   100,000 and am positive 400 per month when paid off will net 1300 per month

6. 6th duplex I owe 120,000 and am positive 400 per month when paid off will net 1400 per month

7 7th triplex  I owe 170,000 and am positive 400 per month when paid of will net    1700 per month

8  8th triplex I owe 170,000 and am positive 400 per month when paid off will net 1700 per month.

Currently with San Jose property rental  at 1200 per month + the first paid off duplex netting 1200  and the other 7 properties rough yielding 400 per month for a total of 2800 per month for a total per month profit of 5200   this is an average and fluctuates if I have a major issue at a duplex.        

My Question would it be better to sell the San Jose House and take the 500,000 profit and just pay off 5 of the duplexes?   

1. duplex paid off  1200

2 duplex paid off 1400

3 duplex paid off  1300

4 duplex paid off 1300

5 duplex paid off  1300

6 duplex paid off 1400

7  400 cash flow

8  400 cash flow

My new cash flow would be 8700   compared to the 5200 by not selling the San Jose Property  so plus 3500 per month if I sold it.    The last question is how much do I get dinged on taxes when I sell a house.  I was living in it for 5 years and rented it out last year.  I really dont know what the best course of action is.  Any help would be great.

[Thomas S.]

All you are accomplishing is transferring dead equity from one property to another. Dead equity does not increase cash flow. This is investing 101.

IF you have dead equity in a property it is killing your true cash flow due to it's opportunity value. You are actually using your own cash to buy artificial cash flow rather than investing your money to actually earn it's keep.

When you pay down a mortgage you are only earning the prevailing interest rate. No genuine investor would ever be satisfied at investing at that rate.

Take your cash, invest it in a income fund and double your returns.

Dead equity does not increase cash flow, it is not invested it is parked, dead and buried, useless for all intent and purpose. If you do not intend to make your money earn it's keep put it under your mattress so at least you can get at it if you need it.  

Dead equity is a indication of a hoarder not a smart investor.