Sell Property or HELOC?

[George Andrade]

Hey Guys,

I am needing to get liquidity out of a rental property to use for starting a new business. I am torn between selling it or getting a line of credit to get the cash that I need out, and need your opinions on what route is best.

The house can sell at about $170k, I purchased it for $105k, and have $96k left on the mortgage. My expenses on the property are $1,400/month, and I currently have it leased for $1,600. So making about $200 cash flow per month.

If I sell it I estimate I can make about $60k after all realtor fee's/title fees/etc. However, I would need to pay taxes on that gain which it has been a rental property for a little over a year now. So I believe the tax rate would be 15% for that $60k gain + the depreciation/tax deductions I took for 1 year?

Or, I can get a HELOC and skip the taxes. But I don't think that it would get appraised at $170k so the equity may be less, and since my margin on cash flow is low I may be in the negative.

I appreciate any other ideas and your opinions here!

[Ashish Acharya]

Originally posted by @George Andrade:

Hey Guys,

I am needing to get liquidity out of a rental property to use for starting a new business. I am torn between selling it or getting a line of credit to get the cash that I need out, and need your opinions on what route is best.

The house can sell at about $170k, I purchased it for $105k, and have $96k left on the mortgage. My expenses on the property are $1,400/month, and I currently have it leased for $1,600. So making about $200 cash flow per month.

If I sell it I estimate I can make about $60k after all realtor fee's/title fees/etc. However, I would need to pay taxes on that gain which it has been a rental property for a little over a year now. So I believe the tax rate would be 15% for that $60k gain + the depreciation/tax deductions I took for 1 year?

Or, I can get a HELOC and skip the taxes. But I don't think that it would get appraised at $170k so the equity may be less, and since my margin on cash flow is low I may be in the negative.

I appreciate any other ideas and your opinions here!

 Everything you said makes sense except one: once you take that heloc (it’s technically not heloc, it’s just equity line of credit)out, the Cashflow impact need to be compared with your business for which the loan is taken out.

You need to figure out what return would you be making in your this heloc proceeds and it isn’t better than the interest you are paying on it. 

The payment on the heloc is now your business expense, not rental. 

Think this as you taking our business loan from another bank, and using it on your busienss. 

If I were you, I wouldn’t sell the house.