Should I sell for my appreciation in Lakewood, Ohio?

Question

I bought a rental duplex in Lakewood, Ohio for 250k back in 2021 when I was living in Cleveland. I now live back in New York so I'm using a property manager to handle the rental. Since then it seems like my property has appreciated almost 100k. This is my only rental property.

I'm contemplating selling the property and taking my profit for a few reasons, but one most of all.

I would say my property is in average, a bit above average condition, but certain things are a bit dry or dated, no central A/C for example. For the moment, it's good enough that the home value and rent value continue to increase with everything else in Lakewood, but is this the peak? I'm sure values overall will continue to rise, but for a 102 year old house will mine start to plateau? The newer more renovated houses will continue to rise but I feel at some point mine will appear as an old dated house that somebody looks at and will want as a cheaper place to fix up and renovate.

Other than this, I don't really enjoy the out-of-state investor aspect of relying on a property manager when this was always a hands on investment for me until I moved away. I could use this capital on a new investment that I could be more hands on with, and it nerves me to think about major renovations or fixes through a property manager that are bound to be needed on a house of this age.

I'm just wondering if I'm overthinking it and silly to sell out on a cash-flowing property in a growing neighborhood at a 3% interest rate.

Thanks for your thoughts and inputs.

Ryan Arth · Answer

In addition to what others have said, Lakewood is a city where the majority of the single family home stock is older. As long as you keep up with updates over time, you shouldn't fall behind the market in rents or value. If you are looking at this decision through the investment lens, what would you net on the investment that you put this money in to, after transaction costs and taxes? If you kept up with the property what would your returns be in five years? How do these compare?

If you want to let it go for non-financial reasons, that is a different story. I cleared most of our portfolio over a few years because they didn't fit where I am going. The financial aspect worked out fine, but that wasn't the primary driver.

Michael Smythe · Answer

@Vincent Donato how will all the "dry or dated" issues affect your alleged current value?

Isaac Rowe · Answer

Hi Vincent, I would not sell that. The initial thoughts I have are...

1. Just keep it as a rental, check in once or twice a year to make sure everything looks good and is operating well.

2. Do a HELOC on it and then take the money and buy another investment property in New York or or a landlord friendly state or a place you'd like to travel often and then use it as an AIRBNB the remaining time. Keep both properties.

3. Do a HELOC and use step two. Then make sure you leave enough equity in the Lakewood property and sell it after acquiring your next property. Then you don't waste the money on capital gains and still have a rental property.

4. You could sell it on a seller finance/ Subject to transaction. Have an investor make you monthly payments for the $100k in equity and have them cover the mortgage payments. You could even charge interest on the $100k of equity. This will make it a passive investment and you will not have to pay as much in capital gains.

Those are my initial thoughts. We have investors that would do #4 if you wanted to go that route.

Kerlous Tadres · Answer

Hey Vincent, I would not look into selling this property unless you absolutely had to. If it stresses you out that you're only relying on your property management for all the information on what's going on then I would try to make a trip out to Cleveland every once in a while. Sure you can sell it and take that cash and put it into something that you can manage yourself, but with an interest rate as low as you have it for, I would not. You can refinance and take money out and put into another property that you can be hands on with more. I just don't really recommend selling a property that you're doing well with in terms of rental income and appreciation.

Brendan Conley · Answer

Hi Vincent! Looks like you've done well for yourself with your first investment. I would recommend you refinance instead. I suggest you read up on the BRRRR method (Bigger Pockets has a good book on exactly this). It's the idea of Buy - Rehab - Rent - *Refinance* - Repeat.

Selling your property would be a taxable event, too. When you cash out refi, you can use the money to improve the property and/or buy your next investment. And, since the cash would be debt (you got the money from a new loan), it's not taxable. You could sell and 1031 it into the next property but you'd usually have to time the sale of your existing property and the closing of your new property right.

I also wouldn't worry about having central air in the property unless that is essentially a requirement for you to remain competitive with the rest of that market. As long as the property is in good shape and is able to market itself in the event of a vacancy, then I think you've got a stable, good performing asset.

Hope this helps!

Should I sell for my appreciation in Lakewood, Ohio?

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