Should I sell & reposition for better returns

Question

Hello,My PITI was $3200 and now suddenly increased to $3700 because of a recent property tax rate increase. Property tax is a whopping $15000 per year now not based on assessments.I make decent rents close to $5000 while living in one of the units in the triplex. The home is worth a million and the principal left to pay is around 510k. Can I do better than this. Would it make sense to sell now and reposition in markets with lower property taxes? Appreciate your inputs on this

Joe Villeneuve · Answer

I'd have sold it long ago. After paying off all the closing costs/taxes, you should have at least 300k to work with (should be more). At 20% DP, that would give you property value of 1.5M...minimum.Your CF now is around 16k/year. This means in order for that CF to equal your sale profit, it would take almost 94 years.

Joe Villeneuve · Answer

1 - Change Markets to live in2 - assuming all rents are the same, and if you moved out the added rent would cover your move out costs, that changes the CF to 3800/m, or or 45k/year, which means it would take 7 years to equal the "walkaway" from the sale.3 - If you have a property that gets you 3700 in CF/month that's worth 1M, I would think a property worth 1.5M would get you over 5k/month. That would cover your 2500 cost if you moved, and leave 2500/month for CF...which is almost twice what you're doing now...and, the PV would be worth 1.5 times what it is now. This means, a 5% appreciation applied to both properties would get you an increase of 25k if you stayed, but 37.5k if you sold. 4 - Sell and move. Staying in a property, watching your equity grow in that property, loses you money with every dollar of gain in that equity.

Drew Sygit · Answer

Only you can balance the ROI against lifestyle.

Luka Milicevic · Answer

There is value in "I live there comfortably with my family" so keep that in mind....All the above mentioned items are all valid, but the caveat is you actually have to FIND the deal that's going to be better than what you currently have. Sure you can get a better investment, but would you want to live there? In that new location? In that new house? Maybe, maybe not....I would strongly consider your life situation, and not just the financial aspect of it. Finances are only one part of your equation. Financially speaking, the best thing I could do is live in a tent at a campground. I'm not going to do that, though.

Nate Sanow · Answer

So if you move out grosS rents are $7500? I’d hold

Peter Morgan · Answer

@Nate SanowCapital gains should not be a big issue since it's also my primary, besides I will also have some capital losses to cover the gains on the rental units. You are right on my mortgage interest rate it is at 2.5 and this low rate has earlier stopped me from selling. I am sensing more pain down the road with further property tax increases (but I will never know for sure) I may also have to replace both my HVACs next summer and possibly 16 year roof old in a few years and I probably need to relocate due to my job.

Carini Rochester · Answer

All towns/cities have a way for you to ask for a lower assessed value. Follow their rules. Get an appraisal. See if you can lower that tax increase. The major city I operate in even allows an economic argument, meaning that if the tax increase makes the property unprofitable, therefore worth less, they will consider that as a reason to lower the tax burden. This also may be a one time 'large' increase due to the price you paid for the property. If it is not likely to go up significantly again for the foreseeable future, you can possibly get through, annually raise the rents, and make this work.

John Clark · Answer

First, keep adding to your reserves, as $30,000 won't cover both. Also, establish the HELOC, have it in place, but don't draw on it until you decide what to do regarding relocating. Second, market correction means nothing IF you can hold onto the property and -- assuming relocation -- you can afford to buy another place without selling. Remember, selling involves big transaction costs. ASSUMING you can hang on to the property and buy in your relocation area, what you want to consider is whether this "market correction" will lead to lower rents in your area. If rents aren't going down, or go down less than sale prices, then it's probably worth it to hold the property.Remember, declining prices also reduce your insurance and (possibly) taxes.

John Clark · Answer

You pay $44,400 a year in PITI on $60,000 gross rent. Before you sell, see if you can get the insurance down first. What are you putting into capital reserves for HVAC and roof?You say you "probably" need to relocate. What do the numbers look like with your unit rented as well? I'd worry about getting the roof and HVAC up to snuff before I worry about taxes, as any buyer is going to discount his offering price due to imminent repairs. You also are not getting a 2.5 percent interest rate again. Keep it, get a HELOC and make repairs

Joe Villeneuve · Answer

#3 is always accurate.#4 costs are covered within, and with the kind of equity we're talking about here, should be minor.