Should I sell my investment property?

[Justice Staines]

Hello everyone, I’ll get straight to the point.

I purchased the home in 2020 for 220k in Maricopa, AZ ( Suburb of Phoenix) 

Currently owe 211,000 with a 3.3% rate.

Currently renting for 1750 and my mortgage + HOA has me at around 1300 a month.

I have spoken to a few real estate agents and we think we can get 350k for it in todays crazy market. The problem is short term capital gains tax and if I want to do a 1031 exchange, I’d have to find a city that still has affordable homes and I believe will continue to grow.

So I have 3 options

1. Sell the home outright and receive around 72k after short term capital gains, and seller commissions. Then possibly invest into an Index fund and just contribute to it over the next 20 years

2. Do the 1031 exchange, and try to find a home in the Midwest or south where we could get a higher margin between the mortgage and rent.

3. Keep the rental and hope Maricopa, Arizona continues to appreciate although I think we might be headed for a big correction or recession.

Also, I found a townhome in Pensacola Florida for 90k, if I did the 1031 exchange I could buy it outright and then just rent it. Zillow estimates I could rent it for 1000 a month. But who knows.

what are your thoughts? Thanks!!!

[David Avery]

Keep it because appreciation and rents are so high for quite a few months.

Or Florida townhome and rent that.

Both are pretty sure things.

Its hard to beat appreciation and positive cash flow!

[Stephen Reyes]

If you bought it in 2020 I would not think you would have a short term capital gain issue. 

[Aaron Bress]

You could also look at refi since your house has appreciated so much and use that money to buy another property. That way you have two cash flowing properties. 

[Anthony King]

@Justice Staines I'm pretty sure short term capital gains is if you sell within 1 year of purchase.

[Anthony King]

@Justice Staines If you enjoy owning and managing rentals then I would keep this property and make sure you keep rents up to market rate. At the same time, open up a HELOC for 75% LTV and use that money toward a down payment....on that Pensacola condo if that's what works for you. This is a very personal decision however, so only you can decide. I can only tell you what I would do from a financial standpoint.

[Caleb Drake]

Quote from @Justice Staines:

Hello everyone, I’ll get straight to the point.

I purchased the home in 2020 for 220k in Maricopa, AZ ( Suburb of Phoenix) 

Currently owe 211,000 with a 3.3% rate.

Currently renting for 1750 and my mortgage + HOA has me at around 1300 a month.

I have spoken to a few real estate agents and we think we can get 350k for it in todays crazy market. The problem is short term capital gains tax and if I want to do a 1031 exchange, I’d have to find a city that still has affordable homes and I believe will continue to grow.

So I have 3 options

1. Sell the home outright and receive around 72k after short term capital gains, and seller commissions. Then possibly invest into an Index fund and just contribute to it over the next 20 years

2. Do the 1031 exchange, and try to find a home in the Midwest or south where we could get a higher margin between the mortgage and rent.

3. Keep the rental and hope Maricopa, Arizona continues to appreciate although I think we might be headed for a big correction or recession.

Also, I found a townhome in Pensacola Florida for 90k, if I did the 1031 exchange I could buy it outright and then just rent it. Zillow estimates I could rent it for 1000 a month. But who knows.

what are your thoughts? Thanks!!!

depends on the townhome. Send me the info and I’ll let you know. Pensacola is my market. Be cautious unless you have good boots on the ground or a good knowledge of the area. It can be deceiving! 

[David Garner]

Hey Justice... Great deal you did there! 

If it were me, I'd probably look to sell that and repeat in a new area. Unless of course it still cashflows with a cashout refi at 75%... that would give you close to $50k in hand to go buy rental number 2 (50% down on the FL property) and re-do your magic on that deal while also keeping this one.

Ultimately, what you choose to do should be guided by more than money. Do you want to be a landlord twice over? Will you lose sleep with more debt and more houses? What's your end goal? Where do you think the market is headed? All of those things are personal to you, amd they all matter.

Good luck, I hope it works out for you.

DG

[David Avery]

Real Estate agents want that commission.

Keep your properties.  Don't ever give up appreciation and positive cash flow.  Unless your done making money.

[Chad McMahan]

Quote from @Justice Staines:

Hello everyone, I’ll get straight to the point.

I purchased the home in 2020 for 220k in Maricopa, AZ ( Suburb of Phoenix) 

Currently owe 211,000 with a 3.3% rate.

Currently renting for 1750 and my mortgage + HOA has me at around 1300 a month.

I have spoken to a few real estate agents and we think we can get 350k for it in todays crazy market. The problem is short term capital gains tax and if I want to do a 1031 exchange, I’d have to find a city that still has affordable homes and I believe will continue to grow.

So I have 3 options

1. Sell the home outright and receive around 72k after short term capital gains, and seller commissions. Then possibly invest into an Index fund and just contribute to it over the next 20 years

2. Do the 1031 exchange, and try to find a home in the Midwest or south where we could get a higher margin between the mortgage and rent.

3. Keep the rental and hope Maricopa, Arizona continues to appreciate although I think we might be headed for a big correction or recession.

Also, I found a townhome in Pensacola Florida for 90k, if I did the 1031 exchange I could buy it outright and then just rent it. Zillow estimates I could rent it for 1000 a month. But who knows.

what are your thoughts? Thanks!!!

Hi Justice.
Unless I'm missing something, the ROI is quite low. I'd recommend you sell, and 1031 flip into a larger property that will generate substantially more STR rent. Go to where the money is.

Assuming you qualify for financing in addition to the 1031 cash, you should be able to generate a minimum of $15k-$20k net per year, based on $72k cash. My clients are doing this left and right in my area.

Message me if I can help.

[Dave Foster]

@Justice Staines,

1. It would be long term capital gains if you sell and do not do a 1031.  But you will have two years of depreciation recapture.

2. Because you have to purchase at least as much as you net sale ($350K ish) to defer all tax.  The FL condo would not do anything for you buy itself.  You'd have to find an additional property to get to your reinvestment target.

#1 would be less tax than you think.  And #2 and #3 could be combined to defer all tax with a 1031.

[Michael Hamby]

I am in a similar quandary.  I have been asking my colleagues and some new advice I have never heard was, if you had the profits outright now i.e. 72k what would you do with it?   Would you want to buy the same house now you have now or something else?  Whatever that answer is, you should go with that. However, if we consider buying real estate for retirement purposes only and understand we don't make much on them until we pay off the mortgage, would you want to continue to hold this property forever so it's an amazing free and clear stream of income in 20 years. 

[Michael Hamby]

Quote from @David Garner:

Hey Justice... Great deal you did there! 

If it were me, I'd probably look to sell that and repeat in a new area. Unless of course it still cashflows with a cashout refi at 75%... that would give you close to $50k in hand to go buy rental number 2 (50% down on the FL property) and re-do your magic on that deal while also keeping this one.

Ultimately, what you choose to do should be guided by more than money. Do you want to be a landlord twice over? Will you lose sleep with more debt and more houses? What's your end goal? Where do you think the market is headed? All of those things are personal to you, amd they all matter.

Good luck, I hope it works out for you.

DG

I really like your last three questions.  I am in a similar quandry and these last three is exactly what I am trying to decide!

[Steve Vaughan]

I only sell if it is causing pain, I feel that asset value has peaked or I already have specific opportunities that are better. 

I didn't hear any of those. 

[Justin Phillips]

My wife and I were facing a similar sell/keep as a rental dilemma and we decided that keeping the property as a rental while retaining access to equity was the best of both worlds. We refi'd into a very specialized 1st position LOC that's tied to a zero balance sweep checking account. So we retain 30 year access to our equity, but only pay for it when we need it. In addition, we sit all deposits/idle funds on our balance where they save us a nice bit of interest. It's been a great move for us as we've enjoyed the monthly cashflow, appreciation over the last year and have also put some equity to work when opportunities arose.
Having equity is a great spot to be in, best of luck with your next steps!

[Susan Thelen]

Definitely keep it!

[Andrew McGuire]

@Justice Staines

I'm an Agent and I will tell you don't sell it! Only sell if it is a big problem or you don't like the area which doesnt seem to be the case. Have you done David Greene's Return on equity calc? basically take the cashflow for the year and divide it by your equity and see what that comes out to, if lower than 10% maybe consider refinancing to get your hands on that equity to find a new higher performing deal. I like anywhere in Phoenix or Pinal county as long term investments and am starting to work with out of state clients to go into that market. Don't look back in 5-10 years and be like why oh why did I sell lol, I hear it all the time. Flipside if it allows you to buy a nicer or higher performing deal than maybe its worth it doing a 1031. 

Good luck 

[John Warren]

@Justice Staines there is always a time to sell an investment property, but I also think refinancing to pull cash out is a much more efficient strategy as long as you like the property and there are no looming CapEx items. Why not look to put some extra debt on the property so you can put that newfound equity to work?