Decisions for expansion

[Lucien Perreault]

Good Evening BP,

I'm looking for some input on the situation I'm in.

I currently own a 4 unit building in Roscoe Village, Chicago, IL. I bought it last year for 985k with a no money down VA loan. The loan amount ended up being 1,020,460 after the VA funding fee was rolled into the loan and the rate is at 2.5%. I now have the building fully rented at a gross monthly rent of 7950. After all expenses(management, taxes, insurance, maintenance, etc.), the NOI for the last 3 months has been 5705/ month. After paying the loan and saving for CAPex and vacancy, there is $500 of pure cash flow. Using a conservative cap rate of 5.5%(the average rate in the neighborhood is roughly 5%), the building has a potential value of 1.24 million.

If my estimation and math is off please correct me. My question though, is if someone came along and offered me the 1.24mil or greater, should I accept and move the money to another property? I guess it all depends on the next property but before I get to crazy with finding a deal for the 1031 exchange, I wanted to see what others may think.

My main reasons for considering selling is the potential in other states, for example Wisconsin(since its so close to where I am stationed and other factors). Also, the property taxes in Cook County are insane which takes away cash flow. If I used the money correctly, I could snag an investment property and buy another big purchase with my VA loan, therefore potentially doubling my units in year 2.

My main reasons for not selling is the 2.5% rate, the cash flow already created, and the significant tax benefits(of course these can be found with any other property).

Additional information for the already complicated equation. I have a duplex lined up that is currently listed for 139k. It has plenty of work that needs to be done but the building functions. It seems to have potential for a 220-250K ARV. I am already preapproved for a loan for 135k at 5% down but I am not sure of the interest rate yet. This property does not require me to sell the 4 unit building.

If you were in my shoes, what would you do?

If you read this far, thank you very much for taking time out of your day to do so.

Very Respectfully,

Lucien

[Eudith Vacio]

hey @Lucien Perreault - I read the entire post - the story kept me going! Congratulations, that is HUGE accomplishment. You took advantage of one of the best loans out there. Obviously not everyone can qualify, on that note, thanks for your service. 

You have some good numbers on your NOI, and if it were up to me - I would go commerical especially with that amount, you can definitely leverage your equity - sell the property, which can then allow you to increase your purchasing power if you wanted to go get more units. I agree with both @John Warren AND @Jonathan Klemm! Sell it, cash out refinance the property, maybe even consider a HELOC? the power is in your hands.