Skip to content
×
PRO
Pro Members Get Full Access!
Get off the sidelines and take action in real estate investing with BiggerPockets Pro. Our comprehensive suite of tools and resources minimize mistakes, support informed decisions, and propel you to success.
Advanced networking features
Market and Deal Finder tools
Property analysis calculators
Landlord Command Center
$0
TODAY
$69.00/month when billed monthly.
$32.50/month when billed annually.
7 day free trial. Cancel anytime
Already a Pro Member? Sign in here

Join Over 3 Million Real Estate Investors

Create a free BiggerPockets account to comment, participate, and connect with over 3 million real estate investors.
Use your real name
By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.
The community here is like my own little personal real estate army that I can depend upon to help me through ANY problems I come across.
Personal Finance
All Forum Categories
Followed Discussions
Followed Categories
Followed People
Followed Locations
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Reviews & Feedback

Updated over 1 year ago,

User Stats

4
Posts
0
Votes
Nick Howard
  • Aerospace Engineer
  • Maineville, OH
0
Votes |
4
Posts

Keep Rental or Sell to Help Finance Home

Nick Howard
  • Aerospace Engineer
  • Maineville, OH
Posted

Looking for opinions.  My family an I are looking to move out of our Duplex after 5yrs and buy what we hope to be our forever home.

I had assumed if I can find a property manager when I move out, I'd keep the duplex.  Let it bring in a small trickle of cash, but mostly for the equity and appreciation, and cash flow during retirement.

However I had a thought the other day and began doing some math to test it out. The question was, what if I sold, used the sale to help put more money down on the primary residence, drop the mortgage and invest the difference in the market (401k, IRA, Traditional Brokerage Account).



Duplex Numbers: Refi in 2021, 240k. Zillow says 270k, but I know that shouldn't be trusted much. Remaining loan balance 182k. 10/1 ARM 2.75%->7.75% in year 13/14, (max step 1.5%).

Scenario A, renting the Duplex.

Couple of assumption, 3% appreciation, 10% rent = Maintenance, 10% rent = Cap Ex, 10% rent = vacancy, and 13% avg Property management fees.

I think I could rent for $2300, and 3% increase each year.  In 35yrs, duplex could be valued at 700k. and would be cash flowing 25k/yr after the mortgage is paid off.

The primary residence we're looking for is in the 450-500k range.  Using 480k, mortgage was $2700 with 5% down.  Same appreciation assumptions, that house could be worth $1,311k in 35yrs.

Summary: $2M in Real Estate Equity, and Cash Flowing 25k/yr (which using a 4% rule is equivalent to 622k in equivalent stock market "value")

Scenario B, selling the Duplex, invest the difference

If I sold the duplex, maybe for 255k, I'd get 71k gross, and assuming 8% transaction cost, 66k net.  Add that to the 5% I was already ready to put down = ~19% down on the primary with a mortgage of $2,300 (delta $400).

That $400 invested at 8%/yr is 908k in 35yrs, which would bring in 36k/yr using the 4% rule.

Summary: 1.3M in Real Estate Equity, and an investment value of $908k.  Using the 4% rule that would provide $36k/yr.

I'm not sure which Scenario makes more sense... Scenario A has more RE value, and 25k during retirement with rental cash flow.  Could also sell the duplex then for 700k-8% transaction, and that would be worth 25k using the 4% rule.  But Scenario B has more income during retirement via the 4% rule.

Opinions appreciated.

if you see major assumption misses let me know, but really just trying to think through the idea, the math was to prove it was a feasible comparison.

Loading replies...