All Forum Posts by: Ryan Thomas

Hey man, I am in a very similar situation with a couple of my rentals. (Not a bad place to be in!) I would agree with a lot of the people who have already posted. I personally don't feel that a crash is coming, but rather see the market plateauing. I wouldn't look to sell a property that cashflows as well as yours does unless you needed the money to invest in something better, or the property is a headache to deal with. Based off of what you have said that doesn't appear to be  the case for your property. Pulling money out of it in the hopes that the market will turn is a little too much of a gamble for me personally. 

With that said I have refinanced most of my rentals to free up cash to invest in other properties. That is what I would do if I were you. Also, don't listen to the people that tell you not to buy right now. There are still great deals out there/even some that hit the market. You just have to by ready to offer same day. 

Lastly, I took a look at the property you are referring to (looked it up on the tax records). and think you could probably get a decent bit more than $90k! I double as a real estate agent in Lynchburg and believe you could get around $115,000 for it with the crazy market we are in. Granted I don't know what the condition of the inside is. Feel free to hit me up though if you do decide to sell. Would love to give you a legit market analysis on it if you are interested.

Best Regards 

 A 1031 isn't just for depreciation recapture, but also capital gains. He purchased for $53K and could sell for $90K, so that is $37K in gains. It just depends on what his capital gains rate is based on his income. The other consideration is how that income affects your AGI and overall tax bracket. People sell rental properties and are sometimes very surprised by how it affects taxes. It could even result in someone having to pay back stimulus money, because it is based on AGI from the tax year it is paid. If his other income is very low, then it may not make any difference. 

@Ryan Thomas

It sounds like you will only consider investing in real estate.  However, you could use that capital gains for other investments: hard money loans, stock market, etc.  Make sure to calculate that potential earnings in your equation so it's comparable.

If you already have 2 other sold cash flowing properties, that reduces your inflation risk.

Also consider your Return On Equity.  That's my biggest issue right now, personally.  You could sell that and still buy more rental properties; granted, more leveraged.

Currently, I'm in the same boat as you.  I'm looking to sell 3 of my properties so I can become more diversified in my portfolio.

This is not a risk/reward quandary. You should have specific criteria to buy or to sell, @Ryan Thomas. In my opinion, this is based on Return on Equity.

You noted that your all-in equity is $36,500. Expenses, not including maintenance are $360 x 12 = $4320/year.

From these numbers, your ROE is $4320/$36500 = 11.8%

This does not include maintenance, which will lower your ROI, or tax benefits from depreciation, which will raise it. If you include those, you'll get a more accurate number, but assume 11.8% is correct for this example.

If you have another investment that can reasonably beat 11.8%, you should sell and redeploy your equity into that alternative. If you can’t reasonably beat 11.8% (or whatever the real number is), then hold onto the property.

Raising the rent from $750 to $850 or $1200/year will result in a 3.2% ROE increase. Perhaps that’s your best bet. Keeping the money in the bank will result in zero ROE. Refinancing might provide the best of all worlds if you can manage the leverage and the payments.

As with all ratios, you can make this as complicated as you want. While the non-financial real estate issues are always a consideration, ROE is a good starting place for a buy/sell decision.

We have 4 rentals in Lynchburg and know the market. I do not think prices are going to go down in Lynchburg. Remember all Real Estate is local and even if this is a bubble, which I do not think it is, I think that prices in Lynchburg stabalize over the next couple of years but do not come down. I think they will continue to go up, not at the same meteoric price however. I would not expect to get in cheaper. Lots of buyers are going the Airbnb route which is absolutly crazy hot in Lynchburg. Town has many strong businesses and industries as well as colleges.

@Ryan Thomas

Are you calculating your net profit for future based on straight line income and expenses or increasing? Not factoring increase in rents into your equation will devalue your, if I hold it scenario.

I would not be getting out of a hard asset in the face of inflation for a cash position waiting for last year's market to come back.

Depending on areas, some are over priced for sure, others are fine and will continue to go up. What area are you in?

What is the current rent on the property? Have you considered refinancing it and then you can keep it and have some extra tax free money on your pocket? The market is up all around so selling a good deal to buy an average deal and lose money on taxes doesn't make sense in my head.