should I sell a property to pull out $500K and invest it elsewhere?
Member since 2024 · 18 posts · 10 votes
should I sell a property to pull out $500K and invest it elsewhere?
Most Popular Reply
Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes
1yI think it's ideal for a 1031. You could see if there are any local banks that would do a HELOC(tough to find). You could also do a cash out refi. Would change the rate but you can keep the property and reinvest to expand your portfolio. Comes down to your preference and what other deals are out there.
18 Replies
- Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes1y
I think it's ideal for a 1031. You could see if there are any local banks that would do a HELOC(tough to find). You could also do a cash out refi. Would change the rate but you can keep the property and reinvest to expand your portfolio. Comes down to your preference and what other deals are out there.
- MD/DC · Member since 2024 · 1k+ posts · 1k+ votes1y
Did you live there long/recent enough to get the homeowner tax exemption? That is probably the biggest incentive. Is your house in an area that is appreciating, easy to get good tenants?
Other considerations are the lost costs to sell and re-purchase other properties. Do you know the other markets well? I don't think being a long distance landlord is as easy as some tout but full disclosure I've stayed with 80 miles of my primary residences. Although 3.1% is a great interest rate I tend to not get too caught up in keeping a property just because the rate is good. Best wishes with whatever you decide. - 1yElias HalvorsonBusiness MemberHI · Member since 2024 · 225 posts · 130 votes
There are a lot of cheaper areas in the Midwest and South where you could take that 500K and buy either a dozen or so properties (with a DSCR) or buy a bigger multi-family. The key is doing good analysis on the rental market and finding a good property manager.
Elias Halvorson C2 Hawaii NMLS#1697041HI Branch NMLS#1244222 585 Reviews - Lender · Eugene, OR · Member since 2021 · 245 posts · 154 votes1y
It depends on your long-term goals. Don't make a move thinking of the next five years, but further down the line. Re-investing that cash will buy you a lot more top-line value, but your cash flow will take a hit for a while. When it comes back, it will come back bigger (5-10 years). Just make sure that you're investing in an area that will continue to see appreciations (midwest and TX/FL may be iffy on that).
Don't worry about giving up the rate if you're looking to grow your portfolio. You could potentially take out a HELOC rather than sell to invest as well.
- Member since 2024 · 18 posts · 10 votes1y
Quote from @Jules Aton:
Did you live there long/recent enough to get the homeowner tax exemption? That is probably the biggest incentive. Is your house in an area that is appreciating, easy to get good tenants?
Other considerations are the lost costs to sell and re-purchase other properties. Do you know the other markets well? I don't think being a long distance landlord is as easy as some tout but full disclosure I've stayed with 80 miles of my primary residences. Although 3.1% is a great interest rate I tend to not get too caught up in keeping a property just because the rate is good. Best wishes with whatever you decide.Great questions and things to consider! I haven't lived in it long enough to be exempt from capital gains, good point on that. And yes, the home is in a good area, that will continue to appreciate (not extraordinary but still good), and it's easy to get good tenants.
Thank you for the input! Lots of things I hadn't considered. - Member since 2024 · 18 posts · 10 votes1yGreat insights! I was considering a HELOC as viable option as well. The home is still in a great area with good tenants and will likely continue to appreciate. And a good point on "not giving up the rate if I'm looking to grow my portfolio". Thank you!
Quote from @Chris Watkins:
It depends on your long-term goals. Don't make a move thinking of the next five years, but further down the line. Re-investing that cash will buy you a lot more top-line value, but your cash flow will take a hit for a while. When it comes back, it will come back bigger (5-10 years). Just make sure that you're investing in an area that will continue to see appreciations (midwest and TX/FL may be iffy on that).
Don't worry about giving up the rate if you're looking to grow your portfolio. You could potentially take out a HELOC rather than sell to invest as well.
- Lender · Eugene, OR · Member since 2021 · 245 posts · 154 votes1y
Think in terms of Return on Equity. This article is a good primer:
https://www.sageregroup.com/the-secret-formula-to-getting-ri...
- Lender · Eugene, OR · Member since 2021 · 245 posts · 154 votes1y
I can help on the HELOC side if you want to know what you could get out of the property without selling or doing a full refi.
- Real Estate Broker · Barstow, CA · Member since 2024 · 15 posts · 8 votes1y
I always lean toward holding onto a property that's appreciating, especially when it's tied to such favorable loan terms. A HELOC can be a great option if you're looking to leverage your equity for new investments. If cash flow is your primary goal, exploring opportunities in the Midwest can make a lot of sense due to lower entry costs and strong rental demand.
That said, I’d caution against focusing too heavily on cash flow alone. While it’s important, appreciation is often where the real wealth is built, especially when it comes to scaling and expanding your portfolio. Properties that grow significantly in value provide the equity and leverage needed for future investments, which can multiply your returns over time. Balancing both cash flow and appreciation is key to long-term success.
- 1yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
First, all properties that appreciate the appreciation is based on the property value, not the equity. The equity is actually what you are paying for the property.
In this case let's look at the numbers that count,...the current numbers.
You have about $500k or more in equity, which is buying you a property that's worth about $700k (I went with the lower PV. At the higher PV, you have $5k more in PV and equity).
Your CF is around $20k/year, which sounds great, except when you introduce the equity into the discussion. IF you cashed out you'd walk away with around $400k. If you kept the property, and accumulated the CF/yr, it would take you 25 years to get that same equity that's sitting, frozen in your property.
Also, if you cashed out and used that same equity as a DP on different RE, at 20% DP, that equity would buy you $2M in PV, not just $700k,...and, I'd be willing to bet, you could find new RE that would have a yearly CF well over $20k/year.
On top of that (remembering my initial statement above), any appreciation applied would be applied to $2M, not just $700k. Assume a 5% appreciation, and the new PV would be $2.1M vs. just $735k.
- 1yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
i don't know if you should sell your house or not. but, what i do know is that that easy OOS cash flow isn't so easy right now, for several reasons. here are just a few:
-interest rates and prices both remain high. this has really hurt cash flow across the board.
-there is tremendous demand for inventory among both primary buyers and investors. so, good inventory gets snapped up by locals before OOS investors even get a look at it.
-OOS investors in HCOL areas will buy properties that look good on paper without doing enough due diligence and then get crushed by capex and deferred maintenance.
-OOS investors rely on service providers like agents and PMs and think they're guaranteed an outcome instead of just paying a fee for a service.
these investors were all chasing easy OOS cash flow:
https://www.biggerpockets.com/forums/963/topics/1195280-expe...
https://www.biggerpockets.com/forums/48/topics/1160450-run-i...
https://www.biggerpockets.com/forums/48/topics/1137397-balti...
https://www.biggerpockets.com/forums/52/topics/1010977-12-00...
if you're serious on investing in an OOS market i'd pick one, get to know it, go to it in person, and build a team, and then determine what would you need to do to get a good return in that market. but selling a trophy asset in a great area and then dumping the proceeds into money pits just because of paper math... would not be my step 1.
hope this helps
- Real Estate Broker · Bellevue, WA · Member since 2020 · 48 posts · 30 votes1y
You’re in a great position with a property that’s appreciated significantly, a low-interest mortgage, and clear goals to boost cash flow and transition into full-time investing. Let’s break this down:
The Pros and Cons of Selling
Pros:
- Unlock Significant Equity: Selling would give you $500K in cash (less transaction costs), which you could reinvest in multiple properties in higher cash-flow markets. Diversifying your portfolio could reduce risk and improve overall returns.
- Higher Cash Flow Potential: If you redeploy the equity into markets with higher cash-on-cash returns, you could significantly increase your monthly cash flow. This is especially helpful since your goal is to replace your income and invest full-time.
- Market Timing: Bend, OR, has seen strong appreciation, but if you believe the market is peaking or stabilizing, now might be a strategic time to cash out.
Cons:
- Losing the Low-Interest Loan: Your 3.1% rate is a huge advantage in today’s environment. Selling would likely mean taking on new loans at much higher rates, reducing your cash flow margin unless the new properties are stellar performers.
- Transaction Costs and Taxes: Selling could trigger capital gains taxes (depending on exemptions) and other selling costs, eating into your net proceeds. If you’re not using a 1031 exchange, you’ll need to account for this.
- Reinvestment Risk: Entering new markets and managing multiple properties may present challenges, especially if you’re unfamiliar with the areas.
Alternative Strategies
Before committing to selling, consider these options:
- Leverage the Equity (HELOC or Cash-Out Refinance):
- With a 3.1% loan, selling might not be the best first move. Instead, you could explore pulling equity out through a home equity line of credit (HELOC) or a cash-out refinance. While rates for the new loan will be higher, keeping your existing loan intact on the remaining balance preserves that low-cost debt.
- Use the equity to purchase properties in higher cash-flow markets while retaining ownership of your Bend property.
- 1031 Exchange:
- If you do sell, a 1031 exchange allows you to defer capital gains taxes by reinvesting the proceeds into like-kind properties. This strategy would preserve more of your equity and make reinvestment more efficient.
- You could use the exchange to buy multiple properties in diverse, high-yield markets, achieving your goal of increased cash flow.
- Reassess the Property’s Cash Flow:
- Before selling, explore ways to improve the cash flow on your current property. Can you raise rents, reduce expenses, or change its use (e.g., short-term rental, mid-term rental)?
- If cash flow improves, it might make sense to hold onto the property while expanding your portfolio with new acquisitions.
Reinvestment Options
If you sell or pull equity, focus on markets and property types that align with your cash flow goals:
- Out-of-State Markets: Research markets with strong rental demand, favorable landlord laws, and higher cash-on-cash returns. Examples might include areas in the Midwest, Southeast, or Sunbelt regions.
- Multifamily Properties: Consider duplexes, triplexes, or small apartment buildings to increase unit count and spread risk across multiple tenants.
- Short-Term Rentals: If you’re comfortable with the management requirements, STRs in vacation or business travel markets can offer significantly higher cash flow potential than traditional rentals.
- Value-Add Properties: Look for opportunities to buy undervalued properties where you can force appreciation through renovations or better management.
Decision Framework
- Run the Numbers: Compare the projected cash flow, equity growth, and tax implications of selling versus holding with a refinance or HELOC. Calculate potential returns on reinvestment in target markets.
- Define Your Priorities: Is your primary focus maximizing cash flow right now, or do you also value the stability and equity growth of holding onto a property in a strong market like Bend?
- Explore Local Market Trends: Is Bend’s market likely to continue appreciating, or is it plateauing? If you expect further growth, holding onto the property could still make sense.
Final Thoughts
Selling isn’t a bad option, but you’re giving up an incredible financing advantage. Exploring ways to keep your low-interest loan while unlocking equity could be the best of both worlds. That said, if your goal is rapid cash flow growth, a 1031 exchange into higher-yield properties could help you scale faster.
- 1yDave FosterBusiness MemberQualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
@Kolby Knickerbocker, It can be a tough thing to give up an advantageous interest rate. But a couple more points to consider regarding that
1. Your reinvestment targets for a 1031 exchange would have you purchasing $700K of replacement real estate using all $500K of equity. So you are talking about a loan of $200K. You would actually be borrowing less money than originally but at a higher rate. Theres a calcuation to make there to see how that. impacts your net return.
2. Not that I'm a proponent of borrowing just for a tax break, but the interest is a deductible expense. So you just need to look at that additional $2000 - $3000 of interest each year as really being 1000 - $2000 of total new expense to your after the tax deduction.
3. And following this convoluted rabbit hole calculate what kind of property you would need to exceed the profit level you have right now. Borrowing $200K at 4-5% will cost you $8000 - $10,000 of interest each year. Right now your loan is costing you around $6000 per year. So what kind of property would it take for you to increase your cash flow by $2000 - $3000 a year. This would wipe out increased interest expense from a jump in interest. The results might surprise you.
The 1031 Investor5137 Reviews - Real Estate Agent · Emerald Coast, FL · Member since 2016 · 820 posts · 486 votes1y
Quote from @Kolby Knickerbocker:
Quote from @Jules Aton:
Did you live there long/recent enough to get the homeowner tax exemption? That is probably the biggest incentive. Is your house in an area that is appreciating, easy to get good tenants?
Other considerations are the lost costs to sell and re-purchase other properties. Do you know the other markets well? I don't think being a long distance landlord is as easy as some tout but full disclosure I've stayed with 80 miles of my primary residences. Although 3.1% is a great interest rate I tend to not get too caught up in keeping a property just because the rate is good. Best wishes with whatever you decide.Great questions and things to consider! I haven't lived in it long enough to be exempt from capital gains, good point on that. And yes, the home is in a good area, that will continue to appreciate (not extraordinary but still good), and it's easy to get good tenants.
Thank you for the input! Lots of things I hadn't considered.Some confusing points here.
You said it was an investment property, and then you said you live in it.
As you know, you cannot 1031 a primary residence, but a 1031 does kick the capital gains can down the road.
It's just not clear what you are actually doing here. - Member since 2024 · 18 posts · 10 votes1yGreat point of clarification and my apologies. I bought it as my primary residence but no longer live in it.
Quote from @January Johnson:
Quote from @Kolby Knickerbocker:
Quote from @Jules Aton:
Did you live there long/recent enough to get the homeowner tax exemption? That is probably the biggest incentive. Is your house in an area that is appreciating, easy to get good tenants?
Other considerations are the lost costs to sell and re-purchase other properties. Do you know the other markets well? I don't think being a long distance landlord is as easy as some tout but full disclosure I've stayed with 80 miles of my primary residences. Although 3.1% is a great interest rate I tend to not get too caught up in keeping a property just because the rate is good. Best wishes with whatever you decide.Great questions and things to consider! I haven't lived in it long enough to be exempt from capital gains, good point on that. And yes, the home is in a good area, that will continue to appreciate (not extraordinary but still good), and it's easy to get good tenants.
Thank you for the input! Lots of things I hadn't considered.Some confusing points here.
You said it was an investment property, and then you said you live in it.
As you know, you cannot 1031 a primary residence, but a 1031 does kick the capital gains can down the road.
It's just not clear what you are actually doing here. - Member since 2024 · 18 posts · 10 votes1y
Quote from @Sean Barnebey:
You’re in a great position with a property that’s appreciated significantly, a low-interest mortgage, and clear goals to boost cash flow and transition into full-time investing. Let’s break this down:
The Pros and Cons of Selling
Pros:
- Unlock Significant Equity: Selling would give you $500K in cash (less transaction costs), which you could reinvest in multiple properties in higher cash-flow markets. Diversifying your portfolio could reduce risk and improve overall returns.
- Higher Cash Flow Potential: If you redeploy the equity into markets with higher cash-on-cash returns, you could significantly increase your monthly cash flow. This is especially helpful since your goal is to replace your income and invest full-time.
- Market Timing: Bend, OR, has seen strong appreciation, but if you believe the market is peaking or stabilizing, now might be a strategic time to cash out.
Cons:
- Losing the Low-Interest Loan: Your 3.1% rate is a huge advantage in today’s environment. Selling would likely mean taking on new loans at much higher rates, reducing your cash flow margin unless the new properties are stellar performers.
- Transaction Costs and Taxes: Selling could trigger capital gains taxes (depending on exemptions) and other selling costs, eating into your net proceeds. If you’re not using a 1031 exchange, you’ll need to account for this.
- Reinvestment Risk: Entering new markets and managing multiple properties may present challenges, especially if you’re unfamiliar with the areas.
Alternative Strategies
Before committing to selling, consider these options:
- Leverage the Equity (HELOC or Cash-Out Refinance):
- With a 3.1% loan, selling might not be the best first move. Instead, you could explore pulling equity out through a home equity line of credit (HELOC) or a cash-out refinance. While rates for the new loan will be higher, keeping your existing loan intact on the remaining balance preserves that low-cost debt.
- Use the equity to purchase properties in higher cash-flow markets while retaining ownership of your Bend property.
- 1031 Exchange:
- If you do sell, a 1031 exchange allows you to defer capital gains taxes by reinvesting the proceeds into like-kind properties. This strategy would preserve more of your equity and make reinvestment more efficient.
- You could use the exchange to buy multiple properties in diverse, high-yield markets, achieving your goal of increased cash flow.
- Reassess the Property’s Cash Flow:
- Before selling, explore ways to improve the cash flow on your current property. Can you raise rents, reduce expenses, or change its use (e.g., short-term rental, mid-term rental)?
- If cash flow improves, it might make sense to hold onto the property while expanding your portfolio with new acquisitions.
Reinvestment Options
If you sell or pull equity, focus on markets and property types that align with your cash flow goals:
- Out-of-State Markets: Research markets with strong rental demand, favorable landlord laws, and higher cash-on-cash returns. Examples might include areas in the Midwest, Southeast, or Sunbelt regions.
- Multifamily Properties: Consider duplexes, triplexes, or small apartment buildings to increase unit count and spread risk across multiple tenants.
- Short-Term Rentals: If you’re comfortable with the management requirements, STRs in vacation or business travel markets can offer significantly higher cash flow potential than traditional rentals.
- Value-Add Properties: Look for opportunities to buy undervalued properties where you can force appreciation through renovations or better management.
Decision Framework
- Run the Numbers: Compare the projected cash flow, equity growth, and tax implications of selling versus holding with a refinance or HELOC. Calculate potential returns on reinvestment in target markets.
- Define Your Priorities: Is your primary focus maximizing cash flow right now, or do you also value the stability and equity growth of holding onto a property in a strong market like Bend?
- Explore Local Market Trends: Is Bend’s market likely to continue appreciating, or is it plateauing? If you expect further growth, holding onto the property could still make sense.
Final Thoughts
Selling isn’t a bad option, but you’re giving up an incredible financing advantage. Exploring ways to keep your low-interest loan while unlocking equity could be the best of both worlds. That said, if your goal is rapid cash flow growth, a 1031 exchange into higher-yield properties could help you scale faster.
My dude, this was the most fantastically detailed response! I truly appreciate the insight you brought!
Yes, these are all great points and I appreciate how your broke them down. After considering some of the variables and running the numbers again, I'm looking at pulling a HELOC on the property as a way to hold on to the current property, but also have flexibility in investing in some other OOS markets.
I do think Bend will continue to appreciate and grow as a desirable market so I'd like to hold onto the property (plus it has great cash flow!).
All good things to consider. Thank you again! - 1yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Kolby Knickerbocker:
Quote from @Jules Aton:
Did you live there long/recent enough to get the homeowner tax exemption? That is probably the biggest incentive. Is your house in an area that is appreciating, easy to get good tenants?
Other considerations are the lost costs to sell and re-purchase other properties. Do you know the other markets well? I don't think being a long distance landlord is as easy as some tout but full disclosure I've stayed with 80 miles of my primary residences. Although 3.1% is a great interest rate I tend to not get too caught up in keeping a property just because the rate is good. Best wishes with whatever you decide.Great questions and things to consider! I haven't lived in it long enough to be exempt from capital gains, good point on that. And yes, the home is in a good area, that will continue to appreciate (not extraordinary but still good), and it's easy to get good tenants.
Thank you for the input! Lots of things I hadn't considered.I would stay long enough for the 2 years so you quaify nothing is going to happen in the next year or so.. that tax free money is the best thing we have going in the US in my mind.
then U could buy some very safe first trust deeds and make 4 to 6K a month NET NET NET without any of the TTTs.. Just a thought or buy a bizzness that will do far better than rentals. reading above sounds like this is not an owner occ so forget what I wrote LOL - Member since 2024 · 18 posts · 10 votes1y
Quote from @Nicholas L.:
i don't know if you should sell your house or not. but, what i do know is that that easy OOS cash flow isn't so easy right now, for several reasons. here are just a few:
-interest rates and prices both remain high. this has really hurt cash flow across the board.
-there is tremendous demand for inventory among both primary buyers and investors. so, good inventory gets snapped up by locals before OOS investors even get a look at it.
-OOS investors in HCOL areas will buy properties that look good on paper without doing enough due diligence and then get crushed by capex and deferred maintenance.
-OOS investors rely on service providers like agents and PMs and think they're guaranteed an outcome instead of just paying a fee for a service.
these investors were all chasing easy OOS cash flow:
https://www.biggerpockets.com/forums/963/topics/1195280-expe...
https://www.biggerpockets.com/forums/48/topics/1160450-run-i...
https://www.biggerpockets.com/forums/48/topics/1137397-balti...
https://www.biggerpockets.com/forums/52/topics/1010977-12-00...
if you're serious on investing in an OOS market i'd pick one, get to know it, go to it in person, and build a team, and then determine what would you need to do to get a good return in that market. but selling a trophy asset in a great area and then dumping the proceeds into money pits just because of paper math... would not be my step 1.
hope this helps
thank you for the input! all great things to consider and I appreciate your experience on this :)
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