Keep, refinance or sell?

Question

Hello everyone! Asking for your expert opinion. Any thoughts are appreciated!

We bought at $212k, we put 20% DP used DSCR(~45k because it was appraised at $206k).

Some of the updates we did: changed roof& hvac, minor cosmetics, replaced driveway spent probably $40k.

Remaining loan is about 152k @5.75%. Mortgage is only less than $1400. For 2025 we are assuming it will rise at $1500-1600

Same townhomes pending at $260’s; if we upgrade kitchen/bathroom around $275 up

Current tenant leaves Dec 31, 2024 Assuming rent stays the same for LTR, we will be cashflow negative since Home/Hazard Insurance and Taxes will increase inevitably.

Should we:

• 1. Upgrade/Renovate update Kitchen, Bathroom & Flooring which would cost us about $50-60k with furnishing, keep it as MTR or STR then refinance or **midterm rents 2400 and up with comps; then Refinance or….

• 2. No renovations, but cashflow negative (wont hire property manager anymore just to breakeven) @$170-1850

• 3. 1031 and buy in WA where we can manage on our own

Same problems with others, we have limited cash available. if we do buy on WA , few concerns are:

• We are intermittently rehabbing our current home to be rented as Nursing Home eventually hopefully in 2 yrs.
• home in WA are more expensive and would need higher downpayment and it would be challenging for us because our DTI is high already, we would have  do to a dscr thats 100k++ DP

Sorry for the lengthy post, hope to hear from you!

Jonathan Greene · Answer

I would definitely get rid of it, but I don't think it's worth much more than what you paid based on your updates. If it's a townhome, why did you replace the driveway? Isn't that part of the HOA? HVAC is assumed, as is roof, so that doesn't push up your value much. So it's just the cosmetics and appreciation. Considering you have to do 1 to do STR or MTR, and it's in an HOA as a townhome, I would not even think about it. The only option I see if you have no liquidity is to sell and 1031 into a small investment property closer to home.

Benjamin Aaker · Answer

From your options, #1 is a big sink of cash and I can't tell how much that increases you rent. #2 is a no due to cash flow negative. #3 is the way to go. HOAs cause a lot of headaches for investors as their mindset is usually different. That's another reason to sell.

Catherine Javier · Answer

Thank you@Bonnie Low this is very useful. Now O will research about these tricity you mentioned!

Dave Foster · Answer

@Catherine Javier If you find the property is more of a liability to you and ultimately decide to sell, the 1031 exchange would probably be the best way to take advantage of using the tax and find something with a greater growth potential. Especially if you're tight on cash.  Using the deferred tax as part of your reinvestment will do wonders for what you are able to buy.

You get  access to greater reinvestment potential, as well as not having to recapture any depreciation.

If you do need access to some cash, you can either take some out as part of the closing (only the cash you take will be taxed.  The rest will be deferred in the 1031.. Or, once you finish your exchange you can immediately do a cash out refi, which is not a taxable event and you can use that for any purpose you want.

Not sure the returns on that property given any more investment would be worth it.

Eric Fernwood · Answer

Hello @Catherine Javier,

This is a common question, Whether to keep, refinance, 1031, or sell. I created the following decision tree diagram to illustrate the decision process (click to enlarge).

The above decision process is based on the property’s performance record, with the goal of achieving financial freedom in mind.

Financial freedom is not just replacing your current income. It's about having an income that will enable you to maintain your current standard of living for life. This requires a rental income that meets the following requirements (click to enlarge):

Where to buy? The markets that can help you achieve financial freedom (see the Dependencies above).

Jonathan Greene · Answer

I've never heard of an HOA that is not responsible for driveways that they laid and trees that they planted. That seems a little suspect to me and sucks that you had to pay for that. Exterior attachments like decks and stairs are always HOA issues so I can't fathom how the driveway is not.

Bonnie Low · Answer

I'd sell if I were you. 1) I don't like HOAs and certainly not for STR or MTR 2) the numbers don't make sense for you to invest in a big kitchen/bath renovation 3) it doesn't look like it's appreciating very well. You don't necessarily need to invest in WA in order to be closer to home. WA is not a landlord friendly state, but if you are going to invest in WA, the eastern side has some hot spots like the tri-cities area that may yield good cash flow and appreciation and still be close enough for you to go there when you need to.

Joe Villeneuve · Answer

Everything you wrote says, no "SCREAMS", to sell.

Trevor Finn · Answer

Hi @Catherine Javier,

Your options each have pros and cons, but let’s break them down strategically:

• Renovate and Shift to MTR/STR: This could maximize cash flow ($2,400+ for MTR) and offset the costs of renovations. However, with limited cash available, you’d need to ensure the return justifies the upfront expense. Consider if refinancing after increasing rents could work, and whether MTR/STR demand is strong enough to sustain long-term profitability.
• Keep as LTR with Minimal Cash Flow: While this avoids a cash outlay, being cash flow negative or barely breaking even isn’t sustainable long-term. It keeps your asset, but rising costs and no property management may stretch your time and energy.
• 1031 Exchange into WA: If local management and long-term appreciation in WA fit your goals, this could work. However, the high down payment and reliance on a DSCR loan could limit flexibility, especially with your DTI constraints. A 1031 also adds complexity and timing pressure.

Watch Out For:

• Opportunity Cost: Renovations tie up cash that could go toward other investments or reserves.
• MTR/STR Management: These models require more time and effort than LTR, even without a property manager.
• Market Risks: WA properties may appreciate slower than expected, and higher costs could reduce your margins.

If cash flow is your priority, option 1 (renovate and STR/MTR) likely offers the highest upside. If you value simplicity and future flexibility, consider selling and reallocating through a 1031. Given your limited cash and high DTI, refinancing after boosting rents might balance risk and reward best. Plan carefully, and you’ll set yourself up for success!

Hope this helps!

Keep, refinance or sell?

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