All Forum Posts by: Kolby Knickerbocker

@Kolby Knickerbocker

Every market has deals. You should invest where you feel you have a competitive advantage. I invested in Jacksonville, FL, because my old job would fly me there multiple times yearly. I learned about the city over time and began my out-of-state investing journey.

Whatever market you choose, be sure to nail down your buy box. This will allow your agents and wholesalers to assist you better. 
- Property type (single-family homes, duplexes, or small multifamily)
- Min/max square footage or number of bedrooms and bathrooms
- Desired cash flow or ROI metrics to ensure profitability
- Property Condition (turnkey, light cosmetic fixes, or heavy rehab)
- Neighborhood type (A/B-class areas for appreciation vs. C-class for cash flow)

I agree with @Evan Polaski that you need to know the market inside and out before you invest. No need to hit a grand slam on your first deal. A single is find if it means less risk. 

@Kolby Knickerbocker

i don't know if you should sell your house or not.  but, what i do know is that that easy OOS cash flow isn't so easy right now, for several reasons.  here are just a few:

-interest rates and prices both remain high. this has really hurt cash flow across the board.

-there is tremendous demand for inventory among both primary buyers and investors.  so, good inventory gets snapped up by locals before OOS investors even get a look at it.

-OOS investors in HCOL areas will buy properties that look good on paper without doing enough due diligence and then get crushed by capex and deferred maintenance.

-OOS investors rely on service providers like agents and PMs and think they're guaranteed an outcome instead of just paying a fee for a service.  

these investors were all chasing easy OOS cash flow:

https://www.biggerpockets.com/forums/963/topics/1195280-expe...

https://www.biggerpockets.com/forums/48/topics/1160450-run-i...

https://www.biggerpockets.com/forums/48/topics/1137397-balti...

https://www.biggerpockets.com/forums/52/topics/1010977-12-00...

if you're serious on investing in an OOS market i'd pick one, get to know it, go to it in person, and build a team, and then determine what would you need to do to get a good return in that market.  but selling a trophy asset in a great area and then dumping the proceeds into money pits just because of paper math... would not be my step 1.

hope this helps

You’re in a great position with a property that’s appreciated significantly, a low-interest mortgage, and clear goals to boost cash flow and transition into full-time investing. Let’s break this down:

The Pros and Cons of Selling

Pros:

1. Unlock Significant Equity: Selling would give you $500K in cash (less transaction costs), which you could reinvest in multiple properties in higher cash-flow markets. Diversifying your portfolio could reduce risk and improve overall returns.
2. Higher Cash Flow Potential: If you redeploy the equity into markets with higher cash-on-cash returns, you could significantly increase your monthly cash flow. This is especially helpful since your goal is to replace your income and invest full-time.
3. Market Timing: Bend, OR, has seen strong appreciation, but if you believe the market is peaking or stabilizing, now might be a strategic time to cash out.

Cons:

1. Losing the Low-Interest Loan: Your 3.1% rate is a huge advantage in today’s environment. Selling would likely mean taking on new loans at much higher rates, reducing your cash flow margin unless the new properties are stellar performers.
2. Transaction Costs and Taxes: Selling could trigger capital gains taxes (depending on exemptions) and other selling costs, eating into your net proceeds. If you’re not using a 1031 exchange, you’ll need to account for this.
3. Reinvestment Risk: Entering new markets and managing multiple properties may present challenges, especially if you’re unfamiliar with the areas.

Alternative Strategies

Before committing to selling, consider these options:

1. Leverage the Equity (HELOC or Cash-Out Refinance):
   • With a 3.1% loan, selling might not be the best first move. Instead, you could explore pulling equity out through a home equity line of credit (HELOC) or a cash-out refinance. While rates for the new loan will be higher, keeping your existing loan intact on the remaining balance preserves that low-cost debt.
   • Use the equity to purchase properties in higher cash-flow markets while retaining ownership of your Bend property.
2. 1031 Exchange:
   • If you do sell, a 1031 exchange allows you to defer capital gains taxes by reinvesting the proceeds into like-kind properties. This strategy would preserve more of your equity and make reinvestment more efficient.
   • You could use the exchange to buy multiple properties in diverse, high-yield markets, achieving your goal of increased cash flow.
3. Reassess the Property’s Cash Flow:
   • Before selling, explore ways to improve the cash flow on your current property. Can you raise rents, reduce expenses, or change its use (e.g., short-term rental, mid-term rental)?
   • If cash flow improves, it might make sense to hold onto the property while expanding your portfolio with new acquisitions.

Reinvestment Options

If you sell or pull equity, focus on markets and property types that align with your cash flow goals:

1. Out-of-State Markets: Research markets with strong rental demand, favorable landlord laws, and higher cash-on-cash returns. Examples might include areas in the Midwest, Southeast, or Sunbelt regions.
2. Multifamily Properties: Consider duplexes, triplexes, or small apartment buildings to increase unit count and spread risk across multiple tenants.
3. Short-Term Rentals: If you’re comfortable with the management requirements, STRs in vacation or business travel markets can offer significantly higher cash flow potential than traditional rentals.
4. Value-Add Properties: Look for opportunities to buy undervalued properties where you can force appreciation through renovations or better management.

Decision Framework

1. Run the Numbers: Compare the projected cash flow, equity growth, and tax implications of selling versus holding with a refinance or HELOC. Calculate potential returns on reinvestment in target markets.
2. Define Your Priorities: Is your primary focus maximizing cash flow right now, or do you also value the stability and equity growth of holding onto a property in a strong market like Bend?
3. Explore Local Market Trends: Is Bend’s market likely to continue appreciating, or is it plateauing? If you expect further growth, holding onto the property could still make sense.

Final Thoughts

Selling isn’t a bad option, but you’re giving up an incredible financing advantage. Exploring ways to keep your low-interest loan while unlocking equity could be the best of both worlds. That said, if your goal is rapid cash flow growth, a 1031 exchange into higher-yield properties could help you scale faster.

Some confusing points here.

You said it was an investment property, and then you said you live in it.

As you know, you cannot 1031 a primary residence, but a 1031 does kick the capital gains can down the road. 

It's just not clear what you are actually doing here. 

It depends on your long-term goals. Don't make a move thinking of the next five years, but further down the line. Re-investing that cash will buy you a lot more top-line value, but your cash flow will take a hit for a while. When it comes back, it will come back bigger (5-10 years). Just make sure that you're investing in an area that will continue to see appreciations (midwest and TX/FL may be iffy on that). 

Don't worry about giving up the rate if you're looking to grow your portfolio. You could potentially take out a HELOC rather than sell to invest as well.

Did you live there long/recent enough to get the homeowner tax exemption?  That is probably the biggest incentive. Is your house in an area that is appreciating, easy to get good tenants? 
Other considerations are the lost costs to sell and re-purchase other properties. Do you know the other markets well? I don't think being a long distance landlord is as easy as some tout but full disclosure I've stayed with 80 miles of my primary residences. Although 3.1% is a great interest rate I tend to not get too caught up in keeping a property just because the rate is good. Best wishes with whatever you decide. 

Welcome to BP Kolby! Glad you have experience investing locally. I recommend reading “Long-Distance Real Estate Investing: How to Buy, Rehab, and Manage Out-of-State Rental Properties” - I found it to be very helpful when I got started investing 2.5 years ago.

Here is a summary of the book.
https://www.nateliason.com/notes/long-distance-real-estate-investing-david-greene

Hi Kolby, welcome to BP! 

Out-of-state investing is an exciting next step.Wishing you all the best on your journey.

Hi Kolby, welcome to the BP community!!