First Rental Hold or Sell?

[Eric Imhof]

Ok y’all, I’m new-ish to the game and looking for some help on what to do with my first rental. I’m going to put in a ton of numbers, and I’m looking to answer the sell or hold question. Thanks for your help!!

Property Info:

3 BR / 1.5 Bath / 1200sq ft

Bought in 2017 for $163500

Down payment of 5% + $3k in closing costs

30 yr FHA loan @ 4.375%

Remaining Principle Balance: $145k

Monthly rent: $1500

Vacancy: it’s never even had to go to market to fill, but I’ll say 1%/mo just to be safe

Cap Ex: I bought it freshly renovated, but I’ll use 5%/ mo to be safe

Repairs: 5%/mo to be safe, but in 3 years of owning it I’ve probably spent $100 total on repairs.

Yearly Figures:

Gross rent: 18,000

Operating Cost: 3,794 (21% of gross)

NOI: 14,026

Cap Rate: 8.6%

CoC return: 31.3%

Cash Flow: 4,099 (342/ mo)

Okay that's a lot of numbers. This house doesn't pass the 2% test, but if I charged that much in Roanoke VA I'd never have tenants. Also at this very moment, my realtor is telling me that pretty much any SFH in my area listed for less than $250k has a good chance of going for asking price. The kicker being that there aren't really any deals on the market right now.

I’m torn between some options:

- Hold and HELOC

- I'm considering holding to keep the cash flow, but getting the house reappraised and taking out a HELOC to use when the right deal comes along. If I tried to cash out and refi, I'd lose my FHA interest rate.

- Sell & 1031:

- I think I could sell right away for at least $225k for an $80k profit (not including closing or realtor fees). We're in a peak surge of home sales right now because so little is on the market. The caveat is the house is on an FHA loan and I didn't live in it for 2 years. So I'd have to do the 1031 exchange, and I'm deeply concerned I won't find any identifiable deals within 45 days.

Maybe this is a black and white situation, but I keep going in circles on it. What do you think?