Deciding ! Keep rental or sell ?

Question

I have an investment thats been stable. has not required much upkeep

two years iv owned it without much difficulty finding renters hvac, roof without issues so far but are on the back end of expected life. House 2004.
im trying to decide if it makes sense to keep it or lose it now before big expenses. Cash flow of 300 a month without considering vacany or the expenses of inevitable maintenance.

Feels like its smart to sell because if i pay for a new roof or hvac my cash flow will take a long time to get me even on that out of pocket.  Selling seems right but i took depreciation on the property, so im wondering the best strategy here

Jonathan Greene · Answer

You are basically saying that you would like to transfer the long-term maintenance and upkeep issues that are coming soon to a new owner. If that is true, what you think you can get for it is likely not correct. If it's steady, your job is to make it more steady by spending to do the repairs and upgrades early, not late, and then capitalizing long-term on that in rent.

Brendan Quinn · Answer

Thanks for the feedback.

Alan Asriants · Answer

Whenever you own a property you have to always consider that you might have to eventualy replace the roof or the HVAC.

Selling the property here isn't a "proactive" move, it sounds more "reactive"

The next property you buy will you consider selling as well when it needs a roof? With this mentality no deal is worth it. Every property will need some sort of cap ex originally. If you are struggling with the funds to come up with the repairs, consider getting a HELOC to fund these items. Usually it is always better to keep properties that are cash flowing than selling them. Long term you will have more upside, than selling, waiting, and then buying again.

Roof and HVAC are not that big of a deal. If this was a huge dump of a home that was built in 1890 and needed completely new mechanicals (electrical and plumbing) then I would actually consider it and exchange it for a home that is newer (modern layout, newer mechanicals)

good luck

Patrick Roberts · Answer

I would look at the ROE differences between what you can make now by selling, including the yield on that lump sum if reinvested in the current market conditions, versus what the property will be worth at a point in the future (5 years, 10 years, etc). You'll want to consider this in light of your long term plans - i.e., do you want to have a portfolio of RE properties down the road, or are you expecting to cash out and do something different.

Constructing an IRR timeline on both options using the timeframe you decide on will help you visualize the better yielding investment. You could also explore other options, such as seller financing the property for another investor. If you structure the deal correctly, you could possibly get some of the equity in cash now while keeping some equity invested and even increase your yield.

As someone has already pointed out, if you're selling just to avoid upcoming capex, an astute buyer is likely to spot this and the value of the property will reflect this. If you're selling to someone who will be a homeowner and is buying for emotional reasons, this may have a different impact.

Katie Smith · Answer

Hi Brendan! Is this your first rental property? I wouldn't really consider $300 a month cash flow, THAT is more the savings to go towards upkeeping/maintenance (hvac, dishwasher, roof, septic). I'd be happy to run numbers with you. I'm going to message you so we can go over some calculators together.

Caitlin Logue · Answer

Where is your property located?

I would run more numbers to make that decision. Look at return on equity (ROE) and see if it's where you want to be. If you have a buy and hold strategy, it makes sense to keep and invest in. However, I don't know how leveraged the property and that's a big determining factor.

Marc Winter · Answer

Do you have equity in the property?  Will you make a profit after all selling/closing expenses?

Folks don't go broke taking a profit.

That said, if real estate is a long-term business for you, maybe start portioning cash flow into capx so these issues/expenses aren't as worrisome.

Keep investing and moving forward!

Deciding ! Keep rental or sell ?

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