Should I sell my cash-flowing house-hack?

Question

So I'm looking for opinions / advice / tips on a duplex I house-hacked back in 2018. Here are the numbers:

Purchased for $349,900, plus $25k in renovations.
Refinanced for $425k (currently owe $375k)
Currently rented for $4,700 per month ($1,500 per month cash flow after expenses).

I have a buyer willing to pay $600k in cash for the property, which would give her a 9.5% cap rate on her investment. In turn, this would allow me to pay off the mortgage, pay off about $70k in student loans, and still have $150k left to purchase another investment. On the other hand, this property makes me $18,000 per year in passive income.

Should I sell or hold??

Thank you!!

Alex

Nathan Gesner · Answer

You're facing this decision because you haven't set goals and really thought about what you are trying to accomplish. You're a boat floating in the middle of the ocean and asking us which direction you should go. What way is the wind blowing? Are you trying to get to Jamaica or Ireland? Are you in a row boat, cruise ship, or floating on an inflatable duck?

Your current property is cash flowing better than just about anything you'll find on the market. Keep it. If you hold onto this for another 20 years, just a 3% increase in rent each year will bring in $522,850 rent income and the property will likely be worth $1.5 million and fully paid for.

Sit down and think about where you want to be in 5 years, 10 years, or 20 years. Start working towards that goal. These decisions will be a lot easier when you have a goal and can see how each decision affects your ability to reach that goal.

Nick Shri · Answer

You have got some solid advice in above posts as well as questions you should ask yourself. If you paid off your 70k student loan (thats great), then what? Where are you going to bring funds that will help you buy another property? You are generating 18K currently, hopefully you will generate same or 2% more of that next year, you may be in position to keep this property and go for another property using same house hack strategy. That will build your portfolio as oppose to getting out of the game completely and trying to re-enter.

Bill B. · Answer

Don’t forget $35k for capital gains tax, $15k for depreciation and maybe $15k for state income tax? So there goes $65k.  Now you have $85k. As long as you don’t think this property will continue to appreciate, and you can earn 20% on your money somewhere else. It’s one way to get out of owning real estate. And if you truly mean househack you get back to paying rent. Maybe you just mean rental property by the room?

Sure the higher interest rates will probably cost you $10,000/year. But as long as you can find a deal that brings in $10k more in rent and costs $400k or less you’ll be back to about where you are now. Except your $70k in student loans will be paid off and you’ll have $100k less in equity.

Bjorn Ahlblad · Answer

You have positive cash flow and a rapidly appreciating asset. I would definitely not sell; and in this market it would be hard to do better. And a new loan at market rates?

Theresa Harris · Answer

If you bought another property, how much would you net?  If they are offering $600K, you'd make about $200K (ignoring any tax implications).  Even with $18K cash flow, it would take about 20 years to get that cash.  Run the numbers.

Basit Siddiqi · Answer

it seems like you successfully pulled out all your money from the deal$375,000 - $349,900 + $25,000.The question is if you sell the property, can you apply that $70,000 and purchase an investment as good if not better?If you can successfully do this a couple of times, you can have a lot of properties.best of luck.

Alex Houser · Answer

Thanks for all the responses! For some added clarity:

This was the first investment property I purchased, and now own a few others which are also cash flowing. Obviously, I'm getting a great return on this, and the interest rate is locked at 3.25%. There are a few reasons why I'm considering selling: 1.) Pay off $70k of student loans between my wife and I which cost us $1,200 per month in minimum payments and 2.) Gain $150k of capital in preparation for a market that I expect to be...choppy...and 3.) $600k for this property is about $50-$75k more than what others have sold for in the area and I don't expect that to be available again for another 18-36 months.

Also, I live in NJ - I may be wrong, but from what I understand, capital gains is exempt for the first $250k every two years. If that's true, I shouldn't have to take a tax hit on the sale.

So you see what I mean:

Option 1: Keep a great, cash-flowing, appreciating asset

Option 2: Sell while the market is high, pay off all debts, and prepare capital for similar / alternative investments.

James Hamling · Answer

@Alex Houser expanding on what @Nathan G. said, which is solid gold by the way, there is some missing information in this data to make an analysis beyond impulse decisions from ideals vs numbers.

Namely, what is the interest rate your locked at now? What would that rate be on the replacement property? What is that interest rate on student loan debt? This all matters HUGE.

To simplify, if said have a big pile of cash, chance to get a cash flowing property OR payoff student debt, which to do, the answer would eb simply what is the interest rates? I would happily carry millions upon billions of debt at say 4% with 0 thought of ever paying it off if I can deploy that and get a say 9% return, for that 5% net-spread.     There is other factors such as variable inputs etc. but what I am speaking here is a generalization for a mindset and foundational premise.

We as investors are experts at creating and managing PERFORMING debt.. The difference between performing and non-performing debt is at it's simplest base level, a net-profitable spread. So that spread is uber important.

So if like myself, and have a chunk of student debt today, which is currently locked at 0%, why pay that off? What benefit?     Yes, i too have had that impulse as I have ample capital to just click a button and take it to $0, but it has the cost attached because I can use that capital elsewhere and receive a profit. And then, I can just use that profit stream to pay down/off that student dedt and it keeps going after the student debt is gone.     Pay-off student debt with cash, it's 1 and done, gone, it gets you nothing there after.

REI is all about residuals, it really is.

Should I sell my cash-flowing house-hack?

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