All Forum Posts by: Matt Mastrelli

The last septic I redid in Montville had 7 town inspections. You can't do them yourself, it will never pass. It's the focus of many towns now and when you have a septic inspections, the companies have to turn that over to the town usually so it's flagged and most large repairs require replacement. Capital gains are the cost of doing business. It's better than a loss. You would be holding something with a 20-year old septic so you have 40k coming due within the next 5 years most likely.

How old is the septic? When you buy in NJ and get septic and well, I would be more inclined to sell just based on that. A new septic, when it comes due, is low-range 40k if it's a direct replace and the leach field is ok. If not, could go as high as 65k.

Hi @Matt Mastrelli Great job taking action.  NJ is a great place to own buy and hold properties (although most will disagree).  If you leverage the state properly you can attract very good tenants that pay high rent.  What makes NJ good is being in areas with favorable land lording laws and proximity to transportation/NYC.  West Milford is not bad for land lording laws but it’s kind of far out there for rentals.  Butler tends to be as far North on 23 I like to go for rental properties.  Once you get past Butler the vacancy rate goes up substantially.  For this reason I would be more inclined to selling and parking your cash in more attractive rental markets.

At the end of the day, it’s really up to what you want to achieve. From a tax and cash perspective, refinancing could be a solid move. You could pull out cash tax-free and still benefit from depreciation and other deductions on the rental side, which could reduce your tax liability.

Quick Tax Comparison:

• Selling:
• Capital Gain: $160,000
• Tax Due: ~$32,000 (at 20%)
• Net After Tax: ~$128,000
• Refinancing:
• Loan Amount: ~$263,500 (at 62% LTV)
• Tax Impact: None on the cash-out
• Rental Deductions: Continue benefiting from depreciation and mortgage interest deductions.

Refinancing offers liquidity without the immediate tax hit and lets you maintain rental income, making it potentially more advantageous.

All of these are rough numbers of course, but just some different ways to think about it!

I wouldn't call West Milford a classic hold market so you want to consider that. The value add is the way to appreciation there. You will get appreciation over time, but split-levels will appreciate at a slower pace compared to colonials in that area. If I am not considering the tax consequences, which are relevant, I would sell just because holding a property in West Milford doesn't have that much scale. You can 1031 into a new investment property and keep the snowball going. You want your price point to go up a little each time you buy to flip because the margins get higher as your price point gets higher and a lot of times the percentage rehab stays the same.

While I’m not an experienced investor myself, I can share my perspective as a real estate accountant, which might help you weigh your options.

1. Refinance and Rent:

Given the numbers you've shared, refinancing and renting could be a solid move. With an ARV of $400-425k and an LTV of ~62%, pulling out your initial investment while maintaining positive cash flow around $500 per month sounds like a good strategy. This would allow you to keep the property in your portfolio and generate ongoing income.

From a tax perspective, holding onto the property as a rental would let you take advantage of depreciation, which could reduce your taxable income. Plus, since the house is fully renovated, you’re likely to face fewer maintenance costs in the near term, helping maintain that cash flow.

2. Sell and Reinvest:

On the other hand, selling could free up about $85k after taxes and closing costs, which gives you flexibility to invest in other properties, possibly in PA where you’re more familiar with the market. However, you’d need to consider the impact of short-term capital gains tax, which depends on your specific tax bracket. Selling could be a good option if you have plans to quickly reinvest that capital into high-return opportunities.

3. Opportunity Cost:

Something to consider is the opportunity cost of the $160k in equity tied up in this property. If you think you could achieve higher returns by reinvesting that equity elsewhere, selling might be the better choice. But if your goal is to build a portfolio of rental properties for long-term cash flow, holding onto this property could help you achieve that, especially with the solid cash flow and lower anticipated repairs.

4. Trust Your Gut—And Your Strategy:

It sounds like both you and your wife are weighing your options carefully, which is great. My advice would be to align your decision with your long-term strategy. If building a portfolio of cash-flowing rentals is the goal, then refinancing and holding onto the property might be the way to go. If maximizing your capital for future deals is the priority, then selling and reinvesting could be more beneficial.

I’m happy to help you run the numbers or dive deeper into the financials if that would be useful. Feel free to reach out—always glad to assist.

Best of luck with your decision!