Should I sell or wait it out?!

Question

Hi All,

Thanks in advance for the replies. I'll try to keep my explanation of issue short and to the point.

Due to me moving to another state for work I recently put my SFH on the market as a rental and currently have a tenant until next year this time. Long story short I am making just enough to break even after mortgage payments and cap ex.

My lease is somewhat below market value and I believe that once the lease is over I can potentially profit $400 per month on this property. This is with the mortgage and cap ex expenses being paid. Also, the appreciation on my house has been around 20% over the past two years. Obviously I'm not sure with the markets how that will hold up over the next few years.

My issue is currently if things happen in the house i essentially am in a loss for the year although i can float the cost.

Potential Solution:

During this time I've actually been able to connect with an investor who will actually give me current value on my home which is essentially the appreciated value of 380k. This would net me around 60k which is what I've put into the house, essentially cashing out.

My question is. Would it be better to hold onto the property and essentially eat the cost if/when maintenance items arrive. This would land me with $400 profit per month as well as appreciation gains. OR cash out the property and look for better opportunities?

Another thing to note, my interest rate is very low so a cash out refinance is not an option.

One main concern I have currently have are the high interest rates and finding a better deal.

Thank you again for taking the time to read my post. I look forward to your responses.

Randall Alan · Answer

@Jay R.

I think the first question to ask yourself is what is your objective? Do you want to hold real estate properties or did you just stumble into it and now here you are?

A year is nothing in real estate. If you like the idea of real estate income and you have reserves like it sounds like, then just wait a year, raise your rents, and enjoy the profits. If you were going to raise your rents by $400/month I would definitely give your current tenant a sizable heads up notice so she can either be prepared for them or find other arrangements.

I have been in real estate for 6 years and every house I’ve sold (about 6 of them) I look back and wish I still had them because they are all worth $100,000 more than they were 2 years ago. So I left over 1/2 a million dollars on the table in retrospect had I known markets were going to continue to surge. While real estate likely won’t continue to rocket has it has, the average increase is usually like 3-4% a year. So you will be gaining upwards of $15,000 in appreciation, plus your mortgage being paid down by several more thousand, plus if making $400/ month that is $4800 more… so for each year you hold the property it is ultimately returning to you over $20,000 - albeit sone of that as equity and appreciation. You also get to write off all the mortgage interest as well. So my vote is to hold the unit and view it as an investment. Maybe you only get $15,000 of benefits this year… it’s still not a bad deal.

On the other hand, if you need the cash, if you lived in the property for two of the lady 5 years you could sell it and collect that profit tax free. Not a bad deal!

The choice is yours!

All the best!

Randy

Bjorn Ahlblad · Answer

You definitely should not sell in my opinion. You have appreciation and your basics are covered. New money would likely cost you double and rates are not likely to come down. This is the start of your REI journey, think about your goals and develop your skills to take it to the next level!

Should I sell or wait it out?!

2 Replies