Investor · Tallahassee, FL · Member since 2015 · 62 posts · 48 votes
Currently I have 5 rentals that cashflow very strong since I've owned them for long time with low interest rates and they have high equity. Recently I purchased a house at a foreclosure auction for $160k, reno was $35k, and 2 identical houses at 1,127sf sold for $260k. Mine is 1,334sf. I should be able to sell for $270k. Question is A) sell and take short term capital gains hit due to fears of a slowing market and higher interest rates or B) BRRRR get a short term mortgage, best rates I've found (after talking to 15+ credit unions) is a local credit union that will give me a commercial 5/1ARM 5.75%, no pts, 20 year amortization, and $1,000 origination. PITI would be about $1,620 and rent is $1,800. I replaced the roof, hot water heater is 5 years old, AC 8 years old, new appliances, new plumbing/elec, and reno'd everything else so I shouldn't have much maintenance. The plus of the BRRRR would be taking depreciation against other rentals income and selling in a few years for long term capital gains. Curious what opinions are out there, thanks in advance
First, always great to hear from a Tallahassean. Had many great years in that town. Even met my wife there. It's where I had my first rental.
Secondly, you shouldn't face "short term capital" gains on flipping properties. This has been talked about extensively here on BP...and we will always defer to your accountant...but flipping is income and therefor taxed at 16.5%.
Keep in mind that a 30 year, fixed rate at 7.25% will have a lower monthly payment than a 20 year, adjustable rate mortgage. It's hard to cashflow right now but with a 15% expense ratio that 20 year mortgage will have you at a negative cash flow every month.
We usually subscribe to Brandon Turner's article on keeping properties for 5 years. You can read up on that philosophy here: https://www.biggerpockets.com/...