Your Advice Needed: Sell and '1031' Cash Out Refi or Keep Renting

Realtor · Sarasota, FL · Member since 2015 · 51 posts · 11 votes

4y

Daniel,

It seems like you have each scenario well thought out. I personally like the idea of refinancing into long term debt and having your heloc and possibly extra cash to re-deploy as long as your rent pays for your debt service and expenses. You won't need to deal with a 1031 exchange and can still have the benefits of depreciation and seeing your loan principal paid down.

You mentioned selling while the market here in Sarasota is still good. Do you see it changing in the near future? What are some of the reasons you think it might or will change? We are still seeing a ton of buyer demand here in the west coast of Florida for both residential and commercial property.

I look forward to your reply. Have a great day!

0 Reply

Steve W.

USA · Member since 2014 · 119 posts · 102 votes

4y

First, let's cross #1 off the list :)

Choosing between 2 & 3 depends on your goals.

- If your goals are cashflow TODAY, would you re-invest in a cheaper area that has better rent to value? Do you have that market picked out already?

- If your goals are appreciation TOMORROW (in rent and/or value), do you LIKE this area? Do think this market will do well in the long run, or do you favor somewhere else? As long at the property is supporting itself, it sounds like it will still give you a good $160k to continue to play with while keeping this one.

- Or maybe for your goals you've decided you prefer a different asset class, like MFR or SFR condos. That could be another reason to sell. I was talking to an investor the other day, and he is selling a property that he likes, we would prefer to keep it, but he needs the cash to be a partner in a mobile home park.

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Daniel Rozen

OP

Investor · NY · Member since 2021 · 17 posts · 7 votes

4y

Thank you @Nick Schlabach and @Steve W.

You guys ask good follow up questions :-)

My goal is long term, but in a market where i see appreciation skyrocketing in just one year, one may wonder, how long are these prices sustainable? I do love Sarasota and its a strong market, but in my opinion everything is cooling off. DOMs are getting bigger, mortgage rates are higher, and even though Sarasota (LWR) is mostly blue collar they are largely dependent on Tampa economy as well as remote work. Im not worried not being able to rent and make some money in Sarasota, im just concerned that prices may go down to a pre-pandemic level, and i would not see that level of appreciation for few years to come. Its the Cost of Opportunity we're talking about here.

I dont have any other markets in mind at this point, so issue of 1031 is a tough one if i decided to sell.

If I decided to cash out refinance at higher balance, I would just need to figure out the level of extra dept i am comfortable with that would cover my expenses by rent and have the extra cash to play around with in other markets potentially.

thank you guys,

Daniel

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Ward Dement

Sarasota, FL · Member since 2018 · 17 posts · 13 votes

4y

Hey Daniel, I think you're right to be concerned about maximizing your ROE. You've suddenly got a lot of equity. Now you need to evaluate if it's serving you well. Would your return improve by cashing out and re-deploying?

I am not concerned about our market. At the risk of contradicting you, I've lived and worked in Sarasota for more than 30 years and never met anyone here dependent upon a Tampa employer. Sarasota / Bradenton / North Port is a distinct Metro from Tampa. The economy is definitely still service-based, but there are plenty of professionals/small business owners and wealthy retirees able to keep buying houses. DOMs are simply returning to a normal pace. Sarasota is well positioned to benefit from the continuing demographic shift in addition to remote work. And as long as big cities make the decision to move easy, this area will be fine.

1 Reply

Steve W.

USA · Member since 2014 · 119 posts · 102 votes

4y

MANY places have skyrocketed in price, it is not unique to Sarasota. Assuredly, some of those markets are more exposed than others. The question is - compared to what? Do you think Sarasota is one of those markets that is comparatively more exposed?

And if the answer is yes, sounds like your heart might now be in Sarasota, might feel more comfortable with a place that hasn't gone up much in price, doesn't have high prospects of going up much in price, but also less risk to the downside - the traditional linear markets with better rent to value ratios.

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Jared Prevost

Lender · Tampa, FL · Member since 2020 · 113 posts · 119 votes

4y

Quote from @Daniel Rozen:

Dear BP members,

In these tough economic times I would like to get your opinions. What would you do? Here is my situation:

Last year I purchased a new construction SFR in Sarasota FL which appreciated nicely in the past year. Second year leasing with no issues. Few months ago I was forced to pay off my mortgage with the lender using my primary home HELOC (currently fluctuating apr at 5%). Here are some rough stats:

Home values and if SOLD today

Current Home Value $680,000

Purchased Value $(480,000)

RE Commissions (5%) $(34,000)

FL Doc Stamps $(4,760)

Rough Profit $161,240

Yearly P&L

Rent $43,800

Mtge $(24,000)

HOA $(1,224)

Taxes $(7,000)

Ins $(900)

Maint $(500)

Total Net Profit $10,176

My question to you:

1. Should I continue renting which will be getting more expensive as my HELOC apr is bound to go up this year as per the FED directive.

Con: reduced Cash Flows.

Con: used up HELOC which could have been used for other investments.

2. Should I cash out refinance at say 80% home value ($540K), pay off my HELOC ($380K), and be left with $160K available to invest elsewhere in real estate markets.

Con: drastically reduced Cash Flows on rental since bigger mortgage balance.

Con: New underwiring process and closing fees.

Pro: Fixed mortgage vs fluctuating

Pro: no 1031 exchange issues to deal with and no tax ramification

3. Should I sell while the market is still good in Sarasota and yield myself a nice profit which I can 1031 exchange (buy low, sell high – finally 😊)

Con: Dealing with 1031 exchange and rushing into identifying new investments within 45 days

Pro: It would take me 16 years to break even on profit from sale vs renting cash flows.

as always, appreciate the BP forum and all of your input.

Regards,

Daniel

Hi Daniel,

In my opinion, the choice you should make is entirely dependent on your goals. I'll list the goals you would need to have for each option to have that choice be the one that makes the most sense for you:

1) To choose to continue renting out the property and retaining your HELOC, your goals would need to be focused on having real estate be a diversified investment for you that contributes to your net worth, however you don't plan to make all of your money through real estate. You want to keep rolling with a good situation and keep things as simple as possible while supporting your monthly budget.

2) For option #2 to be your best bet, your goals would need to be focusing on scaling your real estate business through single-family and focusing on additional smaller acquisitions. You would effectively need to be a BRRRR investor who wants to continue to build their portfolio and increase the amount of time dedicated to their real estate business.

3) You don't want to focus on scaling the typical single-family rental. You're looking to get a good deal on a larger/luxury property by offering all or mostly cash (hopefully off-market) and are more interested in higher cash flow strategies such as rent-by-the-room, Airbnb, or sober houses.

I hope this provides you with clarity, always start with the CCC :)

1 Reply

Mark LangdonPro Member

Investor · Whippany, NJ · Member since 2010 · 356 posts · 104 votes

4y

Its about the velocity of money. Sell and 1031 it once you find your next investment that you want to pursue.

[email protected]973-464-3839

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Your Advice Needed: Sell and '1031' Cash Out Refi or Keep Renting

Your Advice Needed: Sell and '1031' Cash Out Refi or Keep Renting

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