Newbie Intro - To sell or rent current home in Denver area?!?

Question

Hello All! The wife and I are pretty set on moving into real estate investing. I have always been obsessed with real estate and I think it is time for a change/build some real wealth. I have been listening to the Bigger Pockets Podcast and reading up on everything I can.

I think our next move is looking at property on the Olympic Peninsula around Sequim, WA with the plan to land hack and build STRs. However, we are in a dilemma with what to do with our current property.

We currently own a home in a very sought after neighborhood next to Sloan's Lake in Denver, CO. We bought on 12/31/19 and currently owe $500k on the property with about a $2500/month payment. I am torn if we should hold this house and rent it out or sell to use the capital for our next investment. Just as a reference point, OpenDoor has offered us $700k for the home. Looking at comps around the neighborhood I believe we could easily get $2950 - $3100/month in rent.

Other important things to note:

• The neighborhood is Edgewater, CO and is becoming extremely popular as the town is doing a lot of planning and lots of new community marketplaces, bars, etc are being developed or have already opened. We also border the largest lake in Denver proper. Sloan's Lake.
• We have one of the largest lots in Edgewater. If we rented and held the property long term we have plenty of room to build out the modern duplexes that seem to be getting built everywhere around us.
• Wanted to STR this house but the city has a limit of 60 days and all kinds of other rules so that is out.
• Have checked and can long term rental.

Let me know if I have missed anything to help address this.  I'm just not sure what the best approach is with our current primary residence as we are new to real estate investing. Do we sell and use the capital on this new journey or do we hold, rent, grow equity, and then use the equity? The funding and equity portion is where I am not the best.

Looking forward to meeting a lot of people and learning on here!

Cheers!

Ben Rhodin · Answer

Hi @Cody Stevenson! This is one of the most common dilemmas of anyone in Real estate. I know exactly where you are speaking of and I have a lot of clients that look in that area each and every day. I would agree with @Will Barnard above in that you need to just go through each proposal and see where you come out on top. Unless you want to get creative with the current property in terms of renting it out, it isn't going to be a strong performer in terms of cash flow, but appreciation and future potential can be strong.

In short, the answer is going to come down to where is my money best spent. I know Washington has strong appreciation and potential as well, so the Denver appreciation may not be as much of a factor. If you are able to offload the property and use that capital to build your STRs up there and produce much stronger cash flow, and still take on the appreciation it might be best. You would be looking at needing a PM for this property, which will take out another chunk of change in your cash flow, so you may be finding yourself breaking even in terms of that after all expenses.

Without knowing the exact property I can only give so much advice, as there may be repurposing opportunities with the property which could create stronger cash flow. You could also potentially get an owner-occupied HELOC while you are still occupying and take advantage of that in order to have additional capital.

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Will Barnard · Answer

The best thing to do in scenarios like this is to write down on paper each financial situation. 1 being the sale and what you net out of it after taxes (if any beyond your primary residence exemption). Then what you can do with that capital as a re-invest and what that return vs risk is. Then do the same financial analysis on the keep and hold identifying gross rent less ALL expenses including vacancy factor, property management, capital expenses, etc. Now you have a side by side comparison to review. It could also be beneficial to do this with your CPA (use a CPA that has real estate investing knowledge, particularly one who owns their own RE investments as well).

On a general note, the more you keep and hold, typically, the better you will be off financially. Of course some assets produce better than others so you need to consider those factors as well.

So your answer is TBD and really cant be answered with the limited info thus far. Best to get with your CPA. Good luck and welcome to BP Nation!

On a general note, the more you keep and hold, typically, the better you will be off financially. Of course some assets produce better than others so you need to consider those factors as well.

So your answer is TBD and really cant be answered with the limited info thus far. Best to get with your CPA. Good luck and welcome to BP Nation!

Cody Stevenson · Answer

That is 100% fair and I should have been more clear. I have no intention of selling to OpenDoor or anything like that. I was only sharing that as a data point and understand that is not full potential. I’ve got some DMs about that. That’s my fault. I fully intend to work with an agent.

It would be doable but I could get going a lot faster with the capital from this house. I can also sit on it longer if selling in the spring would be that much more advantages. We actually just got back to Denver. We’ve been on the road since June researching the areas we plan to purchase properties in for STRs. So I’m open to sitting on it a little longer if the benefit is there.

Thank you for the input! Awesome points.

Wale Lawal · Answer

Hi @Cody Stevenson,as an Investor-Agent myself, I have had several conversations of this topic with my clients and customers. Everyone has a different goals and investment criteria, so this is not a one size fit all kind of situation.

I will suggest that you clearly define what you what and do some research then go from there.

A local Investor-Agent can help shorten your learning curve and save you a lot of headaches as they tend to understand the market better.

Use Niche.com, Greatschools.org and Msc.Fema.gov for your research.

Goodluck and go make it happen

James Carlson · Answer

@Cody Stevenson

It's not exactly what you asked, but I have to say first off ... You curse when you say the name "Open Door." At the risk of sounding like a real estate agent irritated at competition ... don't sell your house to Open Door or Zillow! They're basically flippers, and flippers only make money by buying under market. You don't want to play that part for them. Use a seasoned agent to get the most money for your home.

To your question ... that's tough. I normally say that everyone should keep everything they own in the Denver area. Appreciation is set to be strong for the long-term hold. Can you start your real estate investing without selling this property? If so, I'd consider it.

Now, if it's going to be tough, sell that bad boy and run. Be aware that the market is not as insane as it was six months ago, and we are transitioning to a slower period anyway. If you need to move now, do so but rent your current place for six months or so and sell it late spring or summer 2022.

Cody Stevenson · Answer

Thank you for the feedback, Will! It is much appreciated.

Cody Stevenson · Answer

Thank you for the feedback, Wale! I’m going to look into those sites.

Cody Stevenson · Answer

Thanks, Stuart! My interest rate is already 2.625% After a good chat with @Ben Rhodin I think it is best for us to sell. It just makes sense with the long-term goal and ROI over time.  Appreciate the input!

Stuart Grazier · Answer

@Cody Stevenson It may be worth looking at what a refinance would do for your numbers on your Denver house. If you keep it and can get a lower interest rate in today's market, this is a great hedge against inflation and you are holding onto an asset that is appreciating and potentially cash flowing with the rents being higher than your new, low-interest fixed rate mortgage and other expenses. A friend of mine once told me that the biggest regret he ever made in real estate was selling. The path to wealth is to buy and hold; let someone else pay your mortgage for you!

Justin Windham · Answer

@Cody Stevenson

Welcome to Bigger Pockets!

You’ll find plenty of friendly, knowledgeable people willing to respond to your posts.

The site has quite a few tools that can be helpful for new members. For example, if you are looking to connect with other members near you, want to learn from people in a specific area you’d like to invest in, or have a desire to find people interested in certain topics, you could start your search here: https://www.biggerpockets.com/search/users

There are some pretty cool discounts on various products and services offered as Perks to BP members that you might want to check out: https://www.biggerpockets.com/perks/pro

Newbie Intro - To sell or rent current home in Denver area?!?

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