Sell or keep current properties in Omaha, NE?

Question

I currently live in Omaha, NE and am planning to move to Colorado. I currently have 2 properties, 1 as a rental and the other is my primary residence. I'm trying to decide if I should keep these two properties or sell them and use the equity to buy real estate in CO. We're not planning on getting a property management company because we have some local folks that can help out for minimal cost. Some details on the houses:

Primary residence

Mortgage is a 15 year mortgage (with a 3.5% interest rate), so my payment is a bit higher than if I had bought it as a pure rental. It'll be paid of in 11 more years. As you can see below, the cash flow is pretty bad. However, if this were on a 30 year mortgage, the cash flow would be at least $100 higher.

Monthly mortgage payment: $680

Monthly taxes & insurance: $370

Estimated monthly expenses: $300

Estimated monthly rental income $1,400 (might be able to get more, not sure)

Estimated monthly cash flow: $46

Rental Property

I bought this property without fully understanding the types of deals I should be buying (which is something I'm trying to learn now). It's a 30 year mortgage with an interest rate of 5.25%. This house has had more issues than my primary residence, so the expenses have been quite a bit higher than expected.

Monthly Mortage: $543

Monthly taxes & insurance: $308

Average monthly expenses: $328

Avg monthly rental income: $1237

Monthly cash flow: $90

Overall, should I just attribute these to sunk costs and sell them and use the equity elsewhere? The part that I really hesitate on is my primary residence has a stupid good interest rate. These don't feel like terrible investments but they're definitely not the greatest.

Stephen Anthony · Answer

@Matthew Brand Very long time no see! Hope you guys have been good. Didn't know you had rentals, that's awesome. You may have other factors to consider (ease of management location), but ultimately a lot of it comes to down return on capital right? Can you get a better return on the equity you have in one or both of these properties (after reduction from selling costs) in the new market you want to invest in (I assume CO) than the return you're currently getting? Have you selected your new target market yet, do you know the expected returns in that market, and at the level and type of financing you expect to get there?

If you do decide to sell, I went to high school with @Ethan Hamilton and have talked real estate with him since, he's a good guy.

Thomas S. · Answer

Sell them unless your goal is to speculate on appreciation. There is no way you can count on friends to take care of property management. That would be a very bad business decision.

As rental income properties they are terrible candidates especially if you move away. They both have the potential to be negative cash flow as the equity in each increases.

Matthew Swisshelm · Answer

@Matthew Brand - Hey my fellow Matt, It's nice to see you active again!

There are a lot of factors that come into play here when deciding what you want to do for future growth. Your cash flow numbers don't look very forgiving of future expenses/unknowns. Also, I think we really should factor an additional cost just for managing at a distance. You mention one property already has been having maintenance issues, it will more than likely continue having them.

@Andrew Wydra, I think you're correct in the Omaha market being pretty hot right now. Speaking to other investors and agents they are all in agreement on that one. If you were going to sell Matt, this would probably be one of the easiest times to do so.

@Ethan Hamilton is a good resource as well, I know he was a big help when I first moved to Omaha, NE and continues to be a resource today.

I hope things go well!

-Swiss

Aaron Lawson · Answer

Just be careful that you aren't skewing your numbers to the negative and making the return look worse artificially. In my opinion, it seems that "monthly expenses" should be a future forecast, not an average of the past items. You're are going to have Capital Expenses like water heaters in the future, but you're not going to have closing costs again are you?

Matthew Brand · Answer

The $328 are my actual expenses over the lifetime of me owning the property. For instance, we replaced the water heater a few months ago. One thing I'm not sure is "fair" is that I'm including the closing costs we paid in the beginning as part of the "monthly" expenses that I've averaged out. The $300 is just an estimate based on my other property.

Aaron Lawson · Answer

You've listed $300 a month in "average monthly expenses" on one house, and $328 on the other?

Can you elaborate on what these expenses are?

Walter Key · Answer

@Matthew Brand ,

Have you considered selling the Omaha properties then buying a CO home w/ an FHA loan? You can force some appreciation w/ the repairs.

Andrew Wydra · Answer

I just spoke with a gentleman that is selling a 15 unit and is looking for 6% cap. 5 years ago that would've been ludicrous but he will get close to that today!

Ethan Hamilton · Answer

@Matthew Brand I'd be happy to send along Comparative Market Analysis for both homes just so you can check out what similar homes are selling completely complimentary.  I'm also much easier on commission than most Realtors here in Omaha if you do decide to sell.  Let me know and I'd be glad to send the comps and my two cents your way!

Andrew Wydra · Answer

I just purchased a multi family in Omaha and the market is pretty hot there. I'd suggest selling while the market is frothy. You can never go broke taking a profit!

Sell or keep current properties in Omaha, NE?

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