Should I take advantage of the Seller's market??

Question

Looking for some thoughts on what others would do.  I have a STVR in a beach town that did $120k gross in 2020 with a positive cash flow of about $47k after expenses (self managed).  Recently my wife and I have been watching the local real estate market and are seeing everything being gobbled up at what we consider crazy high prices and it is getting us the bug of putting ours out there to take advantage of the market.  We figured after paying off debt and the cost of the sale and taxes we could net around $460k.  The property is 3 hours away from our main home and has the usual issues that one would expect but it is relatively hands off and we often go several months in between "having" to visit for maintenance, etc.  So it isn't really a headache in terms of managing.  It is located on an island so no real threat of new construction or expansion.  We are both in our 40s and I have a steady regular job so no real retirement on the horizon.  I  know it is impossible to predict the future but so long as it is generating positive cash flow would you keep it?

John Underwood · Answer

So if you sold the house what would you replace it with that makes that kind of money?

Michael Baum · Answer

Hey @JR Woolf, that is a great position to be in! I am in @John Underwood's camp on this. You net 460k which is nice, but then what? Could you get another performing unit somewhere else?

Frankly, that place is doing very well. It's kinda like you are killing the goose that is laying the golden eggs just to get a single egg. A big egg, but when it is dropping golden eggs every year, seems like a thing you would want to keep going.

Charles Breunig · Answer

460k after, should be 550k or so in equity, So I would cash-out refi or take a home equity loan and buy me another place with 50k+ a year net.

Paul Sandhu · Answer

I'd sell it.  It's what I've been doing with reloading supplies.  I have a 10 year inventory.  I sold 9 years worth of my inventory at 4x my cost.  Sold enough to buy a new $2000 shotgun without touching any money that was already in the bank.  Benelli Super Black Eagle 3 Ducks Unlimited edition.

Jonathan Mason · Answer

I used my primary lender for my STR, but it was underwritten as a second/vacation home. If you already have two+ mortgages, I'd honestly call local credit unions and regional banks. Smaller banks, especially when rates are so low, need to lend to make money. Banks don't make money on deposits, they make money lending customer's money out and charging interest to those borrowers. They want you to pick them do to the loan as long as you're an experience and qualified borrower.. Don't let them fool you otherwise, they need you, not the other way around but be nice and easy to work with.

Tell them what you're doing and that you're shopping around for either a HELOC or cash-out Refi (depends on how much capital you really want or need to pull out to buy another property). Ask about what loan programs they're currently offering and then let them know you're calling around.. Don't let them pull your credit though, do that on your own as a sense check so you know roughly which of their programs you will qualify for and then only let the lender you choose to do the loan with pull your credit.

Jonathan Mason · Answer

That's exactly what I would do. With that much equity and current refi rates, can easily still net 25-30k annually with the now higher debt servicing while still pocketing $400k to go invest with. No-brainer if your goal is to grow your portfolio to infinity.

Carlos Ptriawan · Answer

Excellent answer @Jonathan Mason. In term of selling or not I had same problem two years ago and decide to refi. But for other property I might decide to sell.I'm rethinking to move the investment into non-RE syndication, so yes it all depends on what's available in front of you and the risk associated with it. Sometimes, not doing anything is good approach as well.

JR Woolf · Answer

@Jonathan Mason.  Thanks to you and everyone else for the advice.  We would love to continue to grow our rental inventory.  Any recommendations on a STVR friendly lender??

Dave Stokley · Answer

@Jonathan Mason right... another overpriced property? Just refinance the thing if you want cash out of it.

Nancy Bachety · Answer

I'd keep it. If your money lives somewhere else, where is it going to make that net return and offer you tax savings?

Should I take advantage of the Seller's market??

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