Sell or Refinance my Rental Property

[Adam Ramsey]

Hey BP,

I'm in a conundrum on what would be my best foot forward. I currently own a duplex that I house hack and then a single family rental. I'm not planning on doing anything with the duplex because I live here. On the rental property I am debating on whether refinancing or selling it. Currently it rents at $1,620 and my mortgage is $1,040 but that will bump to $1,150 in a month after adjusting for property tax hikes. It's financed on a 30 year at 5.125%. It was flipped prior to me buying it and I just did a 25% down purchase turnkey rental which I'm now regretting. The cashflow is nice but I really wished I had attempted a BRRR rental so I could build my portfolio faster.

My next property will be a BRRR I just need to find it first. I plan on selling my rental and I will be able to clear approximately $60,000 from the sale after mortgage payoff, closing costs, etc... I also am raising my HELOC on my duplex and will have about $50-60K available there. I am in Madison, WI and plan on purchasing here where property values are anywhere from $150,000 on up for a single family home and approximately $180,000 and up for a multifamily. Most properties I'll go after will be worth more than that in the areas I'm interested in.

My question is do I sell the rental or just refinance it at lower rates and use more private funds on my next property. I plan on using private money for a good portion but it would be nice to have a good cushion on my end that isn't mostly a HELOC. I can refinance in the low 3's and do a 20 year mortgage and keep my payment around $1,150 or I can go to a 30 year and my payment will be around $1,000-1,050. The property is about 100 years old, needs a new garage in the next 5-10 years and has some quirks to it like a slightly slanted floor and low ceilings upstairs (about 6-7ft high). It's also in an area that may be impacted by F35 jets coming to town and creating a lot of noise possibly affecting property values (this is still being debated by the city and Air Force but it looks like it's coming). Due to these factors I'm thinking about getting out while the markets hot because I think these issues will hurt it if I have to sell in a softer market. I'll only be clearing about $10-15,000 in profit from the sale (not bad after 2 years of owning it) so my cap gains bill won't be much.

For a BRRR property I currently don't have anything in place but am planning on pursuing one very seriously in the next few months. Most properties I'll go after will be 2-3 bedroom 1,000 sq ft homes that will be worth roughly around $200K fixed up or multi families that will be worth around $250-300K fixed up.

Would you sell or keep it and refinance? Any thoughts or advice is greatly appreciated!

[Spencer Dixon]

Hey Adam,

my first thought is absolutely keep and refinance, pull whatever equity you can out. The margin of money you'll have on hand to purchase next BRRR wouldn't be that significant right? Meaning if you sell maybe an extra 10k cash 25k at most not taking into account taxes, fees, commissions.

I see you are a realtor in the area, I'm a realtor and live right near pinney library and would be happy to be a second opinion on sell price / appraisal price.

Depending on your experience as a landlord with the property I think that would be the tipping point for me. If it's going well and cash flow a couple hundred a month, I think you should keep. There are still areas that have huge potential for appreciation in value. 

Best of luck and keep us posted on what you decide.