I am a novice in real estate investing but have had a couple of great opportunities and am committed to learning. I have a couple of mentors locally who know what they are doing but I would like to run this idea by the forum for feedback:
Current situation is that my wife and I live rent free (long story but we only pay utilities and this is a long term arrangement). This opportunity allowed us to rent the home we own for extra cash flow. Currently we make about $500 per month in cash flow with 84K left on the loan. The house is worth $110K.
Recently we purchased, along with an investor, another house in our area for $87K. We are flipping and the total investment/cost will be around $130K. The house next to us is going on the market post-flip (same size, layout as ours) for $200K. It's possible we would be able to sell for that range as well putting us in a great position to make great money on the flip.
My question is, how would people handle this second property?
We own:
1. Rental Property providing $500 per month in cash flow.
2. Investment Property that we can sell or rent.
We live in a college town and we have great connections with potential renters.
Our two options as I see them:
1. Sell the house, pay capital gains tax and reinvest the remaining money ($25K-$50K) into other property.
2. Hold the house (would require cash out refinancing) and rent for $1200 per month (probably clearing $500 per month in cash flow)
Option two helps us avoid capital gains, not sure how much risk is in that approach, and we get the obvious benefit of extra cash flow. Option 1 gives us more flexibility in the short term.
What do people think? Need any more information?
