100k in appreciation. What should I do?

Question

QUESTION:

I purchased my first home a little over 4 years ago in Henderson, NV. I moved out a little over a year later and it turned into a rental. As of today it has appreciated roughly 100k yet it only cashflows $250 per month. Refinancing it and pulling some cash out will thin out the cashflow even more.

Should I continue to hold it, sell it, 1031 it?

Please share ideas and opinions.

Matthew Irish-Jones · Answer

@Joel Neidig. I would sell and use the Capital to but more units with higher returns.

Gabe Barlow · Answer

I see where you are coming from. Appreciate the answer, and I agree. I just need to find a market

Joe Villeneuve · Answer

No.  I would never use a HELOC to buy property with.  Mu HELOC is my cash reserve for CAPEX.

Here's are 3  math problems for you:

1 -Let's say you have $170k in equity, and you sold the property and collected your $170k in a lump sum (minus closing costs, etc...).  How many properties can you buy, at 20% down, with that money?

2 -  Based on Q #1, how much equity would you have if you sold your original property and bought new properties with the profits 9see Q #1)?

3 - If you had $500/month ($6k/yr) in cash flow from the original property in Q #1, how long would it take you to accumulate enough CF to equal the $170k in equity (cash if the property was sold...see Q's #1 and 2)?

Michael S. · Answer

No need for a 1031 because you can still claim it as your primary residence and you are under the limit for having to pay tax on the increased value.

Is that $250/mo. account for all of your holding costs or just after covering the mortgage?

Just looking at $100k in equity for $3k income right now, that is a 3% return, assuming that there are no extra costs/repairs for the year.  With even the smallest bump in the road and your return is negative.  In strong rental markets, you can get much higher returns.

What are your investing goals?  Are you looking for cash flow or equity growth?

Here is my 2 cents worth:

Sell the property and put $20k into a reserves account.

For Cash flow, you could purchase 3-4 cash flowing properties that would cash flow many times more than the $250 you see now.

For equity gain, you could look at BRRRR starting with one property and keep recycling your remaining capital.

It all comes down to what is your investing goal and risk tolerance.

Gabe Barlow · Answer

I have similar circumstances Joe...have about 170K in equity in one rental and it cash flows about 500 per month. For now Im not totally set on a market to 1031...could be nerves or emotion because this would be my first 1031 and it was my first rental. Would you ever do a HELOC on a rental and buy additional property one at a time and pay the HELOC off?

Joe Villeneuve · Answer

Your equity is dead, and your cash flow is making your equity a prisoner.

Sell, sell and sell.  Free your equity.  Turn your current 1 to 1 valuation into a 5 to 1 valuation by selling and reinvesting.

Jesse Cote · Answer

@Joel Neidig Depending on how hot the market is where you live, I would think doing a 1031 and jumping in on a better cash flowing property might be a good idea. Good luck!

100k in appreciation. What should I do?

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