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

[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

[Ward Dement]

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.