Hold or Sell?? 100k profit on Duplex

[Envision]

Whats up!

I've spoken at the summit on house hacking where I bought a duplex when I was 20 and created the opportunity to live for free. For context to this question, my goal is to build a holdings company that invest primarily in multi-family real estate and create my ideal life from that.

Now im kind of at a cross roads. I bought that duplex when I was 20 (2 years ago) for $157,000 (currently owe ~145k). As of today there are duplexes that are the same or worse than mine in my market being sold for $260-280k and they're going in less than a couple of days (absolute insanity). Prior to finding my newest property i never considered selling because I needed the place to live. But now after seeing these prices come up and I now have a new place the live the opportunity to sell the property has presented itself.

I've lived in the property for 2 years, I could sell the property for ~280k and walk away from the deal with $100-120k in my bank after everything and I wouldnt have to pay capital gains taxes because ive lived in it.

There are pros and cons and im coming to you guys to help me think this out.

Pros:
-walk away with 20 years worth of rent
-i wouldnt have to fix the roof, paint the house, and other large expenses that are coming up in the next 1-5 years.
-Have cash on hand for when the market turns

Cons:
-It's a great asset. It's being paid down, will make $500/mo net once I move out and I would lose that.
-If I sold it I wouldnt be able to leverage it in the future. (Keep in mind I could sell it for more than what a bank would loan against it)
-Im emotionally attached haha

My thought is I can do alot with 100k and Im not in a rush to buy more real estate so I could wait for the market to cool off and possibly invest in 2-3 duplexes or a couple of 4plexs or a larger deal... I could even do some private lending with those funds as well.

Side note: I dont need to live off the money, and my ecomm business does not need it either.

Would love to hear what your thoughts are!
Thanks,

 

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[NickC]

I would probably sell if you're certain you can profit that much. Use profits to leverage on more properties. If your goal is to own lots of real estate that is.

 

[jclean]

In your place I would paint the house and fix the roof now. And then sell it for a premium price.
You are going to make more profit this way and it is something that need to happen anyway.
Look for other real estate maybe you find a deal.

 

[Raoul Duke]

Sell. Take the money, and sell insurance. https://www.thefastlaneforum.com/co...ow-i-make-1-10-monthly-selling-options.66398/

 

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[AgainstAllOdds]

Why not double the rent?

If the real estate value doubled, then rent should too.

 

[biophase]

Sell. Take the money, and sell insurance. https://www.thefastlaneforum.com/co...ow-i-make-1-10-monthly-selling-options.66398/

Sell. At $500/mo you need 200 months to make $100k and you need to fix stuff and deal with tenants and you will pay taxes.

The tax free part is a huge benefit.

In a hot market you can sell without making repairs.

You may even be able to fsbo and save 1-3%.

This is the market condition you want when you sell.

Everything is lining up.

Pocket the money.

 

[LleixG]

Sell. The 500$/month is without counting expenses and vacancy?

 

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[Mikkel]

It depends on what you think will happen with the Real Estate Market in the next couple of years. Do you think your area is only beginning to grow in terms of wealth or do you think the house is way over priced?

In my opinion, I would sell.

I am under the impression that we are going into another recession in the next year or two which will bring down the price of all houses... which is a PERFECT time to buy(not sell.)

I think selling now and waiting for the crash, followed by you picking up a couple of houses cheap would be an absolute steal. However, it matters for what you believe will be the outcome of the market in the near future.

 

[CareCPA]

Are you US-based? If so, you should verify your assumption that the gain will be tax free.

If it's a duplex, then the gain on your primary residence will be tax-free (given the numbers you've presented). However, that exemption does not carry over to the second unit, which you've also presumably taken depreciation on. You would have unrecaptured 1250 gain (ordinary income rates), and capital gain (capital gain rates).

Given the appreciation, I would take the gains and run. You could double your gains in the next 5 years, or the market could tank again - who knows? But if you've got better ways to invest that money than a duplex that only throws off $500 a month, then I would cash in and reinvest.

Caveat: this is general advice, and there may be specifics in your situation not known. As such, do not treat this as tax advice specific to your situation, but for general education.

 

[Envision]

Thank you for all the feedback. Your statements are lining up with what im thinking as well.

Why not double the rent?

If the real estate value doubled, then rent should too.

This is exactly why I think I need to sell. The rents didnt/couldnt double. I live in Boise, Idaho which is exploding and has a pretty extreme housing shortage which has skyrocketed prices. In a market that was going along following the 1% rent rule my house would be worth $175k but in this skewed market its somehow created another 100k on top of that.

Sell. At $500/mo you need 200 months to make $100k and you need to fix stuff and deal with tenants and you will pay taxes.

The tax free part is a huge benefit.

In a hot market you can sell without making repairs.

You may even be able to fsbo and save 1-3%.

This is the market condition you want when you sell.

Everything is lining up.

Pocket the money.

This is exactly what I was thinking. I wouldnt have to do repairs. Could list it at 275k and avoid paying the taxes on the gains and pocket the money and wait for opportunity.

Thanks Bio

Sell. The 500$/month is without counting expenses and vacancy?

I cash flow $720 minus maint/management (which I pay to myself) I come in somewhere around $400-500/mo

It depends on what you think will happen with the Real Estate Market in the next couple of years. Do you think your area is only beginning to grow in terms of wealth or do you think the house is way over priced?

In my opinion, I would sell.

I am under the impression that we are going into another recession in the next year or two which will bring down the price of all houses... which is a PERFECT time to buy(not sell.)

I think selling now and waiting for the crash, followed by you picking up a couple of houses cheap would be an absolute steal. However, it matters for what you believe will be the outcome of the market in the near future.

Im pretty sure the market cant keep going like it is and everyone I know hasnt really been buying because of that and Im pretty sure my house is only worth $160-180k so I'm probably going to sell it.

Are you US-based? If so, you should verify your assumption that the gain will be tax free.

If it's a duplex, then the gain on your primary residence will be tax-free (given the numbers you've presented). However, that exemption does not carry over to the second unit, which you've also presumably taken depreciation on. You would have unrecaptured 1250 gain (ordinary income rates), and capital gain (capital gain rates).

Given the appreciation, I would take the gains and run. You could double your gains in the next 5 years, or the market could tank again - who knows? But if you've got better ways to invest that money than a duplex that only throws off $500 a month, then I would cash in and reinvest.

Caveat: this is general advice, and there may be specifics in your situation not known. As such, do not treat this as tax advice specific to your situation, but for general education.

Thank you for this post I will check with my accountant. I believe I would be exempt for capital gains. I don't currently have a another investment lined up. But I could wait for a year or two and see what happens to the market and when it starts turn I could probably buy a couple of 4plexs.

 

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[CareCPA]

[...]
Thank you for this post I will check with my accountant. I believe I would be exempt for capital gains. I don't currently have a another investment lined up. But I could wait for a year or two and see what happens to the market and when it starts turn I could probably buy a couple of 4plexs.

If you wanted to reinvest right away, you could take the section 121 exclusion on your part of the duplex (the tax-free gain), and if you were subject to gain on the other part, you could 1031 it into a 4-plex. There is a pretty restrictive time constraint on the 1031, but it does open up another option if you think you're really good at market timing.

 

[100k]

@MJ DeMarco is this one of those cases where everybody is going in 1 direction and you need to go the opposite direction?

 

[MJ DeMarco]

is this one of those cases where everybody is going in 1 direction and you need to go the opposite direction?

I don't see that...

I personally would sell as $500 cash flow just isn't worth my time or effort.

I'd rather have $100K in cash and then leverage that into other options/choices.

(Although I think only part of the gain would be exempt from taxes).

Sell. Take the money, and sell insurance. https://www.thefastlaneforum.com/co...ow-i-make-1-10-monthly-selling-options.66398/

With $100K in cash, he'd probably double his cash flow, improve liquidity, and no longer have the liability of the mortgage. He'd also wouldn't have to deal with a $12,000 roof and instead would need to emotionally brace for a $12K drawdown in the form of a correction.

The only drawback on the insurance/option game is it requires slightly more management, maybe an hour a day. You also need balls of steel, but I think @Envision already has that.

 

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[100k]

@MJ DeMarco I was thinking more along the lines of your lessons from your first book, where you talked about when everyone and his mom was making money in real estate or stocks, it was time to get out. So you don't think there is a bubble that's about to burst?

Historically there's been some sort of bubble that burst every decade or so, I kinda feel we are over-due for one, but maybe they won't be turning off the money print for a little while longer.

@Envision 22 years old with $100k is nice little pot to start a business with though, kinda agree with MJ... sell, sell, sell.... take the money and fund your fastlane business with half the money, and keep the rest in the bank (I think there will be a burst bubble soon), and when it bursts.... use the $50k as a deposit to buy 1 or 2 duplexes and live rent free again .

 

[MJ DeMarco]

where you talked about when everyone and his mom was making money in real estate or stocks, it was time to get out. So you don't think there is a bubble that's about to burst?

Ahh OK. I think RE is overheated, true, but I don't think it's a bubble. It's no where like it was in 2005.

If I had to speculate, I'd say its due for a flat line, not a huge decline.

Nonetheless, the guys on this forum who are big RE guys think it's overpriced. @SteveO mentioned a few times there are no good deals any more in this market and sellers are asking way too much. I'd take his analysis over mine.

 

[garyjsmith]

Sell. Take the money, and sell insurance.

Agreed. I have been studying that thread and the content since last week. I'd start today if I had the funds.

 

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[Chazmania]

I'm in a very similar situation with a rental myself and itching to launch it.

I also think you should sell.

If you're already up and running with ecommerce you should be able to take a slice of that profit and grow it quickly, assuming you're in position to scale etc. Look at how fast some of these guys have scaled up in a few short years. ddall, jasonR, amp0193, etc. 0 to 7 figure businesses in like 2 - 4 years.

That creates a liquidation event if you're set up properly.

What's nice though in this case is that whatever you decide to do you still win. Good place to be.

 

[SteveO]

Sometimes houses and multi-family values track but not typically. Multi goes in and out of favor with investors. It always depends on what else they can get for returns elsewhere. A lot of investors are jumping into the market. There is never as much of a return as they expect. Those that are willing to pay these high prices are not going to see the same return on their dollar as you are seeing.

I really like to sell when the masses are buying and buy when the masses cannot sell.

 

[SteveO]

Ahh OK. I think RE is overheated, true, but I don't think it's a bubble. It's no where like it was in 2005.

Absolutely agree that single family homes are not in a bubble. There is a good chance that multi-family is though.

 

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[DustinH]

Sell it.

If the rent hasn't increased with the value then sell it. Take the proceeds and buy 2 more rental properties in a location where you can get 1% rent-to-value (and no less than 0.9% rent-to-value).

The other option is to sell it and sit on the money. Wait until the market corrects or has a downturn and take advantage of the suckers. Resisting the urge to spend that money would be difficult.

 

[Nik Krohn]

YEY! I get to be the guy that goes against the collective

What would I personally do? I would keep the property.

The way I see it, you collect $500/mo, probably pay down the mort $200/mo, you can access your 100k in multilple ways (Heloc, 2nd, etc) and still claim the tax benefit on the property via depreciation, the monthly interest and any expenses you incur. This usually results in a loss - IE your monthly cash flow is TAX FREE.

And seriously, you have had the home for 2 freakin years? What will it look like in 5 more years? You will have another 150k in equity and still cash flowing. That is 250k gain + tax free rent and you can still access it.

Keep the house, take a portion of the 100k, buy another house hack (3.5 or 5% down) and then do 40k on another investment property. You will have 3 homes, they will each go up 150k (450k in total) in 5 years, + $1500 tax free rent (remember depreciation + interest) and pay down $600/mo in principle.

Real estate is not sexy when you have 1 or 2 properties. It becomes sexy when you have 5-8. And if you set up your systems right, it takes a few hours per month depending on the types of properties you buy. Its a lot of work to buy a home. I would rather just focus on buying over and over and still access your equity instead of trying to sell and losing the other 2 (out of 3) benefits... Just my strategy tho.

 

[biophase]

And seriously, you have had the home for 2 freakin years? What will it look like in 5 more years? You will have another 150k in equity and still cash flowing. That is 250k gain + tax free rent and you can still access it.

Seriously, have you ever been through a real estate downturn? Most likely in 5 years, his property will be worth around where it is today, hopefully. Your plan is to borrow against his equity and leverage him to the point where he would lose it all in a slight down turn. Unless he wants to go all in, there's no reason to go that risky.

BTW, what's the payment on a 150k HELOC these days?

 

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[Nik Krohn]

Seriously, have you ever been through a real estate downturn? Most likely in 5 years, his property will be worth around where it is today, hopefully. Your plan is to borrow against his equity and leverage him to the point where he would lose it all in a slight down turn. Unless he wants to go all in, there's no reason to go that risky.

Nope. But like anyone who started buying in 2009, we all are making money Jokes aside. I see your point. But to be a responsible long term investor, the value of the home matters less if you are going to hold the home 10+ years. So long as you are cash flow positive, I done see a problem. Anyone who holds properties that long will always make money.

This obviously depends one the market you are in however. I have properties in the Midwest that don't appreciate or depreciate but have awesome cash flow. I also have properties in growth markets (Utah) that appreciate a lot and cash flow just as much but cost more to get into the property.

I personally take the debt and keep a solid reserve and manage it for the long term and take advantage of each profit center real estate offers.

As far as the HELOC payments - I think at credit unions you can get payments between $225-300/mo

 

[biophase]

Nope. But like anyone who started buying in 2009, we all are making money Jokes aside. I see your point. But to be a responsible long term investor, the value of the home matters less if you are going to hold the home 10+ years. So long as you are cash flow positive, I done see a problem. Anyone who holds properties that long will always make money.

This obviously depends one the market you are in however. I have properties in the Midwest that don't appreciate or depreciate but have awesome cash flow. I also have properties in growth markets (Utah) that appreciate a lot and cash flow just as much but cost more to get into the property.

I personally take the debt and keep a solid reserve and manage it for the long term and take advantage of each profit center real estate offers.

As far as the HELOC payments - I think at credit unions you can get payments between $225-300/mo

BTW, I also have properties in Utah that I purchased in 2005. The SLC market is doing pretty well right now. I've been through the refi, buy another, rent out, cycle. It's all fine and dandy until you run out of tenants and the market crashes.

I think you should be careful with statements like "Anyone who holds properties that long (10 years) will always make money". It's thoughts like this that will get you in trouble. I think you always need to be cautiously optimistic in all investments.

I think the question you should ask yourself is, if market rents drop 25% and 25% of my properties go unrented for 6 months, can I survive? How many properties could I lose?

I am in a different position now than I was 10 years ago. I like to pay all cash and just cashflow like crazy. I know that if I had 100% vacancy for 12 months, or if all my AC units go out in the same month, I can handle it. That equity is not at risk except for real estate values going up and down.

I'm just warning you that it can all go south really fast, and that once it happens you can't really get out. Nobody is buying and nobody is lending.

 

[Greg R]

Sell. At $500/mo you need 200 months to make $100k and you need to fix stuff and deal with tenants and you will pay taxes.

I was just about to say the same thing.

 

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[Nik Krohn]

BTW, I also have properties in Utah that I purchased in 2005. The SLC market is doing pretty well right now. I've been through the refi, buy another, rent out, cycle. It's all fine and dandy until you run out of tenants and the market crashes.

I think you should be careful with statements like "Anyone who holds properties that long (10 years) will always make money". It's thoughts like this that will get you in trouble. I think you always need to be cautiously optimistic in all investments.

I think the question you should ask yourself is, if market rents drop 25% and 25% of my properties go unrented for 6 months, can I survive? How many properties could I lose?

I am in a different position now than I was 10 years ago. I like to pay all cash and just cashflow like crazy. I know that if I had 100% vacancy for 12 months, or if all my AC units go out in the same month, I can handle it. That equity is not at risk except for real estate values going up and down.

I'm just warning you that it can all go south really fast, and that once it happens you can't really get out. Nobody is buying and nobody is lending.

Good cautionary advice. I agree 100% there.

My strategy tends to be a bit more aggressive when it come to real estate acquisition. Good reserves will help with vacancies.

Cool to see another Utah investor tho. Solid market with a great unemployment rate and low vacancies. How much did rent rates drop in 2007-08 for your utah house specifically?

 

[biophase]

Good cautionary advice. I agree 100% there.

My strategy tends to be a bit more aggressive when it come to real estate acquisition. Good reserves will help with vacancies.

Cool to see another Utah investor tho. Solid market with a great unemployment rate and low vacancies. How much did rent rates drop in 2007-08 for your utah house specifically?

Rents were around $800-$900 back in 2005-2010. They are around $1195 right now. I don't remember them dropping alot back then. But then I don't think the SLC market dropped in 2008 either. I think the market just went sideways for a while.

 

[Guest3722A]

Take the money and run!

I say this because I got a cash offer for the business I talked about SEVERAL times here (sorry to everyone who're sick of hearing about it) and I turned the money down thinking I was giong to build the business out into an empire. Huge mistake and I lost everything thereafter and then some.

 

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[Lionhearted]

Whats up!

I've spoken at the summit on house hacking where I bought a duplex when I was 20 and created the opportunity to live for free. For context to this question, my goal is to build a holdings company that invest primarily in multi-family real estate and create my ideal life from that.

Now im kind of at a cross roads. I bought that duplex when I was 20 (2 years ago) for $157,000 (currently owe ~145k). As of today there are duplexes that are the same or worse than mine in my market being sold for $260-280k and they're going in less than a couple of days (absolute insanity). Prior to finding my newest property i never considered selling because I needed the place to live. But now after seeing these prices come up and I now have a new place the live the opportunity to sell the property has presented itself.

I've lived in the property for 2 years, I could sell the property for ~280k and walk away from the deal with $100-120k in my bank after everything and I wouldnt have to pay capital gains taxes because ive lived in it.

There are pros and cons and im coming to you guys to help me think this out.

Pros:
-walk away with 20 years worth of rent
-i wouldnt have to fix the roof, paint the house, and other large expenses that are coming up in the next 1-5 years.
-Have cash on hand for when the market turns

Cons:
-It's a great asset. It's being paid down, will make $500/mo net once I move out and I would lose that.
-If I sold it I wouldnt be able to leverage it in the future. (Keep in mind I could sell it for more than what a bank would loan against it)
-Im emotionally attached haha

My thought is I can do alot with 100k and Im not in a rush to buy more real estate so I could wait for the market to cool off and possibly invest in 2-3 duplexes or a couple of 4plexs or a larger deal... I could even do some private lending with those funds as well.

Side note: I dont need to live off the money, and my ecomm business does not need it either.

Would love to hear what your thoughts are!
Thanks,

Why not take the profit at $280k or higher as they are selling like hotcakes, I would go for $300K and see if it sells in a week instead of a couple of days and reinvest in more doors. The bank will give you way more money now you have a bigger down on your next buy I am sure and if you've been living rent free I am sure you have stacked a bit of cash. This is how Grant Cardone did it. I suggest taking a look at his philosophy on this. He states it pretty clearly on Youtube and it has gotten him to the $500 million level. BTW he has a private real estate fund that you can invest in (if you are accredited) which if I was I would do instead of dealing with the real estate and no I am not affiliated with the guy, invested in Grant or work with him in any way. I just love his story and how he has amassed his fastlane success. It sounds like you are set up in similar way he was in his early days. My bottom line is take the money out and re-invest it HARD. Make that money sweat for you. More doors pay down more down more real estate. All the best.

 

[Envision]

I appreciate everyones responses. I've chosen to sell. I think at the stage Im at in life I can do alot to move way quicker with 100k rather than a duplex that is over valued.

My goal is to get 275k+ and walk away with the 100 in equity to roll into either a couple of 4plexs or another opportunity that arises.

Since I bought another house hack I wont be losing the current rent free living situation and if the market by chance does keep going up ill be able to continue capturing equity in the new property which could allow me to refi and repeat another house hack with a bigger property in the future.

I think @biophase is right though. The market cant continue to do this and id be kicking myself if the property values went back to their normal range and i didnt sell. I need to capture all the income on the sale, tax free, and use the money wisely to continue growing out an empire.